Payment System Weakens Nigeria’s Energy Security – Expert

By Michael Dada

How will a business that incurs a production cost of N4,538 to earn only N2,346 survive in perpetual deficit? This is the commercial reality confronting most power generation companies in Nigeria under the current Nigerian Bulk Electricity Trading (NBET) framework, where Gencos often wait between 45 – 60 days to receive only about 30% of their expected revenue from electricity generation.

Nigeria’s Gas-to-Power framework

More than 70% of Nigeria’s 28 grid-connected power plants run on gas, making the country’s electricity supply heavily reliant on the commercial structure of gas-to-power. The Petroleum Industry Act (PIA) 2021 enables the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) to fix the gas base price for power, commercial and industrial use.

In April 2026, the NMDPRA fixed gas base price for power at $2.18/MMBtu with an additional transportation cost of $1.13/MMBtu, bringing the total gas supply and transportation cost to $3.31/MMBtu.

Impact on gas-to-power pricing

Although gas is priced in dollars, electricity for customers in Nigeria is priced in naira per kilowatt-hour (N/kWh). At the current CBN exchange rate of N1,371/$, gas supply and transportation cost for power generation at $3.31/MMBtu equals N4,538/MMBtu. That means it costs N4,538 to purchase 1 MMBtu of gas for power generation.

What does it mean in Naira per kilowatt-hour?

Since electricity is sold in Naira per kilowatt-hour(N/kWh) and it costs N4,538/MMBtu, how many kilowatt-hours of energy would 1 MMBtu produce? According to the U.S. Energy Information Administration (EIA), 1MMBtu, contains thermal energy equivalent to 293kWh, but actual electrical output depends on plant efficiency. i.e. 1 MMBtu = 293kWh depending on plant efficiency.

Why does turbine efficiency matter

In the dynamics of gas turbine operation, a key variable in determining the final output from 1 MMBtu of gas is plant efficiency. According to GE Vernova, an original equipment manufacturer (OEM) of gas turbines, the efficiency of a simple-cycle gas turbine varies from 34% to 37%, while combined-cycle plants can achieve up to 64% efficiency.

However, for older turbines operating in Nigeria, analysts estimate simple-cycle efficiencies between 27% to 30%, while older combined-cycle plants may operate closer to 55%. The distinction between the simple-cycle gas turbine and the combined cycle

For clarity, a simple-cycle gas turbine generates electricity using only gas, with much of the exhaust heat released into the atmosphere, while a combined-cycle plant utilizes both the gas and converts the exhaust heat into steam to power an additional steam turbine, thereby improving efficiency and gas utilization.

An example of a combined-cycle plant in Nigeria is the Egbin power plant. At the minimum efficiency level, how many kWh of energy is produced by 1MMBtu of gas? Using a conservative minimum efficiency of 27% for ageing simple-cycle turbines, 1MMBtu of gas for power generation will produce 27% of a potential 293kWh, which is about 79kWh So, 1MMBTu = 79kWh. In other words, it costs power generation companies N4,538 to produce 79kWh

How much do Gencos sell 1kWh of electricity to NBET?

Although this depends largely on the agreed amount in the Power Purchase Agreement (PPA), NERC’s May 2026 Multi-Year Tariff Order (MYTO) indicates generation cost hovered between N98, N100 and N99/kWh for an average of N99kWh.

So, 79kWh of electricity has the potential to generate an income of N7,821 (N99/kWh x 79kWh). This means power generation companies incur a gas cost of N4,538/MMBtu to earn a potential income of N7,821. N4,538/MMBtu for N7,821 means almost 60% (N7,821 – N4,538 = N3,283) of potential power generation revenue is for gas payment.

The NBET liquidity crisis

Here’s the real threat to Nigeria’s energy security. Under the current commercial framework with the Nigerian Bulk Electricity Trading Company (NBET), power generation companies wait 45 – 60 days to receive only about 30% of their expected revenue.

In this instance, 30% of N7,821 equals N2,346.

The 70% balance of revenue is classified as market debt to be recovered under the Federal Government’s (FG’s) subsidy that has been unpaid for over ten years. Meanwhile, gas costs must be paid from this N2,346 before considering staff cost, operations, maintenance, spare parts, etc. How will a business that continues to incur a production cost of N4,538 to earn an income of N2,346 survive in perpetual deficit?

This is the real-life scenario of most power generation companies in Nigeria. Weak payment security is the fundamental threat to Nigeria’s energy security.  Without a credible payment guarantee, gas suppliers can not commit to long-term gas availability, which undermines sustained power generation and ultimately threatens national energy security.