Enabling private sector development in African renewables

This is an extract from a recent report “Energising Africa: enabling private sector development in renewable energy” by Africa Policy Research Institute (APRI).

Africa’s energy landscape presents vast untapped renewable energy (RE) resources juxtaposed against a backdrop of widespread energy poverty. Despite being rich in solar, wind, hydro and geothermal potential, the continent has the lowest electricity access rates globally, with about 600 million living without power. RE offers an answer to this electricity deficit. Renewables are now gaining traction not only because of falling technology costs and global climate commitments, but also because they offer modular, scalable solutions in a context where traditional grid expansion has often faltered. They also represent a pathway to improved energy security, energy transition and economic diversification through their ability to provide an improved, reliable supply. The shift towards RE sources is not only a response to the global climate crisis but also a strategic move to reduce dependency on fossil fuels, which often come with volatile prices and geopolitical tensions. Yet despite this potential, the actual deployment of RE has been limited. The private sector could be key to filling the investment and deployment gaps in Africa’s RE sector.

Overview of current and potential development of renewable energy in Africa

Africa has huge renewable energy (RE) potential. It has some of the highest solar irradiation levels globally: More than 85% of Africa receives at least 2,000 kWh/m² per year, which is notably higher than many parts of Europe and North America, which typically receive around 1,000 hours of sunshine per year. IRENA estimates that Africa could generate over 10 terawatts (TW) of solar power annually, which is enough to meet a significant portion of its electricity needs. Wind energy prospects are equally promising, particularly in the East African Rift and the coasts of North and South Africa. IRENA highlights that the continent has the potential to generate approximately 461 GW of wind power. Hydropower, a historically significant source of RE in Africa, also has considerable untapped potential, especially in Central and East Africa, with the potential to generate around 1,750 TWh annually. Additionally, geothermal resources in the East African Rift System present significant opportunities for countries like Kenya and Ethiopia, with a potential capacity of about 15 GW.

Despite the growth in deployment, the overall penetration of RE in Africa’s energy mix is still relatively low at just 25%, compared to the global average of 41%. This could be attributed to several factors, such as limited public and private funding, inadequate infrastructure, policy and regulatory challenges, and a lack of technical expertise. RE installations are also unevenly distributed. As of 2024, a significant portion of Africa’s RE generation comes from hydropower and not solar and wind energy. While hydro has long been a leading contributor, it is increasingly vulnerable to the impacts of climate change, such as drought, while solar and wind can be more predictable depending on their geographical locations. Solar and wind energy developments are increasing but remain nascent in many regions. Deployment is also hindered by the fact that most African countries rely heavily on fossil fuels for their energy needs. Below are regional and country RE highlights:

North Africa: Countries like Morocco and Egypt are leading in solar energy, with ambitious projects like the Noor Ouarzazate Solar Complex in Morocco, one of the world’s largest solar power plants. North Africa’s proximity to Europe also offers potential for energy export.
West Africa: The region has made strides in both solar and wind energy. Nigeria, despite its vast oil reserves, is gradually exploring solar energy to address its power shortages and growing electrification gap. Projects like the Nigerian Electrification Project (NEP) and the Distributed Access through Renewable Energy Scale-up (DARES) programme are promoting off-grid solar solutions like mini-grids and solar home systems (SHS) to enhance energy access in rural communities, education facilities and health care centres. Ghana and Senegal are also emerging as key players in the solar energy sector. In Ghana, the Scaling-Up Renewable Energy Programme (SREP) is driving the deployment of RE power projects, while Senegal has implemented projects like the 20 MW Bokhol Solar Park to diversify its energy mix.
East Africa: The Great Rift Valley offers significant geothermal potential. This region is already a leader in geothermal energy, with Kenya being the largest producer of geothermal energy in Africa (over 800 MW), allowing them to generate 90% of their electricity from RE sources. Ethiopia is also making strides in geothermal development, with projects like the Aluto-Langano Geothermal Plant (in 2023, well tests confirmed a capacity of 25 MW). Wind energy is gaining traction, exemplified by the Lake Turkana Wind Power project in Kenya, Africa’s largest. Off-grid solar solutions are also rapidly expanding, providing electricity to rural households and businesses across the region.
Central Africa: This region remains the least developed in terms of RE. However, countries such as the Democratic Republic of Congo, through which runs the Congo River, have significant untapped hydropower potential (up to 100,000 MW). Projects such as the Inga Dam could drastically increase the region’s RE capacity. Additionally, decentralised energy solutions are beginning to take hold, with off-grid solar systems providing much-needed electricity to remote communities.
Southern Africa: South Africa is at the forefront of wind energy development (over 3442 MW being contributed by 34 wind farms) and is actively expanding its solar energy capacity. The country has implemented several RE programmes, attracting significant private-sector investment. A notable example is South Africa’s Just Energy Transition Partnership (JET-P), announced at COP26, which involves USD 8.5 billion in funding from international partners to accelerate the transition from coal to RE. In addition to large-scale projects, South Africa is seeing growth in decentralised energy solutions, including off-grid and mini-grid solar systems, which are crucial for providing power to rural, underserved and unserved areas.

The case for the private sector in renewable energy

The private sector currently plays a pivotal role in advancing RE across Africa. It contributes not only in terms of direct investment in RE projects but also by bringing innovative technologies, efficient project management and global best practices. Private enterprises can be categorised into three key groups:

Private solar companies and developers: Private solar companies and developers are at the forefront of deploying individual off-grid energy solutions across Africa. Companies like M-KOPA, d.light, and BBOXX have been instrumental in providing solar home systems and panel-inverter setups to millions of households. M-KOPA alone has connected over one million homes in East Africa to affordable solar power. These solutions differ from communal off-grid systems such as solar mini-grids, which serve entire communities and are typically developed by different types of operators under separate regulatory frameworks. Companies such as ACOB lighting, Ceesolar, Sun King and Power Gen Renewable are large-scale mini-grid providers.

Financiers and investors: Financial institutions and investors provide the necessary capital for RE projects. The African Development Bank (AfDB) and private equity firms such as Actis and Berkeley Energy have invested heavily in RE projects across the continent. According to IRENA, private sector investment accounts for approximately 70% of all RE investments in Africa.

Technology providers: Technology providers are central to the advancement of Africa’s RE sector. They supply critical components such as solar PV modules, wind turbines, battery systems, inverters and, increasingly, software-based energy management tools that support both on-grid and off-grid systems. Major global players like Siemens, Huawei and General Electric have supplied technologies for large-scale renewable projects across the continent. Meanwhile, African innovators are increasingly contributing to product design, customisation and after-sales support tailored to local conditions.

Emerging innovations

Battery energy storage systems (BESS)
Artificial intelligence (AI)
Micro-grids and mesh networks
Peer-to-peer (P2P) energy trading
Virtual power plants (VPPs)

Technology providers are no longer just equipment suppliers, they are critical enablers of flexible, data-driven, community-based energy models. As Africa shifts from centralised power to hybrid and decentralised systems, these players will define the pace and scalability of RE adoption.

Case study: Nigeria’s electricity sector

Nigeria’s electricity sector has been characterised by significant challenges, including inadequate generation capacity, an unstable grid and frequent power outages. Despite having a sizable population and being one of the largest economies in Africa, the country has struggled to provide reliable and sufficient electricity to its citizens and businesses.

Generation capacity

Nigeria’s electricity generation relies heavily on natural gas and hydroelectric sources. However, the generation capacity is often underutilised due to gas supply constraints, aging infrastructure and technical challenges.

Despite Nigeria’s installed generation capacity of over 13,000 MW, actual energy production has consistently fallen short, as evidenced by the data spanning from 2019 to 2025. This persisting underperformance, with available capacity never exceeding 5,500 MW, points to significant operational inefficiencies and systemic challenges within the energy sector. The peak available generation capacity of 5,339 MW in 2025, while a commendable achievement, still represents less than a third of the installed capacity. While there is substantial infrastructure in place, factors such as maintenance issues, fuel supply shortages, grid instability and payment defaults are hindering its utilisation. This has led to losses as high as 70% among power distribution companies (DISCOS). The transmission and distribution networks are plagued with inefficiencies. Ageing infrastructure, inadequate maintenance and underinvestment have resulted in significant energy losses and unreliable power supply. The figure below shows the most recent aggregate, technical, commercial and collections (ATCC) losses in Nigeria.

These ATCC losses are both transmission and distribution losses, with the Transmission Company of Nigeria (TNC) still experiencing losses higher than its regulated loss of 7.5% in delivering electricity from the generation companies to the distribution companies. The ATCC losses also include commercial and collection losses from the distribution companies due to electricity theft and customers’ unwillingness and inability to pay for power.

Government and private reform efforts (2010-date)

Power sector privatisation: In 2013, Nigeria privatised its power sector by selling a majority stake (60%) in its generation and distribution companies to private investors. The reform aimed to attract private capital, improve efficiency and revitalise electricity supply. While private investment increased (e.g., United Bank for Africa provided USD 700 million in financing), the initiative has delivered mixed results. For instance, average electricity generation grew modestly from around 3,419 MW in 2014 to approximately 4,492 MW in 2024. However, as of 2025, stranded capacity available generation that cannot be dispatched (13,625 MW installed capacity and 5,339 MW available capacity) remains at over 50%. Furthermore, the Manufacturers Association of Nigeria (MAN) has criticised some privatised distribution companies for lacking operational effectiveness, despite tariff increases.
Renewable energy initiatives: There has been a growing focus on decentralised RE, particularly solar, to bridge the electricity gap. Initiatives like the Nigeria Electrification Project (NEP) and the Distributed Access through Renewable Energy Scale-up (DARES) programme implemented by the Rural Electrification Agency (REA) aim to increase access to electricity through off-grid solar solutions. These include a component for energising education by providing uninterrupted power supply to 37 federal universities and seven teaching hospitals.

Efforts like the Rural Electrification Fund (REF), which provides grants to developers of mini-grid and off-grid solutions, show a targeted approach to extending electricity access through decentralised RE projects. The REF has supported projects like the Sabon Gari Market solar hybrid mini-grid in Kano State, providing reliable power to thousands of traders and boosting local economic activities and other projects.

Policy frameworks

National Renewable Energy and Energy Efficiency Policy (NREEEP): This policy outlines Nigeria’s commitment to increasing the share of RE in its energy mix and promoting energy efficiency. NREEEP sets targets for RE contributions to the national grid, encouraging investment in solar, wind, hydro and biomass projects.
Mini-Grid Regulation: Provides a framework for the development and operation of mini-grids, enabling private sector participation in off-grid and underserved areas. In 2024 alone, NERC issued over 174 mini grid licenses to new developers.
Franchising Regulation: Allows private companies to operate within specific geographical areas of the DISCO networks under franchise agreements, improving service delivery and investment in distribution networks.
Electricity Act: Released in 2023, this act is heavily focused on RE incentives and integration of RE into the national grid.
NERC RE Obligation: In April 2024, NERC mandated all distribution companies to purchase an extra 5% of their current energy capacity from RE sources – a step in the right direction, though this has not yet been achieved.
Energy Transition Plan: Aims to transition Nigeria towards a more sustainable energy future, focusing on RE, energy efficiency and reducing carbon emissions. The plan aligns with Nigeria’s commitment to the Paris Agreement, setting ambitious targets for reducing greenhouse gas emissions and increasing RE capacity.
Integrated Electricity Policy and Strategic Implementation Plan (IEP-SIP): Introduced in 2025, the IEP-SIP provides a comprehensive roadmap for Nigeria’s electricity sector development. It focuses on optimising the energy mix, enhancing grid reliability and promoting sustainable practices. The plan also considers the integration of battery energy storage systems to support RE deployment.

Investment in infrastructure: The Nigerian government is investing in critical infrastructure to support the RE sector. This includes upgrading transmission and distribution networks to improve reliability and reduce technical losses. Through the Presidential Power Initiative (PPI), the Transmission Company of Nigeria (TCN) is implementing multi-phase grid enhancements. In 2024 alone, a USD 800 million federal investment was announced under the PPI to boost transmission capacity and enable evacuation of up to 6,000 MW by the end‑2024, scaling to 25,000 MW by 2025. Phase 1 included a USD 328.8 million contract for substations awarded in April 2025, while the 2025 budget allocated USD 195 million to PPI transmission projects.
International partnerships and funding: Nigeria has engaged in numerous international partnerships to secure funding and technical assistance for RE projects. Organisations like the World Bank, AfDB and USAID have been instrumental in providing financial and technical support. The NEP, funded by the World bank, and the AfDB have connected more than one million households and 11,400 MSMEs to electricity through solar hybrid mini-grids and stand-alone solar systems. The NEP is now being supported by the DARES programme, which aims to provide electricity to over 17 million Nigerians.

Lessons learned from private sector participation in Nigeria

Challenges in privatisation: The privatisation process has faced challenges, including tariff disputes, loss underestimation, payment defaults by both customers and DISCOs (leading to increased sector debts) and underinvestment in infrastructure, which led to a market shortfall being owed to the generation companies of over ₦ 4 trillion at the end of 2024. These issues highlight the need for a well-planned, transparent and implemented-as-designed privatisation process, with improved, implementable policies supported by regulatory oversight. Addressing these challenges can make the sector more attractive to private investors by ensuring a stable and predictable investment environment. For example, achieving cost-reflective tariffs and managing legacy debts can reduce financial risks for investors, while improving infrastructure can enhance the viability of the overall sector.
Importance of stable policies: Consistent and clear government policies are crucial for attracting and retaining private investment in the electricity sector. Policies that support RE development, such as feed-in tariffs, net metering, tax incentives and RE targets, can provide the certainty needed for long-term investments. Nigeria currently has a robust mini-grid regulation, widely regarded as one of the most progressive in Africa. This has led to significant improvements in its off-grid sector and impacted over 20 million people with RE so far. Demonstrating its maintenance of stable and supportive policies (the Mini-Grid Regulation was updated in 2023) based on stakeholder consultations, NERC is set to release a Net Metering Regulation by the end of 2025. Nigeria can continue to signal its commitment to improving energy access, thereby attracting more private-sector investments beyond those from the IFC, which currently make up most of the current funding in the space.
Role of renewable energy in improving energy access: RE, particularly solar, has demonstrated strong potential in bridging Nigeria’s electricity access gap, especially in rural and underserved areas. Mini-grids and solar home systems (SHS) have reached communities that the national grid is unlikely to extend to within the next 5-10 years due to cost and infrastructure limitations. According to the REA, over 176 mini-grids have been deployed as part of the Nigeria Electrification Project (NEP), impacting over 7.8 million Nigerians.

To unlock more private investments, Nigeria must sustain and expand enabling conditions for energy projects, particularly in the RE sector. These enabling conditions include supportive policies and regulations, such as the updated Mini-Grid Regulation and forthcoming Net Metering Regulation; access to both local and international financing, including concessional funding and risk mitigation instruments; clear procurement frameworks; and capacity development for local technical expertise. By translating these lessons into actionable strategies, Nigeria can keep creating a more conducive environment for private sector investments in RE. This involves addressing the main challenges in the electricity sector, implementing supportive policies and fostering a stable and predictable investment climate. Overall, Nigeria’s electricity sector case study highlights the complexities involved in energy sector reform and the potential of RE in addressing electricity challenges in developing countries.

Challenges and barriers to private sector participation in Nigeria

Financial and economic barriers

Access to capital: Due to several interlinked challenges, access to affordable finance remains a key barrier to renewable energy (RE) development in Nigeria. First, RE developers often spend in dollars but earn in naira, creating significant currency mismatch and exchange rate risk, especially in a highly volatile forex market. Second, RE projects require high upfront capital costs, which can deter both investors and lenders in the absence of long-term, low-interest financing options. Third, post-COVID macroeconomic instability, including Nigeria’s weakened credit outlook, rising global interest rates and reduced fiscal space, has made capital even harder and more expensive to access.

Capital intensity of renewable projects: The substantial upfront capital requirement for RE infrastructure like solar panels can be a significant barrier, especially for startups. Developing a solar farm can range from USD 1 million to USD 2 million per megawatt. This excludes additional costs that may be incurred during implementation.
Perceived risk: Political and economic instability leads to perceived higher risks for investors. Political instability and policy shifts in African countries have historically led to weakened investor confidence. Frequent changes in the leadership of key government institutions have also created uncertainty. For example, between 2016-2019, the tariffs in the electricity sector were frozen per a directive from the regulator which came directly from the presidency of Nigeria at the time. This meant that the private investors in these companies could not invest new capital as there was no line of sight for recovery. In addition, part of their CAPEX needs could not be funded, as no financial institutions were willing to lend to these companies.

Regulatory and policy challenges

Policy inconsistency and poor implementation: Frequent changes in energy policy, regulations and orders, often driven by political shifts, create a volatile investment environment (this is especially prevalent in the on-grid sector). Changes in tariff structures, frequent freezing of tariffs (though mainly on-grid related) and poor implementation of RE incentives discourage long-term investments. There is also an absence of sufficient fiscal incentives for RE projects: While some tax incentives exist, they are often insufficient or inconsistently applied, reducing their effectiveness. For instance, Nigeria offers several fiscal incentives for RE projects.
Complex licensing procedures: The complexity and time-consuming nature of obtaining licences and approvals for energy projects can significantly delay project initiation. For instance, it takes a minimum of six months from the time an application is acknowledged for NERC for the licence to be issued. The extensive paperwork and multiple approvals required for mini-grid projects can take months or even up to a year. However, efforts are being put in place to better streamline this process.

Infrastructural limitations

Poor network infrastructure and integration challenges: The existing grid is unable to integrate RE sources due to outdated technology and lack of capacity. Although the country has an installed generation capacity of over 13,000 MW, the grid struggles to consistently deliver more than 4,500–5,000 MW. According to EMRC’s ELEC-T platform, the national grid collapsed 10 times in 2024 alone, highlighting the instability across the country. These constraints make it difficult to incorporate RE, which requires flexible and responsive grid systems.

As of 2025, no utility-scale RE projects have been integrated into the national grid. However, according to stakeholder consultations, ongoing feasibility studies and pilot initiatives are underway to support future integration.

Logistics and access issues: In remote project locations, the lack of adequate transportation and logistics infrastructure can hinder project-materials’ supply-chain management. Projects in rural Nigeria often face delays due to poor road conditions and lack of transport infrastructure. For instance, mini-grid developers under the Nigeria Electrification Project (NEP) reported that delivering solar panels and batteries to sites in Taraba, Benue and Cross River States often took 4-6 weeks longer than planned due to poor road networks, especially during the rainy season.

Market-related challenges

Limited market information: Access to reliable market data remains a key constraint for private investors in Nigeria’s RE sector. Many developers lack accurate, granular information on energy consumption patterns, customer payment behaviour and project viability, making investment planning more difficult and riskier. As a result, companies are often forced to carry out their own customer enumeration, energy audits and demand studies as part of their pre-investment activities, increasing transaction costs.
Competition with established energy sources: Renewable energy (RE) developers often face difficulty competing with the national grid, especially for customers in bands B to E, who still benefit from government electricity subsidies. While fuel subsidies for petrol were officially removed in June 2023, grid electricity subsidies persist and can distort market pricing, making RE less attractive for cost-sensitive consumers.
Market maturity: While Nigeria’s RE market is still developing in terms of depth, scale, geographical spread and financing structures, notable progress has been made in recent years. The supply chain for key components is increasingly robust, with major OEMs like Jinko, JA Solar, felicity solar, Blue carbon and Huawei establishing strong distributor networks and after-sales service within the country. However, challenges remain in project development capacity, access to scale financing and the relatively small number of local firms able to deliver large-scale, bankable projects. The introduction of Renewable Energy Service Companies (RESCOs) by the REA has helped address this, with some RESCOs now pursuing projects exceeding 300 MW.

Technical and skill gaps

Lack of technical expertise: There remains a gap – though gradually narrowing – in the availability of trained professionals to design, install and maintain RE systems in Nigeria. This capacity challenge is being actively addressed through initiatives like the REA NEXTGEN RESCO programme, which aims to build a pipeline of young, skilled, energy professionals, and NAPTIN’s renewed partnership with JICA to expand training in solar PV installation and maintenance nationwide.

Strategies and recommendations for enhancing private sector participation