Introduction
Nigeria, Africa's largest nation by population and richly endowed with natural resources, remains significantly constrained in its energy sector which hampers growth and reduces the quality of life for millions. Nigeria's energy sector is heavily dominated by fossil fuels with approximately 79.5% of power coming from gas-fired plants and around 20.4% contributed by hydropower1, yet only 60% of the population (86% urban, 41% rural) has any access to electricity, leaving millions in energy poverty. This lack of access to reliable power limits industrial productivity, hinders education and healthcare delivery, and increases the reliance on environmentally damaging energy sources.
The question arises: how can Nigeria bridge its energy gap sustainably in line with global trends?
Renewable energy offers a transformative solution. Nigeria can diversify its energy mix, reduce greenhouse gas emissions, and address its energy deficit by integrating clean energy sources. Such a transition would advance the attainment of the global Sustainable Development Goals (SDGs), including affordable and clean energy (SDG 7), climate action (SDG 13), and sustainable cities and communities (SDG 11)2.
Nigeria is well-positioned to lead renewable energy development in Africa, with abundant resources that include an average of 5.5 kilowatt-hours of solar energy per day (kWh/m²/day) of solar radiation3, vast expanses of arable land for biomass, wind energy potential in the northern regions, and untapped small and medium hydropower resources. However, harnessing these resources effectively requires strategic investments, supportive policies, and technological innovation. This article examines Nigeria's renewable energy potential, current efforts, investment opportunities, and the challenges to be addressed for sustainable energy development.
The Current State of Renewable Energy in Nigeria
Nigeria's renewable energy sector is still in its infancy but has shown promising growth. Key projects such as the 8.25 MW Solar PV Park at the Federal University of Agriculture, Makurdi, the 3.50 MW Hybrid Solar PV Park at Bayero University, and the 2.50 MW Solar PV Project at Nnamdi Azikiwe University4, have demonstrated the potential of solar energy since their commissioning in 2019. Similarly, the 10-MW Katsina Wind Farm, operational since 20215 , represents a significant milestone as the nation's first utility-scale wind farm. Additionally, mini-grid systems are being deployed in rural areas, helping to provide electricity to underserved communities.
Despite these achievements, renewable energy contributes only 21% to Nigeria's electricity capacity as of 2023, and generation remains minimal compared to fossil fuels, which dominate at over 70%. Hydropower remains the largest contributor among renewables, generating more than 9,200 gigawatt-hours of electricity in 2022, while solar energy contributed only 151 gigawatt-hours.
The Nigerian government has introduced several initiatives and policies to promote the development of renewable energy and tackle these challenges. The National Renewable Energy and Energy Efficiency Policy (NREEEP)6 provides a comprehensive framework for incorporating renewable energy into the national energy mix. Initiatives such as the Nigeria Electrification Project (NEP)7, supported by the World Bank, focus on expanding off-grid solutions, including solar mini-grids and home systems. Additionally, the Electricity Act of 2023 seeks to establish a conducive framework for the development and utilization of renewable energy sources, aiming to create an environment that attracts investments. The Renewable Energy Master Plan (REMP), along with incentives like the VAT Modification Order, which exempts certain renewable energy equipment from VAT, further reflects the government's dedication to advancing the renewable energy sector.
Investment Opportunities in Nigeria's Renewable Energy Sector
Nigeria's renewable energy resources present immense opportunities for investment across various segments.
Solar energy, particularly in the northern region, is one of the most viable renewable options. Key investment opportunities include utility-scale solar farms - developing large-scale photovoltaic (PV) projects to feed into the national grid, off-grid solar solutions - providing solar home systems and mini-grids to underserved and rural areas, hybrid systems - combining solar with other renewable or conventional energy sources to improve reliability. Similarly, small-scale hydropower projects in rural and semi-urban areas are viable options, leveraging Nigeria's numerous rivers and streams to generate electricity for off-grid communities. Hydropower currently contributes about 20% of Nigeria's electricity, however, the numerous rivers offer untapped opportunities for small and medium-sized hydro plants - building hydro facilities with capacities of up to 30 MW, particularly in rural areas and modernizing existing dams.
Wind energy potential in Nigeria is moderate compared to solar, with the most viable locations for wind farms being in the North where wind speeds range between 5.0–8.0 meters per second (m/s), and along the coastline while biomass resources, such as agricultural and forestry residues, offer opportunities for power generation and waste-to-energy initiatives. Nigeria generates over 32 million tons of solid waste annually, with agricultural residues and urban waste presenting untapped biomass potential.
Investors can also engage in public-private partnerships (PPPs) as they offer a critical pathway to scale investments in Nigeria's renewable energy sector. The government has expressed its commitment to fostering private-sector participation through incentives, funding mechanisms, and policy support. Programs like the NEP and the Rural Electrification Fund encourage collaborations between private investors, development agencies, and the public sector. These partnerships can bridge financing gaps, enhance technical expertise, and drive innovation in renewable energy deployment.
Promising? Absolutely! However, opportunities alone are rarely enough to seal the deal. Recognizing that investment decisions hinge not just on potential but also on profitability, governments worldwide use tax incentives as a pivotal tool to stimulate economic growth. Nigeria currently offers several tax incentives to encourage investment in the renewable energy sector, aiming to boost the development of clean energy technologies and infrastructure. For instance, the current tax laws offer VAT exemptions on the importation of renewable energy equipment (REE), such as solar panels, wind turbines, and batteries. This tax relief reduces the upfront costs for businesses involved in the renewable energy sector, making it more affordable to acquire necessary technologies. The exemption supports the country's goal to increase the share of renewable energy in its energy mix, helping to foster the growth of renewable energy projects and infrastructure.
Companies in the renewable energy sector may also qualify for Pioneer Status Incentive (PSI), which provides up to five years of income tax relief. This includes an initial three-year tax holiday, extendable for an additional two years based on performance. The PSI allows businesses to reinvest savings that would otherwise be spent on taxes into scaling up operations, improving technology, and expanding capacity. Additionally, companies benefiting from PSI are exempt from WHT on dividends paid out from the pioneer profit, further enhancing their ability to reinvest in growth.
Similarly, the proposed tax reforms bills offer Economic Development Tax Incentive (EDTI)8 for companies in the renewable energy sector which provides an incentive period for 5 years and can be extended for an additional period of 5 years.
For international investors, withholding tax (WHT) exemptions on interest payments for foreign loans provide a further incentive under the current tax laws. Loans with longer terms can benefit from exemptions up to 70% of interest income, easing the financial burden on renewable energy companies that need funding for large-scale infrastructure projects. This makes Nigeria a more attractive destination for global capital in the renewable energy sector.
What Are the Roadblocks?
Of course, no investment landscape is without its hurdles. While Nigeria's renewable energy sector brims with potential, navigating it requires a clear understanding of the complexities involved.
Some of the foremost challenges are regulatory and policy inconsistencies. While the government has introduced several policies to promote renewable energy, the implementation is often hindered by bureaucratic inefficiencies, unclear guidelines, and frequent policy reversals. Investors face uncertainty regarding licensing, tariffs, and grid integration, which undermines confidence and slows project development.
Currency fluctuations pose another significant risk, given Nigeria's reliance on imported renewable energy equipment. The depreciation of the naira against major currencies increases the cost of importing essential components like solar panels, wind turbines, and batteries. These fluctuations can disrupt project budgets, making investments less predictable and more financially burdensome.
Access to financing remains a critical bottleneck. Renewable energy projects often require substantial upfront capital, but limited availability of affordable long-term financing hampers their viability. Local banks are generally reluctant to fund such projects due to perceived risks, while high interest rates further escalate costs. Inadequate access to international financing, coupled with stringent lending criteria, exacerbates the situation for small and medium-sized developers.
Finally, social and environmental concerns can also impact renewable energy investments. Resistance from local communities over land acquisition for solar farms or hydropower projects is a common issue. Environmental concerns, such as the impact of hydropower on aquatic ecosystems, require careful mitigation to avoid conflicts with conservation goals. Ensuring community engagement and conducting thorough environmental impact assessments are essential to gaining social acceptance and minimizing adverse effects.
Addressing these challenges will require coordinated efforts by the government, private sector, and development partners to build a more stable and investor-friendly renewable energy market in Nigeria. By tackling these risks proactively, the sector can unlock its full potential and contribute meaningfully to the country's energy transformation.
International Insights
Nigeria's renewable energy journey can benefit greatly from examining successful investments in other developing countries. Nations such as Kenya and India have made significant strides in renewable energy deployment, providing valuable lessons in regulatory frameworks, financing models, and public-private partnerships.
Kenya is often lauded for its advancements in renewable energy, particularly in geothermal and wind energy. The country generates more than 90% of its electricity from renewable sources, with geothermal power contributing over 40%, along with significant contributions from hydropower and solar parks9. Kenya's success is largely attributed to a robust regulatory framework, spearheaded by the Energy Act of 2019, which provides a clear policy direction and facilitates private-sector participation. Public-private partnerships, such as those in the Lake Turkana Wind Power Project, have enabled large-scale investments, showcasing the value of collaboration between stakeholders.
India presents a compelling case for renewable energy transformation. Over the past decade, the nation has made remarkable progress in diversifying its energy mix, reducing dependence on fossil fuels, and advancing toward sustainability. As of November 2024, the country's installed non-fossil fuel capacity has grown by an impressive 396% over 8.5 years, reaching over 205.52 gigawatt (GW) (inclusive of large hydro and nuclear), which accounts for approximately 42% of its total energy capacity. Solar power has been a standout success, with its installed capacity soaring from a modest 2.5 GW in 2014 to nearly 94.16 GW by November 2024—a thirty-fold increase10.
India's success in scaling renewable energy is supported by innovative financing models like viability gap funding (VGF) schemes and low-interest loans, which have minimized upfront costs for developers. Furthermore, the establishment of solar parks with government-provided infrastructure and land has mitigated project risks, encouraging private investment.
For Nigeria, these examples offer valuable insights. By implementing structured regulatory frameworks, fostering public-private partnerships, and adopting innovative financing strategies, Nigeria can create an enabling environment for renewable energy development.
Outlook for Nigeria
Nigeria's renewable energy sector is poised to drive economic growth, sustainability, and energy security. Expanding renewable projects can create thousands of jobs across manufacturing, installation, and maintenance, while reducing fossil fuel dependence and mitigating carbon emissions. These outcomes align with Nigeria's goals for sustainable development and economic diversification.
Also, emerging technologies will shape the sector's future. Battery storage solutions address solar and wind energy intermittency, ensuring consistent power supply. Smart grids enhance efficiency by managing demand and integrating decentralized systems into the national grid.
Call to Action
Renewable energy is not merely an option for Nigeria; it is a necessity for achieving sustainable development.
However, realizing this vision requires the concerted efforts of all stakeholders. The government must provide consistent policy direction, implement supportive regulatory framework, and enhance access to financing. Private investors should seize the abundant opportunities in renewable energy, leveraging innovative technologies and market-driven solutions to accelerate growth. Development partners also have a crucial role in providing technical and financial support to bridge gaps and foster resilience in the sector.
As Nigeria moves toward its energy transition goals, now is the time for bold action. Investing in renewable energy is an investment in the nation's future—a future of sustainable development, economic growth, and environmental stewardship. Together, stakeholders can drive the change needed to secure energy for all while safeguarding the planet for generations to come.
Footnotes
1. Nigeria: power production share by source 2023 | Statista
2. Sustainable Development Goals | United Nations in Nigeria
3. Challenges and Opportunities in Nigeria's Renewable Energy Policy and Legislation
4. Top five solar PV plants in operation in Nigeria
5.Katsina wind farm - Global Energy Monitor
6. National renewable energy and energy efficiency Policy (NREEEP). | UNEP Law and Environment Assistance Platform
7. Nigeria - Nigeria Electrification Project - MapAfrica - African Development Bank Group
8. Nigeria's Tax Reform Bills 2024 by Tinubu [Download PDF] " Okay.ng
9. Kenya - Energy-Electrical Power Systems
10. Investment Opportunities in Renewable Energy - Invest India
The opinion expressed in this article is solely personal and does not represent the views of any organization or association to which the authors belong.
