Financing solar in Nigeria: challenges and recent developments

Financing solar in Nigeria: challenges and recent developments

In Nigeria, the journey towards widespread access to electricity has been fraught with challenges, particularly in financing solar energy projects despite the country’s abundant solar potential. High interest rates, reaching up to 26%, have impeded progress on several grid-scale solar initiatives, crucial for bolstering electricity capacity and reducing dependence on unreliable diesel generators.

Financing challenges

According to recent reports, Nigeria struggles with financing solar projects due to prohibitive interest rates. These rates, significantly higher than those found in advanced economies, hinder investment in renewable energy infrastructure. As a result, 14 grid-scale solar projects across northern and central Nigeria, capable of generating 1,125 megawatts of electricity, have stalled since their initial contract signings in 2016. This setback underscores the urgent need for lower-cost financing options to kickstart these vital projects.

Recent developments and initiatives

Despite these challenges, there have been notable strides towards sustainable energy solutions in Nigeria. International institutions such as the World Bank and the African Development Bank Group (AfDB) have stepped in to support Nigeria’s electrification efforts. For instance, the World Bank allocated $350 million through the Nigeria Electrification Project (NEP). This funding has enabled the deployment of 11,069kW across Nigeria, connecting 58,694 homes and businesses to electricity.

Based on the success of the Nigeria Electrification Project, the World Bank announced a follow-on project, Distributed Access through Renewable Energy Scale-up (DARES), financed by an International Development Association (IDA) credit, which will bring an additional $750M to Nigerian electrification projects. The project will bring new or improved access to electricity to 17.5M Nigerians through distributed renewable energy solutions. In addition to World Bank funding, 1B of private sector capital will play a role in addition to significant funding from World Bank development partners like Global Energy Alliance for People and Planet and GIZ. DARES is expected to launch this year.

Odyssey Energy Solutions is involved in a $100 million Memorandum of Understanding (MoU) with the Renewable Energy Association of Nigeria (REAN) for the procurement of solar equipment. This collaboration aims to ease the cost and bureaucracy associated with importing renewable energy equipment. Such partnerships highlight a growing commitment from both public and private sectors to expand solar energy capacity and improve energy access for millions of Nigerians.

The role of international support and private sector engagement

International organizations like the World Bank have recognized the pivotal role of sustainable energy in Nigeria’s development agenda. The recent visit of World Bank President Ajay Banga to Nigeria underscores the institution’s commitment to partnering with the Nigerian government and private sector to fund essential energy projects. This collaboration aligns with broader regional goals, such as the AfDB’s initiative to provide electricity access to 300 million people in Africa by 2030.

The Odyssey platform, established under the NEP by the REA, has been evaluated by the World Bank as the designated e-procurement system for NEP. It is anticipated to handle the majority of procurements under DARES, enhancing the project's value for money, transparency, economy, efficiency, effectiveness, integrity, and openness in the procurement process.” (Quote from a representative of the World Bank)

Moreover, private sector engagement, exemplified by initiatives like the Odyssey Energy Solutions and REAN partnership, signals a positive shift towards leveraging private investment in Nigeria’s renewable energy sector. These partnerships not only facilitate technological advancements but also drive economic growth by creating jobs and fostering inclusive development across the country.

While Nigeria grapples with formidable challenges in financing solar projects, recent initiatives and international partnerships offer hope for a brighter energy future. By addressing financing barriers and fostering robust collaborations between public institutions, private enterprises, and international stakeholders, Nigeria can accelerate its transition towards sustainable, reliable, and affordable electricity for all its citizens.

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