Modeling the Economic Determinants of Electricity Generation in Nigeria

Abstract

Nigeria's poor electricity generation has been one of the main obstacles preventing the country from becoming an industrialized nation and experiencing economic growth. This study analyzed the factors affecting electricity generation in Nigeria focusing on electricity power loss, government funding for electricity, and electricity demand using annual time series data between 1981 and 2021. Energy Information Administration [EIA], (2022) database and the National Bureau of Statistics [NBS], (2022) were the sources of the data for this study. The study used the techniques of Impulse Response Functions (IRFs) and Variance Decomposition from the Vector Autoregressive Model (VAR). The results showed that Nigeria's electricity generation responds negatively to shocks in a considerable way and also accounts for more than 30% of the variation in its variable across the entire forecasting period. The findings also discovered that electricity generation in Nigeria responded negatively to shocks in both electricity power loss and electricity demand, with the economic implication that if these shocks are reduced, electricity generation will increase. On the other side, Nigerian electricity generation was found to have responded significantly to a shock in government funding for electricity. Several recommendations were made by the study, one of which is for the government to focus more on increasing electricity generation capacity in a manageable way, implement appropriate measures to lower the rate of electricity power loss during the transmission and distribution process, manage the allocation of funds to fund electricity generation, and also develop ways to meet more electricity demand.