•Power transmission line
Nigeria’s power sector faces a deepening financial crisis that could push the federal government’s liabilities to about N6.2 trillion by the end of 2025, amid the rapid exit of premium customers from the national grid.
The government is already struggling with a N4 trillion legacy debt to generation companies (GenCos), while new arrears have risen to N1.6 trillion as of August 2025 and are projected to hit N2.2 trillion by December.
As of today, the total liabilities stand at N5.6 trillion, reports The Guardian.
Sources at the Nigerian Electricity Regulatory Commission (NERC) said the share of commercial customers still relying on the grid has dropped to 13 per cent, down from 20 per cent, as grid unreliability and rising costs drive migration to alternative energy.
Manufacturers spent a record N1 trillion on self-generation in 2024, while premium households are increasingly turning to solar.
In 2024 alone, NERC licensed 24 bulk consumers to generate their own power and another 22 for off-grid projects, both adding about 289 megawatts of capacity outside the national grid.
In 2025 alone, Jigawa, Zamfara, Lagos, Delta, and Katsina already signed renewable energy deals while the federal government plans to remove its agencies from the grid, leaving the national grid with households without capacity for solar or businesses without gas-fired plants.
With the exit, the government faces about N200 billion tariff shortfall monthly, as the current administration has been unable to keep to promises on the frozen electricity tariff.
Despite repeated assurances, industry players fear the government lacks a clear strategy to settle GenCos’ debts, with interventions from President Bola Tinubu and Finance Minister Wale Edun seen largely as efforts to ease tensions rather than provide a sustainable solution.
Investigations by our correspondent also revealed that the financial burden on the market could rise by an additional N1.059 trillion yearly to prevent the national grid from collapsing.
Otherwise, enforcing the Nigerian Electricity Regulatory Commission’s (NERC) newly released order on compulsory Free Governor Control (FGC) across all power plants may remain unachievable.
With commercial customers on the national grid shrinking to a mere 13 per cent, as manufacturing companies increasingly switch to alternative energy and premium end-users migrate to solar, stakeholders warn that fresh liquidity and capacity crises are looming in the sector.
While Edun publicly told Nigerians early in August that the government had already moved into implementation to clear the legacy debt, he could not put a timeline or a definite plan on how the federal government intends to refinance the debt.
Though the federal government is considering promissory notes to pay the GenCos, the Debt Management Office (DMO) has only provided N800 billion window for 2025, as this amount covers all federal government creditors, including Dangote, state governments, and Julius Berger, making it grossly inadequate, even if fully allocated to GenCos.
In the 2025 Appropriation law, only N900 billion was allocated to electricity subsidies amid concerns about its adequacy to cover arrears and future deficits at a time the subsidy burden is averaging N2 trillion yearly.
On August 30, our correspondent requested a clear plan on the debt payment from the Director, Press and Public Relations at the Ministry of Finance, Mohammed Danjuma Manga, who responded eight minutes after the request was forwarded for an answer.
The next day, Special Adviser (SA) on Communications, Media, and Publicity to Edun, Dr. Ogho Okiti, contacted our correspondent, asked for clarity on the question, but never responded to the question. He was reminded by 12:37pm on Monday, September 1 and responded by 3:04pm the same day with “Sure, I’m on it.”
Again, on Wednesday, September 3, 2025, he was reminded but only responded about an hour after with “yes… thank you.” While GenCos’ invoices average about N270 billion monthly, only about 27 per cent or N77.9 billion is paid monthly, according to the Executive Secretary of the Association of Power Generation Companies, Dr Joy Ogaji.
Coming about one month after Tinubu hosted the GenCos, Joy urged that GenCos be included in the design and implementation of the payment framework to ensure effective reconciliation of invoices, quarterly transparency reviews and the settlement of legitimate debts for power already supplied.
While applauding Tinubu, FEC and other stakeholders for efforts to design a sustainable solution, Ogaji stressed the importance of clarity and transparency.
The Nigerian Bulk Electricity Trading Company (NBET), which is standing between the federal government and power companies, did not also respond when our correspondent contacted its Managing Director, Johnson Ariyo for the government’s plan.
Meanwhile, stakeholders yesterday told our correspondent that enforcement of NERC’s FGC, which would mandate all GenCos to control the national grid from collapsing, may cause additional N1.059 trillion in liability.
Some operators insisted that without an agreement that would compel the government to pay for the full plant capacity which is projected at about 7,000 megawatts against the 13,000MW that have been frequently paraded or N1,059 trillion in monetary terms, regulations may be frequently violated.
While Nigeria’s current electricity generation stands at about 4,500MW and cost about N2.9 trillion yearly, adding about 2500MW used capacity will bring the cost up by an additional 35 per cent or N1.059 trillion.
While NERC had mandated the compulsory implementation of FGC across all grid-connected generating units, an automatic system that adjusts output to stabilise grid frequency, Managing Director of Azura Power, Edu Okeke and other operators said the order would be difficult to enforce.
Globally, governors stay on. In Nigeria, payment structures have forced most plants to switch it off except plants like Azura, which are paid for available capacity. Others are paid only for the energy actually taken.
If their output drops to stabilise the grid, they lose revenue. To avoid this, they lock output, disable governors, and push the grid closer to collapse when demand fluctuates.
Okeke explained that the fragility of Nigeria’s grid is less a technical issue than a financial one. According to him, GenCos disable free governor control because they are not compensated for available capacity, unlike a few plants such as Azura.
“If government and NBET verified and paid, say, 7,000MW backed by gas supply, operators would keep free governor control on,” he said. Instead, GenCos are penalised for systemic inefficiencies while DisCos cap demand to match remittance orders. The outcome, Okeke warned, is declining industrial demand, rising migration to solar, and a grid increasingly left to the poorest users.
Executive Director, Market Operations, Nigerian System Operator (NISO) Dr Edmund Eje, told our correspondent that all power generators must operate on FGC, insisting that it is sacrosanct for as Nigeria prepares to sync its national grid with the West African Power Pool (WAPP).
Pointing to the Grid Code, Eje said the directive, which mandates a 4 per cent droop setting on generating units, is aimed at stabilising frequency fluctuations caused by load variations across the grid.
According to him, the measure is distinct from contracted spinning reserves, which attract payments to generators for providing additional stabilisation capacity.
FGC, he stressed, is a non-negotiable obligation that does not carry financial compensation, and compliance is tied to the Market Participation Agreement signed by generators.
Eje explained that while some investors had procured grid-compliant machines and can activate FGMO with minimal cost, others with non-compliant or older equipment face higher expenses in retrofitting or repairs.
Each case is being reviewed individually, but the deadline for compliance remains firm.
Eje stresses that achieving frequency stability is critical for seamless integration into the regional electricity market, where Nigerian generators are expected to benefit from wider international participation.
Ogaji, speaking on behalf of GenCos, warned that continued grid instability and lack of spinning reserve are placing severe technical and financial strain on generating assets.
She noted that while FGC is part of plant design and relevant for stability, it cannot by itself resolve system disturbances triggered by load rejections, steel mill operations and sudden demand fluctuations.
Without contracted spinning reserves, generators are forced to bear the brunt of frequency deviations that push equipment beyond optimal conditions.
GenCos are increasingly compelled to run gas turbines far below baseload capacity, reducing efficiency and raising fuel consumption by up to 20 per cent. This has tripled maintenance costs, shortened maintenance cycles and increased downtime, she said while adding that steel mills further exacerbate the problem by creating harmonics that damage turbine rotors and blades.
She said, despite declaring available capacity, many GenCos remain under-dispatched and unpaid, while receivables owed to them continue to rise.
Joy stressed that regulations mandating the immediate settlement of GenCos’ receivables are essential to sustaining operations and safeguarding the sector’s future.
