One of the biggest misconceptions in the electricity sector is that power projects fail because of engineering problems. In reality, many technically sound projects struggle not because they cannot generate electricity, but because they cannot generate sufficient revenue.
Electricity is ultimately a commercial service. Like every other infrastructure business, its sustainability depends on a simple principle: Customers must consume; be accurately billed; and pay for the service they receive. When this chain breaks down, even the best-designed power projects become financially distressed.
As states establish their own electricity markets under the Electricity Act 2023, understanding this reality may be the difference between building sustainable power systems and repeating the challenges that have plagued the national sector for decades.
The cash flow problem behind every power project
Every power project begins with significant upfront investment. Developers spend capital on: Generation assets; transmission infrastructure; distribution networks; metering systems; and control and monitoring technologies.
These investments are expected to be recovered gradually through electricity sales over many years.
The entire model depends on predictable cash flows. When revenues fall short, the consequences quickly spread throughout the value chain. Generators struggle to recover costs; Network operators delay maintenance; Investors become cautious; Banks reduce lending exposure; New projects become increasingly difficult to finance.
What initially appears to be a billing issue eventually becomes an infrastructure problem.
Why revenue collection fails
Revenue collection challenges in electricity markets are rarely caused by a single factor. Instead, they typically emerge from multiple weaknesses occurring simultaneously.
Common challenges include: Inadequate metering; Estimated billing disputes; Electricity theft; Illegal connections; Weak customer databases; Poor collection systems; Inefficient customer service processes; Delayed payments from government institutions. Each issue may appear manageable in isolation. Combined, however, they can significantly undermine sector sustainability.
When electricity supplied cannot be accurately measured, billed, and collected, revenue leakages become unavoidable.
The metering challenge
Perhaps no issue better illustrates the importance of commercial discipline than metering.
Meters perform far more than a technical function. They establish trust between electricity providers and customers. They provide transparency. They create accountability. They support accurate billing; and they improve revenue certainty.
Without effective metering systems, disputes become common. Customers question bills. Utilities struggle to verify consumption. Collection rates decline. Investor confidence weakens. The result is a cycle of mistrust that affects the entire market.
A customer who trusts the billing system is significantly more likely to pay consistently. A customer who does not trust the billing system becomes increasingly resistant to payment.
The cost of electricity theft
Electricity theft remains one of the most significant hidden risks in many power markets. Unauthorised connections, meter bypassing, energy diversion, and other forms of theft create substantial financial losses. The impact extends beyond lost revenue.
When theft becomes widespread:
- Honest customers effectively subsidize non-paying users.
- Infrastructure experiences increased stress.
- Utilities lose resources needed for maintenance and upgrades.
- Service quality declines.
The long-term effect is the gradual weakening of the entire electricity ecosystem.
Markets that tolerate significant energy theft often struggle to attract investment because investors view revenue forecasts as unreliable.
Why investors focus on revenue assurance
Investors are generally less concerned with how much electricity a project can generate than how much revenue it can reliably collect. A 20 MW project with strong revenue assurance may be more attractive than a 100 MW project operating in an uncertain commercial environment.
The reason is straightforward. Debt repayments depend on cash flow; operating expenses depend on cash flow; infrastructure expansion depends on cash flow; every major decision within the electricity sector ultimately depends on cash flow.
Reliable revenue collection transforms electricity infrastructure from a technical asset into an investable asset.
The public sector payment challenge
One of the less discussed challenges in many electricity markets is the accumulation of unpaid bills by public institutions such as government ministries, hospitals, schools, local government facilities, and public utilities. When these organisations fail to pay for electricity consumed, significant financial pressures can emerge throughout the value chain.
Ironically, the institutions responsible for supporting sector development can sometimes become contributors to sector liquidity challenges.
A sustainable electricity market requires payment discipline from both private and public consumers.
Lessons for state governments
As states begin establishing independent electricity markets, revenue assurance should be treated as a strategic priority from the outset.
States should avoid the assumption that infrastructure investment alone guarantees success. Instead, they should focus equally on commercial sustainability.
Key priorities include:
- Accelerating universal metering programmes.
- Deploying smart metering technologies where practical.
- Strengthening customer databases and billing systems.
- Reducing technical and commercial losses.
- Establishing robust anti-theft enforcement mechanisms.
- Ensuring public institutions pay for electricity consumed.
- Promoting transparency in billing and customer engagement.
Most importantly, states should recognise that reliable revenue collection is not merely a financial objective. It is the foundation upon which every successful electricity market is built.
Revenue before expansion
A common mistake in electricity planning is prioritising expansion before strengthening revenue systems.
New infrastructure may increase supply. But without effective revenue collection, the financial resources required to sustain that infrastructure eventually disappear. The most successful electricity markets typically strengthen commercial performance first and expand infrastructure second.
Revenue creates sustainability; Sustainability attracts investment; Investment enables growth.
Looking ahead
The future success of state electricity markets will depend not only on how much power they generate, but on how effectively they convert electricity delivered into revenue collected.
The states that build strong commercial foundations will attract capital, expand infrastructure, and improve service quality faster than those that focus solely on engineering solutions.
This is because in every successful electricity market, one principle remains constant: Electricity that is generated but not paid for is not an asset. It is a liability.
Next Week: Part 4 — The financing mismatch and the cost of short-term capital.
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Masah Emmanuel Ikus is a Power and Energy Infrastructure Strategist and the Principal Consulting Partner at EMI Resources Limited. A University of Lagos-trained Electrical Engineer with an EMBA from Lagos Business School, he possesses over 27 years of experience managing complex infrastructure projects across the ICT, Oil & Gas, and Power sectors, specialising in the design of decentralised power systems and solar integration. He currently advises investors, project sponsors, and public institutions on leveraging Nigeria’s energy deficit into bankable commercial opportunities. He can be contacted via masahikus@gmail.com
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