Nigeria Faces $23bn Funding Gap Despite Increased Power Projects

Nigeria is assembling new funds, mini-grid projects and renewable energy assets for its troubled power sector, but the money currently available is still far below what is needed to improve electricity access and supply reliability.

The Rural Electrification Agency put the funding requirement at about $23bn, compared with less than $2.5bn now available.

Its Managing Director, Abba Aliyu, disclosed the gap on Friday in Abuja, where the agency entered a financing agreement with Alpha Morgan Bank worth up to N50bn for eligible renewable energy developers.

The new facility is one of several sources of funding the REA is counting on. It is also expecting $119m from the Japan International Cooperation Agency for interconnected and isolated mini-grids.

President Bola Tinubu has separately approved a $750m renewable energy intervention for 1,350 mini-grids intended to expand electricity access to about 2.5 million Nigerians. The programme is in its second year.

Yet Aliyu said the scale of available funding still fell far short of Nigeria's needs.

“But still, what is required to address the electricity challenge in Nigeria and to enhance reliability of supply is about $23bn. What we currently have is less than $2.5bn,” he said.

More projects waiting for money

The REA said it was close to completing 288 megawatts of interconnected mini-grid projects, with commissioning expected to begin in November.

Aliyu also disclosed plans to launch the Renewable Energy Asset Management Company next week. The proposed company is expected to support the operation and maintenance of renewable energy projects and use existing assets to attract private financing.

The agency has renewable energy assets worth more than $300m in various universities, which Aliyu said could be used to raise additional funds.

Nigeria also has a pipeline of about 3.7 gigawatts of local renewable energy manufacturing capacity, backed by investments estimated at $225m.

For the REA, however, the problem is not only the number of projects being developed. Developers also need money at the right stage to build them.

Many REA programmes operate under a system in which private developers must first meet agreed project milestones before receiving catalytic grants.

Aliyu said this had created an opening for Nigerian financial institutions to provide temporary funding that developers could use to carry out projects and later unlock grant payments.

Under the Alpha Morgan Bank arrangement, eligible developers in REA programmes, including the Distributed Access through Renewable Energy Scale-up project, can obtain revolving loans of up to N10bn each, subject to the bank's credit assessment and approval.

The bank may provide up to 70 per cent counterpart funding for qualifying projects, with proposed loan periods of between 12 and 24 months.

Electricity pressure is rising

Aliyu said Nigeria's funding challenge was becoming more serious because demand for electricity was set to rise sharply.

Population growth, he said, was occurring faster than the expansion of electricity infrastructure.

He also listed the electrification of transport, agriculture and other sectors, as well as digitalisation, artificial intelligence and data centres, as major sources of future electricity demand.

“This is one of the things that will make the need for electricity continue to grow drastically, beyond any level that we have seen,” Aliyu said.

He said countries were investing heavily in electricity infrastructure to support manufacturing, artificial intelligence and data centres.

The falling cost of solar generation and battery storage was also making renewable energy more attractive, he said.

“One of the things that keeps making renewable energy continue to grow and remain the fastest-growing source of electricity generation is that the cost of using solar to generate electricity has kept going down,” Aliyu said.

Alpha Morgan Bank's Executive Director, Doyin Anyaehie, said the N50bn commitment was intended to help projects that had been held back by financing problems.

She said unreliable electricity affected rural businesses, health facilities and schools.

“We thought that while we recognise that there is a financing gap, we cannot just stay on the sidelines and acknowledge that gap,” she said.

The agreement gives eligible renewable energy developers another route to finance projects, but the REA's figures show that the gap between Nigeria's present funding and its estimated electricity needs is still substantial.