Written by Sa’ad Kamal-Deen

Nigeria’s electricity access has steadily improved over the past decade. According to the World Bank, 61 percent of Nigerians had access to electricity in 2023, up from about 55 percent in 2020. This represents millions of new connections, demonstrating meaningful progress, particularly in expanding rural electrification and last‑mile access.

However, electricity must do more than light homes. It must enable people to run businesses, improve their livelihoods, and grow the economy. Today’s system remains heavily focused on household connections, while insufficiently powering businesses and industries, the true drivers of jobs and economic growth. Moving from basic access to genuine energy productivity requires reliable, affordable, and scalable power that supports economic activity.

Nigeria’s Energy Crisis is Structural, not Economic

Nigeria already has the capital needed to fund productive energy sectors, but weak structures make those investments unviable. According to the Africa Finance Corporation’s (AFC) State of Africa’s Infrastructure Report 2026, Africa’s domestic non‑bank capital pools now exceed $2 trillion, more than the $1.7 trillion received in external flows over the past decade.
Yet this capital flows to safer options, foreign assets, government bonds, or overseas accounts because investing in local power projects feels too risky and uncertain.

This reality underscores a deeper challenge identified in the African Development Bank’s analysis: while attention often centers on how Africa’s ambitions will be financed, an estimated $587 billion leaves the continent each year, far exceeding the resources it receives through foreign investment, aid, and remittances.

As noted by Samaila Zubairu, AFC President, “the constraint is no longer capital; it is intermediation. Africa has the savings, but not the systems to channel them into infrastructure and industry at scale.”

Renewable Energy Needs to Provide Scalable Power for Jobs and Businesses

Renewable energy such as solar, wind, hydropower, geothermal, and biomass must move beyond rural electrification to provide reliable, scalable power for jobs and businesses. This change helps keep the energy supply safe and reliable while also protecting the environment, so we can meet today’s needs without harming those of future generations. The stakes of this transition extend beyond the energy sector to Africa’s macroeconomic survival.

Many Nigerian businesses are forced to rely on their own diesel generators (and sometimes small gas plants) due to an unreliable power grid and weak power lines.

This shifts the cost of reliable power from one national system to each individual business, pushing up day-to-day operating costs, making expenses swing with foreign currency rates, and embedding carbon intensity in the supply chain, ultimately eroding Nigeria’s global competitiveness.

To break this cycle, Nigeria must transition to large-scale, clean energy sources. These systems provide the economies of scale necessary to undercut the diesel costs and build grid resilience. But often developers are paralyzed by the high cost of capital, strenuous feasibility studies, regulatory approvals, and infrastructure assessments, driving the cost of capital in Africa to punishing rates of between 12 and 20 percent, and sometimes higher with commercial banks.

Reforming Subsidies and Tariffs for a Sustainable Power Sector

Historically, electricity in Nigeria has been heavily subsidized to protect low-income consumers. However, the government has consistently failed to disburse subsidy shortfalls to developers and distribution companies. At the same time, legally suppressed tariffs, set below the true cost of service, combined with unreliable government guarantees, render commercial projects financially unviable for private investors and unbankable for local financiers.

To address this, tariffs must be redesigned to reflect actual costs. This requires a shift from blanket subsidies to targeted support that protects only the most vulnerable populations, while simultaneously reducing the capital expenditure burden on critical infrastructure.

By lowering underlying generation and infrastructure costs, reliance on consumer subsidies can be reduced organically, making cost-reflective tariffs viable politically and economically.

Unlocking Investment Through Catalytic and Concessional Financing

Nigeria must pivot away from unfunded consumption subsidies toward catalytic and concessional financing models. By strategically deploying such finance to de-risk utility-scale infrastructure, the country can build a robust pipeline of investable projects that link finance, energy, and industry into coherent ecosystems.

One way to achieve this is to leverage patient capital from development finance institutions to absorb early-stage risks and provide first-loss protection to local pension funds, family offices, and similar investors. This approach can significantly reduce the total capital expenditure of utility projects.

For example, in 2025, the National Pension Commission reported assets under management exceeding $14 billion. This represents a substantial pool of long-term capital that can be unlocked through appropriate guaranteed structures and credit enhancement mechanisms.

Catalytic financing is already a central focus of the Energy Transition and Challenge Fund (ETCF), a program run by the AECF and funded by Germany’s Federal Ministry for Economic Cooperation and Development (BMZ) through KfW Development Bank (KfW).

To fully unlock this pipeline of bankable projects, policymakers must implement key market enablers. These include strengthening embedded generation frameworks, streamlining permitting processes, improving transparency in sector data and market intelligence, enabling competitive private sector participation in both transmission and distribution, and standardizing bankable power purchase agreements to provide the regulatory clarity required by institutional investors.

Nigeria’s current energy trajectory cannot deliver industrial growth on its own. By strategically deploying catalytic finance to de-risk utility-scale infrastructure, the nation can build a robust pipeline of investable projects that link finance, energy, and industry into coherent ecosystems.

Building an Energy System That Delivers Jobs and Growth

Solving Nigeria’s energy challenge demands building a system that delivers reliable, scalable power for businesses and jobs, reforming tariffs and subsidies to reflect economic realities while protecting the most vulnerable and unlocking investment through catalytic and concessional financing.

Doing so will stem the tide of Africa’s wealth drain by leveraging our own $2 trillion domestic capital base to build a competitive, productive economy. Ultimately, the success of this transition will be largely measured by how effectively energy powers production, drives down costs, and secures long-term prosperity.