Ozioma Agu
Stren and Blan Partners, Lagos
oziomaagu@strenandblan.com

Kolajo Onasoga
Stren and Blan Partners, Lagos
kolajoonasoga@strenandblan.com

The current energy landscape in Nigeria

A snapshot of Nigeria’s energy mix and the state of electricity access

Nigeria, with its vast energy resources and burgeoning population, represents a dynamic and evolving energy market. The country’s energy sector is characterised by a diverse energy mix which includes natural gas, hydropower, and an emerging role for renewable sources. Natural gas is the dominant source of electricity, contributing approximately 70–79 per cent of the national energy supply, while hydropower accounts for about 15–20 per cent.^[1] The remaining energy mix includes oil, coal, and a modest contribution from renewables such as solar energy.

Nigeria faces challenges in meeting the energy demands of its rapidly growing population. The national grid has an installed capacity of about 12,500 MW.^[2] However, actual generation frequently falls short due to infrastructure limitations, operational inefficiencies, and supply constraints. While the grid covers major urban areas, approximately 43 per cent of the population remains without reliable grid electricity, particularly in rural and remote regions. In April 2024, the Nigerian Electricity Regulatory Commission (NERC) implemented a significant increase in electricity tariffs for Band A customers, which typically refers to residential areas with longer daily power supply. The new tariff increased the price per kilowatt-hour (kWh) from NGN68 to NGN225 (approximately US$0.041 to US$0.14), representing a rise of over 230 per cent. This increase is attributed to rising gas prices, a key component in electricity generation. The rise in tariffs has sparked public criticism, particularly due to concerns about affordability amid existing economic challenges.^[3]

This scenario presents significant opportunities for investment in alternative energy solutions, such as Distributed Solar Power (DSP). DSP refers to the generation of electricity from solar panels located close to the point of use, rather than at a centralised power station. These projects typically involve installing solar panels on rooftops, small commercial facilities, or community areas. Nigeria’s solar energy potential is highlighted by its high solar irradiance levels, averaging 5.5 kWh/m² per day.^[4] Leveraging this resource can address gaps in electricity access, particularly in off-grid areas, and contribute to a more resilient and diversified energy system.

The rise of distributed solar power

The rise of DSP in Nigeria is driven by several key factors which reflect a positive investment climate and significant growth potential:

• Energy access needs – With a substantial portion of the population lacking reliable grid access, DSP provides an effective solution for both urban and rural areas. Solar energy offers a viable alternative, particularly in regions where extending the grid is logistically challenging.
• Policy and regulatory support – The Nigerian government has introduced various supportive measures, including tax incentives, subsidies, and regulatory reforms, to promote renewable energy. For example, the Electricity Act 2023, allows states and private entities to generate, transmit, and distribute electricity within their jurisdictions. This decentralisation enables states and local governments to focus on developing renewable energy projects such as DSP. The Act also promotes the development of off-grid and mini-grid systems, which are essential for rural and underserved areas.
• Environmental and economic benefits – Solar power contributes to environmental sustainability by reducing reliance on fossil fuels and lowering greenhouse gas emissions. Investing in solar power also supports local job creation and economic development.
• Technological innovations – Innovations in solar technology and financing models, such as Pay-As-You-Go (PAYG), have facilitated the expansion of DSP. These advancements improve the feasibility and scalability of solar projects, making them an attractive investment opportunity.^[5]

The regulatory framework for distributed solar power in Nigeria

Nigeria’s DSP sector operates within a complex regulatory framework designed to foster growth while ensuring the sector’s sustainability and efficiency. This framework involves multiple stakeholders, each playing a distinct role in shaping and overseeing the development of solar projects.

Key regulatory bodies

• Nigerian Electricity Regulatory Commission (NERC) – Established by the repealed Electric Power Sector Reform Act of 2005, NERC regulates tariffs, licensing, and compliance within the electricity sector. However, please note that under the Electricity Act 2023, states in Nigeria now have the power to regulate electricity within the state.
• Rural Electrification Agency (REA) – focuses on expanding energy access in rural areas through:
  – managing projects such as the Nigeria Electrification Project (NEP) for solar infrastructure;
  – advocating for supportive solar policies; and
  – providing technical support to solar developers.

• Federal Ministry of Power – shapes and implements energy policies by:
  – developing policies to promote renewable energy, including solar;
  – coordinating efforts across all government levels for effective policy implementation; and
  – supporting infrastructure development to integrate solar power into the grid.

• Federal Ministry of Environment – ensures solar projects comply with environmental regulations by:
  – mandating Environmental Impact Assessments (EIAs) for major projects; and
  – enforcing environmental standards and waste management practices.

• Nigerian Independent System Operator (NISO) – established on 30 April 2024, to manage grid operations and market functions (previously handled by TCN), by:
  – overseeing grid management and solar power integration;
  – coordinating electricity flow and maintaining grid reliability; and
  – enforcing technical standards and addressing operational issues.

Legal framework for distributed solar project in Nigeria

The regulatory environment governing DSP in Nigeria is shaped by several key legislative and regulatory instruments:

• Constitution of the Federal Republic of Nigeria (1999, as amended) – This sets out the powers of federal and state governments in overseeing electricity generation and distribution, forming the backbone of energy regulation in Nigeria.
• Electricity Act, 2023 – This Act boosts the role of renewable energy by giving NERC clear mandates to support the development and use of renewable energy, and also increase the contribution of renewable energy to Nigeria’s energy mix.  
• Environmental Impact Assessment (EIA) Act – This Act ensures that any significant energy project, which includes solar projects undergoes an environmental impact assessment to address potential environmental and social effects, helping to maintain sustainability.
• National Renewable Energy and Energy Efficiency Policy (NREEEP) – Launched in 2015, this policy aims to increase the share of solar energy in Nigeria’s energy mix (targeting three per cent by 2020 and six per cent by 2030) and supports the use of solar systems in rural areas.
• NERC Regulations – The various NERC’s rules cover different aspects of power generation and distribution, including specific regulations for renewable energy like feed-in tariffs and requirements for connecting to the grid, ie, NERC’s Mini Grid Regulations 2023, Multi-Year Tariff Order (MYTO), etc.
• Feed-in Tariff (FiT) Regulation 2015 – This regulation sets out the terms for buying electricity from renewable sources, including how tariffs are determined and the conditions for contracts.
• State-level policies – Different states have policies and regulations to encourage and guide the development of solar projects, providing additional support tailored to local needs.

Types of licences for distributed solar power projects in Nigeria

• Generation licences – These licences fall into two main categories, off-grid generation licences and embedded generation licences. An off-grid generation licence is necessary for any solar power plant or project that operates independently of the national grid, whereas an embedded generation licence is required for the generation of electricity that is directly connected to a distribution system, which is then linked to a transmission network to supply power to specific areas or customers. Note that DSP projects generating less than 1MW will not require a licence, although a permit will be required.
• Mini-grid Permit – DSP projects that exceed 100KW but are below 1MW often require a mini-grid permit.
• Environmental Impact Assessment (EIA) – Conducted by The National Environmental Standards and Regulations Agency (NESREA). This assessment evaluates the potential environmental impacts of the project and ensures compliance with environmental regulations.
• Local government approval – Required for the installation of infrastructure and compliance with local zoning and land use regulations.

• Construction permit – Obtained from the relevant state or local authority for the physical construction of the DSP project

Note: The above list is not exhaustive as some regions require varying developmental permits.

Incentives for the development of distributed solar projects in Nigeria

• Feed-in tariffs (FiTs) – The Nigerian government offers FiTs to guarantee solar energy providers a fixed rate for electricity, this ensures long-term revenue and attracts investment in large-scale and distributed solar projects.
• Tax incentives – To encourage investment, Nigeria offers tax incentives such as tax holidays, reduced import duties on solar equipment, and tax breaks for solar companies.
• World Bank Loan for solar mini-grids – In April 2024, a significant development came in the form of a US$750m loan from the World Bank. This loan is earmarked for the development of solar mini-grids in unserved and underserved areas of Nigeria.
• Renewable Energy Master Plan (REMP) – The REMP provides a strategic framework for renewable energy, including solar power. Its aim is to raise the amount of electricity from renewable sources such as solar panels to 36 per cent by 2030. This would also mean ten per cent of all the energy Nigerians use would come from renewable sources by 2025.
• Off-grid solar solutions – Given Nigeria’s vast geography, off-grid solar solutions are vital for electrifying remote areas. Government initiatives, such as the Energising Economies Initiative, support investments in mini-grids and standalone systems, addressing energy needs in underserved regions and promoting sustainable development.

Challenges affecting distributed solar power project development and investment in Nigeria

• Regulatory and policy uncertainty – One major hurdle for solar projects in Nigeria is the ever-changing regulatory landscape. Investors can be wary of shifting policies and unclear guidelines. A consistent and transparent regulatory framework is needed to build investor confidence and promote stable growth in the sector.
• High upfront costs and financing constraints – The high initial cost of solar installations is a barrier. The Nigerian government could adopt innovative funding mechanisms, such as low-interest loans, to make projects more financially accessible.
• Grid infrastructure limitations – Many areas in Nigeria struggle with outdated grid infrastructure which cannot handle new solar inputs efficiently. Upgrading the grid and investing in energy storage is crucial for efficient solar power management.
• Land acquisition issues – Finding and securing land for solar projects often involves lengthy and complicated processes. Streamlining land acquisition by simplifying legal and administrative requirements can reduce the time and effort involved, and also make it easier to secure sites for solar installations, helping projects get off the ground more quickly.

Conclusion

DSPs in Nigeria hold significant promise, which is driven by the country’s abundant solar resources and growing energy needs. While there are challenges to overcome, the growth potential is substantial. The government’s ongoing efforts to support solar energy are paving the way for increased investment and development. For investors, this is an exciting opportunity to be part of a sector with considerable upside. By addressing existing obstacles and capitalising on the supportive environment, there’s a real opportunity to make a meaningful impact on Nigeria’s energy landscape.