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Nigeria’s shift to renewables picks up momentum

The energy transition is not easy to see in Nigeria.

Oil and gas production is still the country’s most important economic activity, accounting for by far the largest share of Nigeria’s export earnings. The overwhelming majority of grid electricity comes from natural gas. A massive new oil refinery is about to become operational. Diesel generators remain ubiquitous. Electric vehicles are almost non-existent, while wind turbines and solar panels are still rarities.

But the last few years have not been kind to the oil and gas sector. Long-running problems with theft and sabotage, alongside heightened perceptions of political and regulatory risk, have starved the industry of investment. At the very time that global oil prices surged following the Russian invasion of Ukraine, Nigerian oil production dropped to its lowest level in decades. An opportunity for a major financial windfall was squandered.

President Bola Tinubu immediately announced the removal of fuel subsidies on taking office last May. Motorists soon saw the cost of fuel increase threefold. There is little prospect of fuel costs significantly receding any time soon; even the long-awaited opening of the Dangote Refinery, which should reduce dependence on imports of refined fuel, will only make a modest difference to the price of petrol at the pump.

Amid the skyrocketing prices of petrol and diesel, Nigerians are finally taking a closer look at the potential of renewable energy. The country possesses nearly ideal conditions for solar energy; in theory, at least, small-scale solar systems could be deployed quickly, helping to extend electricity access to millions of Nigerians and reducing dependence on costly and pollution diesel generators.

Mixed picture for oil and gas

Nigeria’s oil sector has endured a torrid time over the past decade. The crash in crude prices in 2014 depressed revenues for several years afterwards. But when a rise in prices accelerated dramatically after Russia’s attack on Ukraine, Nigeria was in no position to capitalise on the opportunity.

Instead, production fell to the lowest level in more than 30 years in 2022. While this was mainly caused by rampant theft from pipelines in the Niger Delta, it also reflected sustained under-investment in the industry. International oil companies have largely departed the Delta, retaining assets only in less risky offshore areas.

The jury is still out on whether the Petroleum Industry Act, finally passed in 2021 with the aim of improving governance of the sector, will significantly shift investor attitudes. Shell is the latest to head for the exit; the company announced on 16 January that it is selling its onshore Nigerian subsidiary to a consortium of local companies.

Oil production did rise slightly in 2023 compared to the disastrous preceding year, although output remains well below the long-term average. Uwa Osadiaye, senior vice president at FBNQuest Merchant Bank, says that Tinubu’s government is focusing on attracting in investment in gas-rich deepwater blocks, as it seeks to position Nigeria as a gas supplier to Europe. Indeed, the outlook for gas production looks rosier than for oil.

“There is an opportunity for a synergy to be made between Europe and Nigeria,” says Osadiaye. “We are really a gas jurisdiction.”

While there are two separate schemes for gas pipelines to connect Nigeria directly to the European market, Osadiaye believes that exporting gas in the form of LNG is the “more obvious option”. Indeed, one of the proposed pipeline routes, which would through Niger, now looks even less viable following last year’s coup in that country.

Ultimately, Nigeria clearly has an opportunity to be a major supplier to the European market. Osadiaye estimates it could supply 10-20% of the volumes formerly sourced from Russia. In the longer term, however, Europe is moving away from gas; Nigeria will have to act quickly to develop LNG export projects in order to benefit from the current period of high demand.


At the same time as reduced production saw Nigeria miss the opportunity to increase oil revenues in 2022, the government was also left to foot a hugely increased bill for subsidising the cost of refined fuel imported from overseas. The cost of subsidy payments put Africa’s top oil producer in the bizarre position of suffering economically during an oil price boom.  

Part of the reason why the now abolished subsidy regime proved so damaging was because of Nigeria’s inability to refine significant volumes of petroleum locally. It exports raw crude, but then imports the more valuable refined product.

In theory, the opening of the long-awaited Dangote Refinery – one of the world’s largest – will help solve this problem. The $19bn facility outside of Lagos was officially ‘commissioned’ by former president Muhammadu Buhari days before he left office. In practice, construction work is not complete, although the refinery did receive its first crude delivery in December.

Some expectation management is needed when it comes to the impact of the refinery. Fuel refined by Dangote Group will be sold at market prices. Refining locally will reduce transportation costs, which, according to Osadiaye, account for 15-20% of the total cost of the product sold to consumers.

The positive impact of the refinery will not counteract the massive rise in fuel prices, which trebled almost overnight following the removal of subsidies. In fact, the huge rise in fuel costs raises questions over the long-term future of internal combustion vehicles in Nigeria.

“All of a sudden, every option becomes an option,” says Olu Adeosun, former CEO of fuel retailer Ardova and chairman of the Major Oil Marketers Association of Nigeria. While the government is keen on promoting compressed natural gas (CNG) as a long-term alternative to petroleum, Adeosun is sceptical that this strategy is viable. CNG is “not naturally suited for automotive use,” he says, and would require large and highly complex investments across the value chain.

Adeosun is much more positive about prospects for electric vehicles.

“I think there’s a lot of traction there,” he says.

At first glance, this appears to be a surprising statement. After all, there are virtually no electric vehicles (EVs) on Nigeria’s roads today and public charging infrastructure is almost entirely absent.

But Adeosun says that there is potential for the market to take-off quite quickly, particularly for electric motorcycles, which he predicts could be an upgrade on bicycles for millions of road users in Lagos.

The city also launched its first two electric buses last year. A partnership between energy company Oando Clean Energy and Chinese bus manufacturer Yutong is promising a total of 12,000 such vehicles, though the realism of this pledge remains unclear.

Adeosun acknowledges there is a “chicken and egg game” at present, with companies reluctant to be the first movers in installing charging infrastructure in the absence of clear demand. At the same time, he believes government incentives will be necessary. But he is optimistic that the EV market will ultimately make a breakthrough.

“It’s coming – that’s my firm belief. It is coming.”

Renewable rollout

Nigeria also faces huge challenges in its power sector. Some 90m Nigerians lack access to electricity, according to the country’s Energy Transition Plan, while 80% of the power that is generated in the country comes from diesel or petrol generators.

Limited progress has been made in installing utility-scale renewables that deliver power to the electricity grid. The country’s largest utility-scale solar project, commissioned last year, has an installed capacity of just 10 MW (by comparison, South Africa’s largest solar plant has a 175 MW capacity).

The situation is more promising for off-grid solar. Multiple companies have entered the market to supply solar systems to businesses or households, while mini-grids that generate power from solar panels and typically serve rural communities are also growing in popularity.

Much as the cost of filling up a car has grown massively in the past year, the cost of using diesel generators has also surged following the removal of subsidies. A lack of reliable power is a huge drag on productivity, says Theophilus Nweke, managing director at solar system provider Cloud Energy. Businesses that are unable to afford power suffer from “a huge waste of man hours, a huge waste of capital, a huge waste of human resources”, he says.

Nweke says that solar systems can make a major difference, for example with agribusiness enterprises that need affordable electricity for cold storage facilities. He tells us that Cloud Energy has installed solar-powered mini-grids supplying power to rice milling operations in Adamawa on Anambra states, which are helping these businesses to improve their productivity.

There are at least tentative signs that demand for solar energy is increasing. Chioma Ome is the Nigeria country director for Solar Sister, an enterprise that supports female entrepreneurs in selling clean energy products including solar devices of various types in rural communities. She reports that rising diesel prices have had a major impact on the market.

“There has been a tremendous increase in demand for alternative energy,” says Ome. “Our women entrepreneurs have actually sold more, made more money … there has been a positive impact to their businesses.”

The rise of solar?

Despite the tailwinds in the solar market, there is a mixed picture across Nigeria’s solar energy landscape. Lagos-based Arnergy, which received investment from Bill Gates’ Breakthrough Energy in its 2019 funding round, is one of the most prominent players in the solar sector. The rise in diesel cost has been “absolutely net positive” for the business, says its CFO James Fabola. However, he says, “the flip side to that is disposable incomes being hit”.

In other words, although the rationale for investing in solar power, potentially combined with battery storage, as a replacement for diesel generators is clearer than ever, struggling potential customers simply cannot afford the up-front cost. This is leading companies to consider new business models.

“You have to rethink your model with your engagement approach,” says Fabola.

He notes that residential customers typically favour a lease-to-own arrangement, in which they pay for the system over a set period of time. Commercial and industrial customers, on the other hand, prefer an ‘energy-as-a-service’ model, in which they simply pay for electricity without ever taking ownership of the system.

The reality that customers need to be able to spread the cost of a solar investment means that companies face new complications from having to assess their customers’ ability to pay.

“Given where we’re headed, we have to figure out how to minimise credit risks,” says Fabola.

Nweke echoes this point, noting that Cloud Energy is in the process of launching residential solar systems that customers can pay for over an 18–36-month period. It is crucial, he says, to be able to assess customers’ documentation; in some cases, the company relies on its community partners to collect documents and biometric data of other community members for KYC purposes.

Another challenge comes from supply chain bottlenecks. Solar energy companies are reliant on imported components, most of which comes from China. Olu Aruike, country director for mini-grid developer Husk Power, says that logistics and supply chain issues currently present the “most critical” challenge for the company, which is aiming to install 1,000 mini-grids over the next five years.

While improving lead times at ports and resolving other logistical hurdles is part of the solution, there is growing interest in developing a local solar panel manufacturing capability. In fact, Nigerian company Auxano Solar already has a small-scale manufacturing facility in Lagos with a capacity of 110 MW per year.

A more reliable supply chain is crucial if mini-grids, and renewable energy more broadly, is to make a major contribution to solving Nigeria’s power difficulties.

“We need scale,” says Aruike. “We need companies who can do hundreds of mini-grids every year.”

He notes that mini-grids are an important part of the government’s 30:30:30 objective, of deploying 30 GW of power by 2030, of which 30% should come from renewable sources.

No-one would suggest that the development of renewable energy in Nigeria will come quickly or easily. Oil and gas will inevitably dominate the economy for many years into the future. But the model of relying on oil exports while neglecting other industries and leaving tens of millions of Nigerians to languish without basic necessities like electricity has run its course.

The fundamental logic of making use of Nigeria’s excellent conditions for renewable energy, particularly its abundant sunlight to generate solar power, is difficult to dispute. The challenge now is to overcome the headwinds facing the sector and allow the trickle of renewables to become a flood.



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