Frequent Grid Collapse: Causes and Effects
For a country whose population is said to be over 200 million citizens, Nigeria generates barely 14,000 megawatts of electricity out of at least 33,000mw needed.. The blame game and buck-passing between Generating Companies and Distribution companies, hasn’t helped matters at all. Today, the nation is grappling with frequent collapses of the national grid, and most parts of Nigeria are thrown into darkness for days. The negative effect of this on this on the economy, is unimaginable. Former Director General of the Nigerian Electricity Regulatory Commission, Dr Sam Amadi, gives an in-depth analysis of the unfortunate situation, and suggests ways of facing the challenges, while painting a hopeful and positive future
Frequent Grid Collapse and the National Economy
In recent years, Nigeria has experienced the worst system collapses in its recent history. It is doubtful that there is any other time since 1999, that Nigeria has experienced a more unreliable power supply than now. It is true that our generation capacity has improved from about 6,000mw to about 14,000mw from 1999 to 2025, but, ironically, we now experience more frequent and longer lasting blackouts than in 1999 when we began the journey to structural reform of the electricity industry. What is responsible for this wrong turn in the power sector reform? What are the costs for this level of unreliability, and what can we do to cure the sector of gross instability and inefficiency?
Rome was Not Built in a Day, but Rome Was Built!
The truth is that, Nigerian electricity grid collapsed in the 1990s. The result was that, a population of more than 150 million people by then, could only access less than 2000mw of electricity from the grid. This was the lowest electricity per capita, in the entire world. Nigeria still has one of the lowest per capita wattage in the world, even lower than some of our poorer African neighbours. How did that happen, considering that we have our first grid electricity as early as 1896, less than two decades after England had the first grid power. We ought to be richer in electricity supply than 2000mw in 2000. But, we failed to do what other countries did. By a conservative estimate, a country should increase its generation and distribution capacity by an average of 3000mw every two years. This is to cater for more urbanisation that increases electricity demand. We did not do this. The last of major power project in Nigeria before we commenced power sector reform in 2000 was Egbim Power Plant in Lagos. It was set up by President Shehu Shagari and completed around 1988. It has a capacity of about 1,300mw, but has never operated at its full capacity. So, we commenced reform with 6,000mw installed capacity, and about 2000 daily supply.
If we consider distribution and transmission capabilities of the national grid, then our situation was worse in 2000. Our distribution network was woeful as the monopoly public utility that generated, transmitted and distributed electricity in Nigeria, the Nigeria Electric Power Authority, (NEPA) was grossly incapacitated due to low investment and maintenance of the national grid. In matter of corporate governance, things were worse. NEPA never had an audited account until 2013 prior to privatisation, when the regulator, NERC, ordered and facilitated account audit of all PHCN successor companies. NEPA and subsequently, PHCN (Power Holdings Company of Nigeria, NEPA’s successor-in-title) never had competent and independent Boards, hence, their operations were grossly inefficient and corrupt. The result was a collapsed electricity industry, with no financial viability by 2000.
The reform assumption was that, privatisation would cure the twin problem of financial viability and operational efficiency. The central diagnosis is that, government monopoly ownership of the electricity utility is the cause of the systemic inefficiency and financial non-viability of the industry. From an economic theory perspective, the doctrine of principal-agent problem suggested that until government is no longer the owner of the assets, it will be difficult to secure accountability for resource utilisation. Again, based on the soft budget line argument, the proponents of privatisation argue that public utilities would not be commercially efficient since they have assurance of public finance to cover their unprofitability. Once we divest to private firms, we cure both the principal-agent and soft budget line problems.
Since privatisation in November 2013, we have not seen significant changes in both financial viability and operational efficiency. The assumption that the new investors will finance expansion and improve services which will result in more and better electricity supply to businesses and homes, has not materialised. Since 2013, the Federal Government has continued to finance critical infrastructure in the electricity industry, and providing grants to distribution companies. The distribution companies have not implemented robust change management strategies partly because they do not have capacity to leverage financial resources, and because they have not been afforded cost-reflective tariffs. Either way, the assumption of financial viability accompanying privatisation, has proved to be nothing but an assumption.
To state it in simple terms, the reason we are having repeated system collapse of the national grid is because the national grid is very fragile, unreliable and inefficiently and ineffectively managed. The collapse of the grid, despite a decade of privatisation, tells a story about the poor diagnosis of the crisis of the sector in 2000, and the subsequent administration of wrong cures since then. At any rate, the continuing unreliability of the electricity grid in Nigeria tells a story of the lack of success of the reform. Locating who should be blamed, becomes a blame game. The Federal Government continues to blame two actors for the failure of the reform. First, are the private owners who have not made the required level of financial investment to upgrade the grid, and consumers who are unwilling to pay prices of electricity that can finance continuous production. These actors in turn blame the Government for the failure. For the private investors, Government should be blamed for lacking the political will to enforce efficient pricing of electrical services. For consumers, Government should be blamed, for selling assets to inefficient and bankrupt investors.
But, the truth lies somewhere in the middle. It is true that the privatisation process was hurried and full of errors that, in hindsight, were avoidable. One notable error is selling the distribution companies for fees, and using the fees to pay off workers who are mostly still in employment. The proceeds of the divestment of the distribution companies, should have been dedicated to reinvestment in network expansion and maintenance and metering. This would have improved the quality of services in the short term, to create support for long-term expansion. If the distribution assets were sold for a token and firm investment decisions backed by credible financial instruments were made by the investors on recovery and expansion of network capacity, there would have been more reliability of the grid and less volatility as is the case today. The investors blame failure on the fact that they are not allowed to charge the appropriate tariffs that will ensure recovery of costs, and incentivise further financial borrowing to expand the network. That is true. But, the other truth is that the Nigerian electricity industry has undergone several tariff reviews. We have moved the rate of tariffs in the industry upwards. The tariffs may not be at the most appropriate level. But, the tariffs have gone up. At some points, the rate of increase of tariff for some customer classes, breach the regulatory rule that does not allow rate shock. A tariff increase of over 50%, is a rate shock that is not conventionally allowed.
The problem of tariff in the Nigerian electricity industry, is that we want to use tariff increase to solve a structural problem of inefficiency. This is a misnomer. Tariffs should gradually increase. But, more importantly, inefficiency should quickly reduce. The inefficiency measured in terms of Aggregate Technical, Commercial and Collection (ATC&C) losses are very high. The basis of divestment of the eleven distribution companies to private investors, is that they would make huge financial investment in network upgrade and metering to quickly reduce the losses level. They have not done that. Once the losses levels are high, tariffs will be overstretched to cover them. And there is a limit to what tariffs can do in a market where costs escalate, and household incomes dwindle because of monetary policies of government like removal of subsidies in PMS and floating of the currency. The devaluation of the Naira relative to the Dollar, means that there will be cost escalation in the industry. This destroys the financial profile of all the utilities. There are two ways to respond: keep increasing tariffs till they catch up with rising costs, or improve efficiency to reduce costs. The operators of the Nigerian electricity market, are trapped in the quest for ever increasing tariffs. But, that is a hopeless quest. The Nigerian household income index, does not support the rate of tariff increase that fills the holes caused monetary policies. Higher increase in tariffs will lead to greater inclination to steal electricity and bypass the grid. This will worsen the financial viability of the industry and further worsen socioeconomic stability, including an increase in inflation.
The Economic Costs of Grid Collapses
In 2024, the Nigerian electricity grid collapsed 13 times. In the month of February alone, it collapsed three times. This tells a story of gross unreliability and fragility. We have never had this frequency of grid collapse since 1999, except for a particular year under President Buhari.
The economic consequences of grid collapses, are immense. First, grid collapse has financial costs on the operators of the electricity market. It means direct revenue losses for the distribution companies, and additional costs for black-start and other ancillary services in the electricity market. It is estimated that frequent grid collapses, cost generating companies about N21billion as losses. This is huge considering the level of financial distress in the industry. But, more than that, grid collapse posts huge costs on businesses, especially small and medium enterprises that cannot externalise those costs. Those small and medium enterprises that cannot migrate to solar or other off-grid solutions to mitigate the frequency and duration of grid outages will lose business, and if it continues, they will likely exit the market. A conservative estimate of economic losses from grid collapses, put it to about $26b annually. This does not include the costs of alternative power which comes to about $22 billion. Academic research published in an Adeleke University Journal of Engineering and Technology estimates that 1% rise in electricity outage in Sub-Saharan Africa leads to 4.86% decline in the GDP of the region, which comes to about $38 billion losses in GDP.
Customers also suffer losses, on account of frequent grid collapses. Frequent grid collapses have an impact on the life of equipment and gadgets. This is another economic cost that affects household income. As there is no legal framework to compensate customers for damages to property during grid collapses, it means that customers are forced to spend on replacement of damaged goods. It also leads to loss of business opportunities and reduction in life expectancy, as provision of electricity has direct bearing on health and education outcomes.
Mitigating these Costs: A Socio-Legal Approach
The cause of frequent grid collapses in Nigeria, has two primary sources. First is the degraded state of networks and infrastructure in the electricity industry. Neither the Federal Government nor the private investors, are making the required investments in the network to strengthen and expand it to cope with challenges of higher energy demand and more generation capacity. The fragility of the grid means that, we continue to have stranded electricity that would have improved the quality and quantity of electricity supplied to homes and businesses in Nigeria. Without a viable financial plan for the industry, we may not raise the money to finance quick and significant upgrade in facilities and network to deal with the fragility and unreliability of the grid. Where will the money come from? That should be the major challenge for policymakers and regulators.
Another cause of the frequent grid collapse, is the poor management culture in the industry. The private investors lack both the required financial ability and the managerial capacity, to turn things around in a reasonable period. The result is that the ATC&C losses are still very high. This means that we will continue to be grossly inefficient, in production and supply of electricity. The response to these problems is both policy and regulatory. Is there a legal framework, to support the redress of this crisis that undermines our quest for competitiveness?
The aspect of the policy response, is that the Constitution in Section16 mandates the Nigerian State to pursue economic growth together with social justice. That section has three basic imperatives. The first imperative is economic growth imperative. This requires the management of Nigeria’s economy, to aim at high economic growth. The obligation of the policymakers and managers of the Nigerian Electricity Supply Industry (NESI) under Section 13 of the Constitution, is to ensure compliance with provisions of Chapter 2 of the Constitution. In this way, they have to ensure that there is high economic growth. You cannot attain high economic growth, with epileptic power supply. It is estimated that the unreliable power supply in Nigeria, reduces GDP growth prospect by more than 2%
The second imperative is the “social justice imperative’. The questions to ask with respect to the social justice imperative, is whether the management of the national grid benefit the worse off? What model of social justice is implied in the regulation of access to electricity? Is it egalitarianism, equality- equality of what? The third imperative is the “regulatory imperative”. The national economy must be regulated, to ensure social justice and equality. Unregulated free market is arguably unconstitutional. Some would argue that the express language of Section 16 seems to import a fourth imperative. The “public enterprise imperative”. This means that the national grid should be operated by public enterprises. Well, this may be far-fetched.
But, what is clear is that there is an obligation imposed by the Constitution on the management of the grid to achieve strategic national interest. But, this is at the wholesale policy level. At the retail level where citizens seek compensation for losses and damages, what options are available for them? Since the Electric Power Sector Reform Act 2005 removed the protection granted to NEPA from liability for losses and damages to consumers, any consumer can sue the operators of the national grid for losses and damages arising from frequent grid collapses. There will be a lot of discoveries and interrogatories, for such a case to succeed. But, no doubt, there is not legal exclusion of liability, for the gross inefficiency of the management of the national grid.
