Since the removal of subsidy from every aspect of Nigerians life by president tinubu administration, , the power sector is faces a deepening financial crisis that could push the Federal Government’s liabilities to about N6.2 trillion by the end of 2025, premium customers seek alternative energy. About N4 trillion legacy debt to generation companies (GenCos) is hanging on the neck of the federal government, while the new arrears have risen to N1.6 trillion as of August 2025 and is projected to hit N2.2 trillion by December, 2025.
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 the unrealistic cost of electricity is pushing them to alternative energy.
It was learned that manufacturers spent about N1 trillion on self-generation in 2024, while premium households are increasingly turning to solar as families economy has continue to shrink.
A report revealed that 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.
Meanwhile, in 2025, Jigawa, Zamfara, Lagos, Delta, and Katsina already signed renewable energy deals while the Federal Government plans to remove some of its agencies from the grid, leaving the national grid with households without capacity for solar or businesses without gas-fired plants.
With the trend of such 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 of a clear strategy to offset GenCos’ debts, with interventions from President Bola Tinubu and Finance Minister Wale Edun were largely of a rhetorics than real solution.
A source disclosed that 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 a mirage.
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.
Recall Edun publicly told Nigerians in early in August that the government had already moved into implementation to clear the legacy debt, but he failed to be clear on how with definitive timeline.
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 despite concerns of its inadequacy to cover arrears and future deficits when subsidy burden is averaging N2 trillion annually.
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.
Meanwhile, stakeholders said NERC’s FGC, which would mandate all GenCos to control the national grid from collapsing and is estimated to gulp 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 The Guardian 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. Guardian.