Abstract
This study examines the impact of monetary policy variables exchange rate, inflation, and money supply on electricity consumption in Nigeria over the period 1986 to 2023, using annual time series data and the Vector Error Correction Model (VECM) framework. The monetary variables influence the cost and accessibility of electricity infrastructure, thereby affecting the electricity consumption. The analysis is anchored on four interrelated theoretical perspectives: Keynesian Monetary Theory, Cost-Push Inflation Theory, Exchange Rate Pass-Through Theory, and the Theory of Energy Demand. Empirical results reveal that, in the long run, exchange rate and inflation exert a positive and statistically significant influence on electricity consumption at 0.45% and 1.02% respectively, while money supply has a negative and significant impact at 0.63%. In the short run, the exchange rate reduces electricity usage, consistent with the Exchange Rate Pass-Through Theory, whereas inflation and money supply continue to shape electricity consumption by influencing consumer purchasing power and liquidity. The significance and expected sign of the error correction term of -0.3172 is negative, statistically significant, and confirms the existence of a stable long-run equilibrium relationship among the variables and shows how disequilibrium in the short run is corrected and adjusted towards long-run. Based on these findings, the study recommends enhancing exchange rate stability to promote electricity affordability and predictability, especially for industrial users. Financial sector reforms are also essential to expand credit access for energy infrastructure and distribution investments. Policymakers should mitigate inflation volatility while protecting long-term energy investments through incentives and subsidies. Additionally, integrating monetary indicators, such as money supply and exchange rate trends, into energy planning will improve macroeconomic forecasting and policy coherence. Finally, given the potential of currency depreciation to spur investment in off-grid alternatives, the government should support local energy technology manufacturing and reduce import tariffs on renewable components.