Why capital to finance Nigeria’s DRE market remains unlocked – Power for All

A recent research by Power for All’s on-the-ground country campaign in Nigeria has provided reasons why Nigeria’s decentralized renewable energy (DRE) market has been unable to unlock the capital required to finance it to attain its potential despite its proven large size.

Obtained by OGN, a summary of the research said that while Nigeria’s DRE market for mini grid and solar home systems could yield up to $10 and $6 billion in annual revenue and savings for households and businesses respectively, unlocking both local and international finance sources for the market to achieve the required scale has remained critical.

It explained that the market is characterized by increasing philanthropic interests despite its commercial nature and minimal investors’ interests.

According to it, the SE4All found out that most of the DRE projects in the country are primarily owner-equity financed, or finance sourced from grants for which there is increased competition.

The research also highlighted that reasonably priced debt finances are difficult to obtain due to high collateral requirements and interest rates usually between 25 and 35 per cent from commercial banks.

It noted that long term equity and debt financing were needed by DRE enterprises to fund projects, expand capacities, maintain operational costs, and perhaps initiate consumer lease financing.

“The SE4All Market Needs Assessment suggests that DRE enterprises in high impact countries such as Nigeria delivering Tiers 1-3 electricity solutions will require 59 per cent debt, 33 per cent equity, and 8 per cent grant finance to scale and meet the 2030 energy access target,” said the research report.

It further noted that the market would need an enabling environment – favourable policies, multi-stakeholders collaboration, and government support, to energise the scale of finance it needs.

“Nigeria’s DRE market requires critical finance. This will involve a combination of innovative hybrid options for a market this size to achieve growth and scale. Patient capital is limited, leading for increased competition for the few grants and funds from development institutions currently a major part of financing in the sector.

“The only way to accelerate access and end energy poverty faster is to catalyse finance, drawing in bigger and bolder investments into the sector,” stated the research.

Power for All reportedly advances renewable, decentralized electrification solutions as the fastest, most cost-effective and sustainable approach to universal energy access. The campaign equally unifies the voice of the “beyond the grid” companies and organizations to advocate for specific supportive financial and policy enablers, in addition to mobilizing the broader sector – manufacturers, distributors, consumers, to de-position fossil-fuel-centric “business as usual” approaches to addressing energy access.