Energy

Decentralised energy offers an alternative to traditional grid-based power supplies (Image source: Adobe Stock)

Scaling up investments in decentralised energy will be essential if Nigeria is to put an end to ongoing blackouts and provide the long-term energy security the country craves

That’s according to Sherisse Alexander, chief business officer at WATT Renewable Corporation, commenting after the release of the IEA’s Electricity 2025 report.

According to the IEA Electricity 2025 report, an estimated 70% of Nigerians had access to electricity in 2023 — up from 50% a decade ago. 

But the gap between rural and urban areas remains stark — nearly 95% of residents in cities have access to power supplies, compared to only 40% in rural areas.

However, electricity supplies remain erratic in Africa’s most populous country. 

“The IEA’s Electricity 2025 report reinforces what millions of Nigerians already know — grid instability remains a daily challenge,” said Alexander. 

“According to Nigeria’s National Bureau of Statistics, households endure around 6.7 blackouts per week, with each lasting an average of 12 hours.”

The IEA report adds that supply issues continued to constrain gas-fired generation, while, on the contrary, distributed solar PV in rural areas saw robust growth, a clear source of optimism. 

And while other efforts to reform the industry’s structure show promise, including reshaping the transmission and distribution sector and creating local electricity markets, more work is needed. 

“While grid reforms are underway, businesses and communities cannot afford to wait,” said Alexander. 

“Hybrid solar-storage solutions are already delivering reliable, cost-effective power, reducing dependence on an unstable grid and expensive diesel. Scaling up investment in decentralised energy will be key to securing Nigeria’s energy future.”

Overall, Nigeria’s grid-based power supplies are increasing. 

Following the start of the Zungeru hydroelectric plant in April 2024, Nigeria now counts 28 grid-connected power plants, which increased the country’s total installed capacity to 14 GW, compared to 12.6GW in 2023. 

However, this growth in installed capacity did not suffice to compensate for the decrease of available capacity, which continues to be a thorn in the side for ordinary Nigerians. 

In the first half of 2024, the average daily available capacity was 4.14 GW, slightly lower than the 4.54 GW recorded in 2023, the IEA report states.

Lagos State is leading the way in reshaping the industry’s structure by seeking to establish a distinct Lagos Electricity Market designed to operate independently of the national grid. 

The Lagos State Electricity Bill 2024 aims to set up a comprehensive framework for a sustainable and competitive electricity landscape in the state, with a particular emphasis on enhancing infrastructure, promoting renewable energy adoption and ensuring consumer protection.

While decentralised energy and the roll out of distributed solar PV in rural areas shows great promise, for now, at least, it is millions of households and businesses that must bear the brunt of Nigeria’s inadequate power network. 

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Financing costs a barrier to scaling up power in Africa says IEA

Hybrid solutions to power C&I clients in Nigeria

The solar plant will boost Ghana's manufacturing sector (Image source: Adobe Stock)

LMI Holdings is to expand clean energy generation for businesses in two of Ghana’s industrial zones with the construction of the largest private-sector-led, utility-scale solar power project in West Africa

The Ghana-owned conglomerate has secured funding from the International Finance Corporation (IFC) with a first tranche of US$21mn of a US$100mn loan facility.

The 150 MW solar photovoltaic (PV) power plant will support business activity in LMI Holdings’ Tema and Dawa special industrial zones.

The first 100 MW phase is scheduled for completion by October 2026, with an additional 50 MW to be completed by June 2027.

Once completed, the so-called Solar For Industries project will ensure stable, cost-effective energy for more than 100 businesses across key industries, including food processing, cement, steel, textiles and light manufacturing.

The power plant is also expected to reduce carbon emissions by about 120,000 metric tons annually, while improving energy reliability and reducing costs for firms.

 “A thousand-mile journey starts with a step,” said Kojo Botsio Aduhene, CEO of LMI Holdings. “This is the start of our planned 1.000 MW solar farm, a feat we intend to achieve by 2032.”

Long-standing collaboration

The IFC investment builds on a longstanding collaboration with LMI Holdings, which has a presence in the construction, property development, logistics, utilities and ICT industry, and is the primary developer of the Tema Free Zones Enclave (TFZE), which hosts more than 100 companies operating in various sectors, including building materials and agro-processing.

As a leader in design, construction and maintenance of industrial parks it has also embarked on developing its second industrial park with a total area of 2,000 acres, as part of a new Dawa Smart City Development, 40 km to the east of Accra.

The IFC, the World Bank’s private finance arm, has previously supported the development of a 16.82 MW rooftop solar PV plant in the Tema industrial zone, the largest single rooftop solar project in Africa, as well as a water treatment plant in the Dawa zone.

“Expanding access to reliable and affordable clean energy is critical for driving industrial growth and economic development in Ghana,” said Dahlia Khalifa, IFC regional director for Central Africa and Anglophone West Africa.

“Our partnership with LMI Holdings underscores IFC’s commitment to support private sector-led renewable energy projects that enhance competitiveness, attract investment, and create jobs.”

The project also aligns with Ghana’s Renewable Energy Master Plan, which aims to increase the share of renewable energy in the country’s energy mix to 10% by 2030.

Read more: Ghanaian factory commissions 4.3MW solar system to support operations

Financing remains a barrier to Africa's energy development (Image source: Adobe Stock)

Financing costs still remain a critical barrier to scaling up clean power in Africa, according to the International Energy Agency (IEA)

In a recent commentary, the IEA singled out Kenya and Senegal as two places where the high cost of capital is holding back energy development.

Power consumption in Africa is rising fast and IEA analysis estimates that meeting lofty energy targets would mean annual investment roughly doubling from US$110bn today to over US$200bn by 2030.

“As investment needs grow in the power sector – where projects tend to have relatively high upfront costs – financing becomes especially important,” the IEA commentary states.

“However, many African governments face challenges in financing clean energy projects due to public funding constraints such as high debt servicing costs.

“This, combined with limited financial market maturity and low domestic savings levels, results in a reliance on external funding for clean energy projects from development finance institutions (DFIs) or international private financiers.

“While DFIs can offer lower or concessional rates, private financiers often have to price in higher project risks, resulting in a high cost of capital. This makes it harder for projects to be considered bankable or provide affordable power to end users.”

The commentary — written by Emma Gordon, IEA energy investment analyst, and Alessia Sterile, IEA junior energy investment analyst — looks at how to overcome such barriers, with a focus on two key markets, Kenya and Senegal.

Despite clear interest from investors, the cost of capital for clean power projects in both countries remains high.

Lowering solar costs

For utility-scale solar projects, data suggests the weighted average cost of capital (WACC) in Kenya and Senegal is between 8.5% and 9% — compared to North America or Europe where rates are between 4.7% and 6.4%.

Nonetheless, Kenya and Senegal still see lower financing costs than South Africa and many other emerging territories, where the WACC is between 9.5% and 11%.

This is primarily due to the role of concessional capital, the IEA notes, with about half of the projects analysed in Kenya and Senegal funded by international financial institutions in the form of low-cost debt.

Most renewable power projects in Africa that relied on concessional finance used tools such as political risk insurance or guarantees to help lower risks for other investors. Nonetheless, even with these mechanisms, the perception of political or macroeconomic risks at the country level drove up borrowing costs.

According to the report’s authors, to reduce financing costs further different risks require tailored solutions, though there is some common overlap.

Current approaches to financing, which often involve a high proportion of foreign currency, can drive capital costs even higher.

In Kenya and Senegal, off-taker risks were among the top three sector-specific concerns reported for clean energy projects. In both, state utilities, Kenya Power and Senelec, act as the sole off-taker, and both have high debt levels, increasing risk of non-payment to power producers.

Notably, all Power Purchase Agreements (PPAs) in Kenya and Senegal covered by the IEA Cost of Capital Observatory were in hard currency, while clean energy projects typically earn revenue in local currency.

“Given the significance of off-taker risk, addressing concerns about potential non-payment by utilities is key to reducing capital costs,” the commentary states.

Using guarantees can help, though in the longer term governments can also work to improve the the financial health of utilities by implementing cost-reflective tariffs, improving collection rates or even supporting debt restructuring programmes.

Interest rates, the regulatory environment and expanding local currency lending may also help to ease the problem. Other financial measures and credit enhancement mechanisms such as currency hedging could also play a role.

“Investors often report a lack of bankable projects, implying more equity capital needs to be made available for projects in the early stages,” the report adds.

“Equally, an increase in grant funding and higher risk-taking from concessional providers, if paired with the relevant policy reforms and tailored approaches to structuring financing, are key to fostering an attractive environment for private investment.”

Read more: Renewables to meet almost half of global electricity demand by 2030