IMPACT OF ELECTRICITY TARIFF HIKE ON HOUSEHOLD INCOME IN NIGERIA

CHAPTER ONE

INTRODUCTION

Background of the Study

House hold income refers to the total income earned by individuals of 15 years and above living in a house hold (World Bank, 2020). House hold income can be used to determine the economic stability of individuals and households, it can be calculated for different periods, such as monthly, quarterly, or yearly (National Bureau of Statistics, 2015). There are several components that make up household income which includes; wages, salaries, self-employed income, interest, dividends, and government transfers. Household income varies significantly across regions, countries, and socio-economic groups, it is also influenced by factors such as education, occupation, location, family size, and demographic characteristics (Anker, 20219). 

Electricity is a fundamental component of economic development, improving the lives of citizens in Nigeria. Nigerian Electricity Regulatory Commission (NERC) is the body responsible for the distribution of electricity in Nigeria, it is an independent body, established by the Electric Power Sector Reform Act of 2005. NERC had in January said the Nigerian government will pay as much as N1.6 trillion to subsidies electricity in the year 2024. In April 3rd, 2024, the NERC approved a hike in the electricity tariff for customers in Band A CATEGORY, FROM 66 Naira to 225 Naira per kilowatt- hour (Izuaka- Premium Times, 2024)

Electricity tariff is the rate at which electricity is sold to a consumer.  These rates are determined by considering total production cost from generation plants to wholesales generation, transmission, distribution, metering, and billing and finally to the consumer. Nigerian electricity tariffs are typically regulated by the government or the Nigerian Electricity Regulatory Commission (NERC) to ensure fairness, sustainability, and the financial viability of the power sector (Nextier, 2023). Electricity tariffs affects household income in several ways; social impact, reduced disposable income, increased electricity bills, etc.

Nigeria as a nation has been plagued with several electricity issues despite being one of the top producers of natural gas and other resources in the world. Nigerians has faced issues such as no power supply, epileptic power supply, and inadequate generation of power, and hike in the electricity tariffs over the years. Households in Nigeria significantly depend on the reliability, accessibility and affordability of electricity in order to improve productivity. A hike in electricity tariffs can significantly affect the cost of living for Nigerians as it increases the utility bills to be paid thereby putting a strain to the financial capacity of the household. 

Research studies has pointed out the financial implications high cost of electricity has on households, (Akinyele and Rayudu, 2016), highlighted the financial pressure households in Nigeria especially rural households face due to high energy cost, and how it affects the standard of living.  Similarly, (Onyeji, Bazilin, and Nussbaumer, 2012) explore the challenges of energy access in sub-Saharan Africa, noting that high electricity tariffs are a major barrier to achieving universal energy access, hence the need for this study. According to the World Energy Outlook 2016 report, about 1.19 billion people in the world do not have access to modern energy services (Energy access projections, 2017). It is further reported that around 55% of this population is in Sub-Sahara Africa, and the vast majority of this energy-poor people live in the rural communities (Akinyele and Rayudu, 2016).

1.2 Statement of Problem

Even with the hike in electricity tariffs in Nigeria, Nigerians are still struggling with the grim reality of epileptic power supply in all the states of the nations including the seat of power. Nigerians are constantly being forced, harassed to pay for electricity not adequately utilized by them casing serious challenges in the financial burden of the homes. In a country such as Nigeria, where the vast populations are, poor, unemployed, and underemployed; increased electricity tariffs has significantly affected household budgets and financial constrains to the family. Even with the raise in the awareness of renewable energy, most Nigerians still depend on electricity provided by the government.

This study aims at understanding the impact of electricity tariff hikes on Nigeria households income, how this hike affects the household expenditure and the financial constrains it has on the average Nigerian household. 

1.3 Objectives of the Study

The primary objectives of the study is to assess the impact of electricity tariff hike on household income in Nigeria. Specifically, the objective of this study is;

To determine the extent electricity tariff hike affects household income in Nigeria.

To find out the effects of electricity tariff hike on household income in Nigeria. 

To find out ways of addressing the incessant electricity tariff hikes on household income in Nigeria.

Research Question

The following questions would be answered in this study:

To what extent does electricity tariff hike affect household income in Nigeria?

What are the effects of electricity tariff hikes on household income in Nigeria?

What ways can we address the incessant electricity tariff hikes on household income in Nigeria?

Research Hypothesis

The following hypothesis will validate this study:

HO: The electricity tariffs hike has no effect on the income of households in Nigeria.

H1: The electricity tariffs hike has an effect on the income of households in Nigeria.

Significance Of The Study

The significance of the study on the impact of electricity tariff hikes on household in Nigeria and how it affects their income and standard of living.

This study would help develop strategies which would mitigate effects of electricity hike in households, thus, providing economic stability.

The study would help contribute to academic discuss on energy and its socio-economic impacts. Subsequent researchers would use this a literature review for their research

The finds would further expose the challenges households in Nigeria face with respect to the electricity tariff hikes; how it affects the income, and productivity of the Nigerian household.

The result from this study contributes immensely to the body of academic knowledge with regards to impact of electricity tariff hikes on household income in Nigeria and how it affects their income and standards of living.

Scope of the Study

This study would cover the impact of electricity tariff hikes on household income in Nigeria. Empirically, it would determine the extent electricity tariff hike affects household income in Nigeria, the effects of electricity tariff hikes on household income in Nigeria, and ways to address the incessant electricity tariff hikes on household income in Nigeria.

This study will be carried out in Nigeria.

1.8 Limitation of the Study

Like in every human endeavour, the researcher encountered slight constraints while carrying out the study. Insufficient funds tend to impede the efficiency of the researcher in sourcing for the relevant materials, literature, or information and in the process of data collection, which is why the researcher resorted to a limited choice of sample size. More so, the researcher simultaneously engaged in this study with other academic work. As a result, the amount of time spent on research will be reduced.

Moreover, the case study method utilized in the study posed some challenges to the investigator including the possibility of biases and poor judgment of issues. However, the investigator relied on respect for the general principles of procedures, justice, fairness, objectivity in observation and recording, and weighing of evidence to overcome the challenges.

Definition Of Terms

Definition of terms used in the study

Electricity: Electricity is the power that is carried by wires, cables etc., and is used to provide light or heat, to make machines work etc.

Tariff: Tariff is a schedule of duties imposed by a government on imported or in some countries exported goods, a duty or rate of duty imposed in such a schedule.

Household: Household is those who dwell under the same roof and compose a family, also, a social unit composed of those living together in the same dwelling

Renewable Energy: Renewable energy as a form of energy that can be derived from a natural source, such as the sun, wind, tides, or waves, without exhausting natural resources or causing severe ecological damage.