Nigeria’s electricity sector continues to grapple with persistent challenges despite decades of reforms, huge investments, and ambitious policy targets. At the centre of this struggle are the nation’s Power Generation Companies (GenCos), who say they are increasingly burdened by a flawed market structure, broken contracts, and mounting debts that threaten the sustainability of power supply across the nation.
In a press statement issued in Abuja, by the Chief Executive Officer of the Association of Power Generation Companies (APGC), Dr. Joy Ogaji, the GenCos sought to clarify what it described as widespread misconceptions surrounding capacity payments, Power Purchase Agreements (PPAs), and the operational realities of the Nigerian Electricity Supply Industry (NESI). According to the GenCos, these issues strike at the heart of market design, investor confidence, and the long-term stability of Nigeria’s power sector.
Capacity payment — a key component of global electricity market practice — refers to compensation for power plants that make generation capacity available, regardless of whether the energy is fully dispatched. GenCos argue that Nigeria’s failure to recognise and properly compensate capacity made available has removed a critical investment incentive. They disclosed that more than 7,000 megawatts (MW) of the nation’s installed capacity of about 15,500MW remains unavailable due largely to the absence of financial motivation to repair, maintain and upgrade ageing generation units.
The association further explained that despite incurring full operational costs, including gas supply, maintenance, labour, and financing obligations, power plants are often compelled by the System Operator to ramp down generation in order to maintain grid stability. These forced reductions, they said, result in significant commercial losses, as GenCos are not compensated for the power they were technically ready and able to generate.
Beyond generation constraints, GenCos lamented the fragile contractual framework within the market. They revealed that only five active PPAs reportedly exist, leaving most power plants exposed to financial uncertainty and regulatory risks. The lack of firm PPAs, they said, makes it nearly impossible to secure Gas Supply Agreements (GSAs), a development that threatens stable generation and undermines investor confidence in Nigeria’s electricity reforms.
“Some of these major components of PPAs include payment for Available capacity, nominated capacity, metered energy and deemed capacity. These are major because they are among the Must-Occur events. Unfortunately, in Nigeria, the capacity made available has been removed from PPA consideration, disincentivising any desire to invest in recovering mechanically unavailable capacity, which can be estimated at 7,000MW of the 15,500-grid installed capacity. With the current commercial treatment of capacity made available, it should not be surprising that the quota attributable to the magnitude of faulty machines grows,” the statement revealed.
Operational inefficiencies in the transmission and distribution segments further compound the crisis. According to the GenCos, inadequate wheeling capacity by the Transmission Company of Nigeria (TCN) and frequent load rejection by Distribution Companies (DisCos) result in stranded power, idle capacity, and lost revenues. These inefficiencies, which are outside the control of the generation companies, continue to weaken the commercial viability of power plants.
Financial distress has also reached alarming levels. GenCos disclosed that outstanding debts owed to them have exceeded N6.2 trillion, excluding unpaid capacity entitlements. They noted that only about 35 per cent of invoices for power generated and delivered are settled, leaving a massive liquidity gap that has rendered many generation companies technically insolvent. This has severely limited their ability to invest in maintenance, expansion, and technological upgrades.
“Power Purchase Agreement since the takeover on the Ist of November 2013. in exchange, they have been rewarded with liquidity challenges, default on contractual terms, regulatory risks, and increased market volatility, lacklustre performance of agencies and participants, leading to disregard for the sanctity of contracts.
“The foregoing goes to buttress the fact that GenCos’ outstanding amount, which is over N6.2 trillion, does not represent all their entitlement, contractually,” said Dr Ogaji.
Contrary to public perception, the association stressed that GenCos are not beneficiaries of the subsidy regime in the electricity sector, rather, they said they have become its biggest victims, absorbing the financial burden created by poor revenue collection, weak enforcement mechanisms, and market distortions. The persistent shortfall in payments, they warned, threatens not only power generation but also gas supply, financing arrangements, and the broader value chain.
The association also dismissed allegations of inflated billing, explaining that energy and capacity invoices undergo rigorous multi-layered verification involving the Nigerian Independent System Operator (NISO), Market Operator, and cross-checking with tariff meters installed across the network. They described the settlement process as transparent, technical, and robust, leaving little room for manipulation.
GenCos warned that without urgent reforms, Nigeria risks entrenching a cycle of underinvestment, deteriorating infrastructure, and stagnant electricity supply. Despite an installed capacity of over 15,500MW, the country continues to generate an average of just 4,000MW, a gap they described as a glaring anomaly in a nation with Africa’s largest economy and population.
They therefore called for urgent restoration of capacity payments, enforcement of contractual obligations, strengthening of transmission and distribution infrastructure, and comprehensive sector-wide reforms aimed at restoring investor confidence. According to the association, only a contract-based, rule-driven electricity market can unlock Nigeria’s stranded generation capacity and deliver reliable power supply to households, industries, and businesses nationwide.