- Scenario A: 7 kWP (solar panel array) + 5 kW (inverter) + 10 kWh (lithium battery) solar system would meet the basic energy needs of millions of Nigerians. At current market rate, this such system would cost about N 3 million.
- Scenario B: The average Nigerian family consumes less than 150 kWh energy monthly – assuming a maximum tariff price of about 225 N / kWh, this would translate to about N 34,000.
- Scenario A’s payback period when compared to Scenario B is at least 8 years (discounting inclusive).
Two critical parameters determine the payback period: tariff and solar system cost. In this piece, we isolate tariff.
What is electricity tariff?
The Multi-Year Tariff Order (MYTO) is the methodology that determines the electricity tariff. The price of electricity supply. It was birthed by the Electricity Power Sector Reform Act (EPSRA) 2005 and has since undergone a plethora of reviews. The underlying concept is that the electricity tariff in Nigeria will be determined by an equation. Akin to solving for x in algebra, you’d be solving for the appropriate tariff price that ensures cost recovery and a return on capital for all key players (GenCos, TCN and DisCos) in the electricity industry, whilst maintaining peace in the pockets of Nigerians. Cost recovery and fairness in the same sentence, are always followed by a word – subsidies. Subsidies were therefore baked into the tariff equation during the early years. The equation models subsidy reduction – as electricity supply increases and electricity price naturally becomes easier for Nigerians.
The MYTO equation is encapsulated by a cashflow model for a 15-year period (2008 – 2023). The model includes forecasted costs for generation, transmission and distribution entities. It also includes anticipated growth in capital investments and electricity supply. So many parameters (See Table below) and estimates – an absolute hellish equation. The equation even estimates revenue collection efficiencies. Shocker, these estimates turned out to be wrong.
MYTO 1 was the first ever MYTO and was to be operational from 2008 to 2013, before a major review could happen. Per the EPSRA, major reviews would occur once in 5 years. Minor reviews would occur once in six months. In 2012, MYTO 2 was published for the period 2012 – 2017. This wasn’t meant to happen – MYTO 2 could only be a 2013 deliverable. Dire conditions like substantial increase in cost of power and equipment maintenance expenditure forced the industry to hasten this review. MYTO 2 resulted in higher tariffs reflecting these conditions. The assumptions in MYTO 1 reviewed: Available generation capacity, electricity demand forecast, CAPEX, OPEX, Fuel costs, Interest rates, WACC, efficiencies in revenue collection and subsidies. Industry players called for MYTO 2.1 in 2015. MYTO 2.1 was to run from 2015 – 2018.
Parameters for major review (Also includes parameters listed in “minor review” column) | Parameters for minor review |
| Generation capacity | Demand forecasts |
| Capital expenditure | Exchange rate |
| Efficiency improvements | Inflation |
| Weighted average cost of capital | Fuel Prices |
| Generation mix | TCN costs |
| Operation and maintenance costs | Energy dispatched to the transmission network |
| Forecasted customer growth | |
| Reliability targets |
Post-2015, AT&C became a driver for reviews. “Aggregate Technical and Commercial Losses”. The unpopular abbreviation measures electricity lost in the distribution system due to technical and commercial reasons. Technical losses are caused by resistance in wires. Commercial losses result from illegal connection, lack of meters or inefficient billing and revenue collection systems. Commercial losses were massive during these years. Some DisCos recorded supply losses of 30%. To combat this, meters became a necessity. The drive to increase meter penetration grew. Everyone needed to be metered.
In 2016, another minor review occurred. To many industry analysts, the key players couldn’t keep up with higher costs and these regular reviews were signs of a poorly developed policy. To few analysts, the constant reviews were only following the natural order of excessive regulation chaotically drifting towards market reality. The few should have prepared the many for this inevitable future since 2008.
A major review happened in 2020. Customer tariff classes were re-defined into five bands. Band A referred to customers who received electricity of 20 hours or more, each day. Band E referred to the bottom barrel customers who would be guaranteed at least 4 hours of electricity daily. Customers across Bands B, C, D were separated by 4 hours of electricity. Each band was further subdivided into Non-maximum demand customers, Low voltage maximum demand and Medium / High voltage maximum demand customers. This review represented a new philosophy of charging customers according to service offered. The philosophy was driven by complaints of DisCos renegading on promises – why should we purchase meters, if they don’t supply electricity?
MYTO 2024 maintained the same tariffs as MYTO 2023. It also stated that about 1.185N / kWh would be deposited into the Meter Acquisition Funds account. Each DisCo was allocated a minimum energy offtake amount. Discos would also no longer be able to claim revenue shortfalls resulting from supply gaps from GenCos. Key players now have to innovate to survive. No more handholding.
To many, MYTO reviews represent the next step in Nigeria’s journey towards a liberal electricity market. To others, they are bandages to a methodology that is failing.