Tariff Hike: Concerns about renewable energy affordability, adoption
“The tariff hike for Band A customers underscores the urgency of addressing the systemic challenges facing the country’s power sector. While the increase in electricity costs poses immediate concerns for consumers, it also highlights the need to transition towards renewable energy, particularly solar and wind power. With the hike in tariff, renewable energy offers a sustainable alternative to traditional fossil fuels becoming increasingly accessible and viable. ”
The recent increase in electricity tariff in the country has again, brought to the fore, Nigeria’s push towards renewable energy. WALIAT MUSA explores the complexity of the band ‘ A’ tariff adjustment and the many implications for renewable energy transition in Nigeria.
NIGERIA, recently, began the process of implementing gradual increases in the end- user tariff for electricity to move towards a liberalised market, where the Federal Government no longer bears the burden of tariff shortfall, which currently stands at about N5.8 trillion since the power sector was privatised 10 years ago.
With the cost of alternative energy sources, especially premium motor spirit, diesel and aviation fuel also rising, the Federal Government, through its regulatory instrument, the Nigerian Electricity Regulatory Commission ( NERC) last week announced an increase in electricity tariff, shifting the cost of electricity on band A customers from about N70 kilowatts per hour to N225KWH.
Globally, affordability is critical to energy access, especially in Nigeria where the minimum wage is still N30,000. That is just about 133 units of electricity for civil servants under the band A tariff structure.
With quality of service steadily plummeting, to the point where consumers ration 3,000 megawatts of electricity and face repeated collapse of the national grid, despite contributing to buy poles, transformers and wire, renewable energy options and off- grid solutions may quickly become a leeway to hedge the unreliable and dysfunctional system.
Although the tariff adjustment aims to bolster revenue generation for electricity distribution companies ( Discos) and improve their financial viability, it also underscores the urgent need for sustainable solutions to address the underlying inefficiencies and financial challenges in Nigeria’s power sector.
The hike also reflects ongoing efforts by the government to reform the power sector, reducing subsidies for the 2024 fiscal year by about N1.14 trillion to attract investment. The pricing regime will continue in the short term, with a transition plan to attain full cost- reflective pricing over the next three years. The total estimated electricity subsidy cost for 2024 according to the federal government, before tariff adjustment, is 2.9 trillion Naira ( 240 billion per month) while the estimated subsidy cost after tariff adjustment is 1.4 trillion Naira ( 113 billion per month)
Despite the public outcry trailing the rise in tariffs for premium power consumers nationwide, Power minister, Adebayo Adelabu, said the recent development was the first step in the government’s plan to completely remove subsidy payments. He hinted that the federal government plans to extend a similar measure to every Nigerian who has access to on- grid electricity as it would convert the entire power sector into a single band from the current six, with cost- reflective prices being fully implemented over the next three years.
Meanwhile, consumers and some stakeholders have argued that no place in the country enjoys up to 20 hours of supply daily and the hike in tariff would send manufacturers out of business and worsen inflation.
They lamented that the increase has placed significant strain on them and businesses alike, while the high cost of petrol and diesel, has further stretched household budgets and operational expenses for industries. The urge for sustainable and cost- effective energy solutions has heightened and the hike has increased the call to transition to renewable energy.
Ikechukwu Molokwu, a Band A customer residing in Ijaiye, expressed dissatisfaction with the tariff hike, saying it is the right time for him to switch to solar energy because, despite being categorised as a Band A customer, he doesn’t get 10 hours of power supply daily. This discrepancy between payment and service received illustrates a situation where customers are not enjoying what they pay for.
“Almost every part of the country is grappling with poor power supply. We are all aware of the number of megawatts generated and distributed by the national grid and what Nigeria should prioritise is fixing the supply issues. Once this is addressed, complaints about the tariff would diminish because everyone would be enjoying the services they pay for. Currently, it’s challenging for anyone to claim they are receiving value for what they’re paying for,” he said.
Aliyu Akindayo, another Band A customer, expressed his preference for transitioning to renewable energy, given the high tariff. He lamented the discrepancy between the tariff paid and the quality of service received, noting that despite being classified as a Band A customer, he does not receive the expected level of electricity supply even comparable to that of Band C customers.
“For me, renewable energy is the optimal choice at this point. With renewable energy, I invest once and enjoy the benefits of the transition, I will have a consistent power supply. I don’t understand this 20- hour supply because I don’t get 10 hours of supply,” he said.
The tariff hike for Band A customers underscores the urgency of addressing the systemic challenges facing the country’s power sector. While the increase in electricity costs poses immediate concerns for consumers, it also highlights the need to transition towards renewable energy, particularly solar and wind power. With the hike in tariff, renewable energy offers a sustainable alternative to traditional fossil fuels becoming increasingly accessible and viable.
Renewable energy also fosters decentralisation and democratisation of the energy system, allowing communities and individuals to become active participants in energy production through distributed generation and microgrids, hence, empowering consumers, promoting energy equity and strengthening local economies.
By leveraging cost- effective renewable energy solutions and supportive policy frameworks, Nigeria can address energy challenges like the tariff hike, reduce dependency on fossil fuels, and advance sustainable development objectives.
Renewable energy offers the potential to expand access to electricity, particularly in rural and off- grid areas, where the cost of extending the grid is high. Solar mini- grids and off- grid solar solutions can provide reliable and affordable electricity to underserved communities.
Diversifying Nigeria’s energy mix with renewables can enhance energy security by reducing dependence on imported fossil fuels and mitigating the risks of supply disruptions.
Chief Executive Officer of the Centre for the Promotion of Private Enterprise ( CPPE), Dr. Muda Yusuf, told The Guardian that a tariff review is unavoidable due to the liquidity crisis in the sector. He highlighted the substantial risk this crisis poses to investments in the electricity value chain, emphasising that the sector is failing to generate sufficient liquidity to offset the rising costs. He also noted that there is a limit to the subsidy burden that the government can sustain. Stressing that the energy mix programme has not gained significant traction yet, he said fiscal policy measures should be promptly deployed to reduce costs across the entire electricity value chain. He noted that the current electricity tariff presents a significant opportunity for transitioning electricity consumers to the use of renewable energy solutions, which are even more environmentally friendly.
“However, the cost of renewable energy is very prohibitive at the moment. It is therefore imperative for the government to activate fiscal policy measures that could drastically reduce the cost of transition to renewable energy solutions. There is a need for a complete removal of import tariffs, levies and taxes on renewable energy equipment as this would make it more accessible to more people. There should also be financing schemes with concessionary interest rates for the acquisition of renewable energy technologies. These should be a major component of the ongoing power sector reform,” he said. Speaking, lawyer and coordinator, NEPA WAHALA NG, Emeka Ojoko, said he does not anticipate many short or mediumterm transitions to renewable energy occurring, due to cost constraints. He suggested that the primary focus should be on enhancing transmission and distribution to maximise the utilisation of the current installed generation capacity, which is about 13,000 MW daily, If achieved he said, a more robust transition plan to renewable energy can be initiated.
As customers contemplate switching to renewable energy options in response to the tariff hike, the National Coordinator of the All Electricity Consumer Protection Forum, Adeola Samuel- Ilori, stated that renewable energy adoption would have been more widely embraced if there were conducive conditions for it.
He said that the cost of renewable energy remains prohibitive, highlighting that the government has refused to address the issue. He noted that venturing into renewable energy is currently unfriendly due to the high cost of materials, particularly for solar energy, which has surged due to foreign exchange rates and duties imposed on these materials.
“If the government can subsidise the cost, by giving waivers on some of the materials instead of wasting money on religious organisations and leaders, it would enjoy more patronage but as it is today, it’s a thinkable alternative. To set up a good solar energy unit that will carry more than a fan and bulbs, you will need close to one million Naira because of the cost of batteries. How many Nigerians can afford this?” he said.