10 May 2024

Renewable Energy Comparative Guide

Alliance Law Firm


ALF is a multiple award winning law firm operating out of offices in Lagos, Abuja, and Port Harcourt Nigeria. Our mission is to establish a world class, full service Nigerian law firm distinguished by its premium service. We incorporate a rich blend of traditional legal practice with the dynamism required to satisfy our broad range of clients who operate in various industries.
Renewable Energy Comparative Guide for the jurisdiction of Nigeria, check out our comparative guides section to compare across multiple countries
Nigeria Energy and Natural Resources
To print this article, all you need is to be registered or login on

1 Legal and regulatory framework

1.1 What role does the state play in the renewables industry and which national legislative and regulatory provisions have relevance for the renewables industry in your jurisdiction?

In Nigeria, the state plays both supportive and governance roles in renewable development. The Electric Power Sector Reform Act 2005 (EPSRA) is the primary instrument adopted by the state to govern all aspects of electricity operations, including renewable development. The EPSRA established the Nigerian Electricity Regulatory Commission (NERC). NERC is the regulator of the entire spectrum of renewable operations. It is responsible for issuing the variants forms of licences for renewables, including generation, distribution, system operation and transmission. NERC is also responsible for making regulations, including with respect to planning and environmental impact assessment. The EPSRA privatised the electricity sector by unbundling the National Electric Power Authority, a public monopoly, which was unbundled into:

  • successor generation companies;
  • successor distribution companies;
  • Nigerian Bulk Electricity Trading (NBET) PLC; and
  • Transmission Company of Nigeria PLC.

The EPSRA also provides for the establishment of:

  • the Rural Electrification Fund (REF), which disburses initial capital grants to cover up to 70% of project costs for eligible renewable projects; and
  • the Power Consumer Assistance Fund, which disburses subsidies to cover consumers' inability to pay cost-reflective tariffs for lifeline consumers.

The Regulation on Feed-in-Tariff for Renewable Energy Sourced Electricity in Nigeria in 2015 (FIT Regulation) was adopted by NERC to facilitate the integration of renewable into the national grid through a mandatory obligation on NBET, the bulk electricity purchaser, to buy electricity from renewable developers that meet the prerequisites.

1.2 Which bilateral or multilateral instruments or treaties with effect in your jurisdiction have relevance for the renewables industry?

The few bilateral and multilateral agreements between Nigeria and other countries which have an impact on renewable are as follows:

  • The International Sale of Electricity Agreement between NBET and Société Nigérienne d'Electricité (NIGELEC) and Communauté Électrique du Bénin (Togo/Benin Bi-National Electricity Company) (CEB) was renegotiated in July 2019. This agreement requires Nigeria to sell electricity to NIGELEC and CEB daily; and since electricity from conventional sources is inadequate, recourse will be had to renewables.
  • The Economic Community of West African States (ECOWAS) Centre for Renewable Energy and Energy Efficiency adopted as Regulation C/REG.23/11/08 and the ECOWAS Regional Electricity Regulatory Authority adopted as Regulation A/SA.2/1/08 via a supplementary act are regional treaties. Both have aims such as:
    • improving cross-border electricity connections and trading among ECOWAS member states; and
    • ensuring clear, transparent tariffs.
  • As such, they mandate member states to:
    • obtain 19% of their electricity from renewable sources in the entire ECOWAS region; and
    • adopt support mechanisms for this purpose.
  • The supplementary act is a binding instrument with implications for failure to comply.

Nigeria is also a signatory to some international treaties which have positive connotations for the development of renewables. Since 2019, Nigeria has completed all three accession reports to the Energy Charter Treaty, which provides for international cooperation among member states to promote:

  • non-discriminatory provisions;
  • investment security;
  • energy efficiency; and
  • sustainable dispute resolution.

Nigeria is also a party to the Paris Climate Change Agreement 2015, pursuant to which it adopted a national determined signatory contribution with a definite commitment to developing off-grid solar electricity to mitigate climate change in the sector by 2030. As a result, there is a strong impetus for the country to develop its renewable sector beyond its current status in view of its international commitments under the Paris Agreement 2015.

1.3 Which national regulatory bodies are responsible for enforcing the applicable laws and regulations? What powers do they have and what is their general approach in regulating the renewables industry?

NERC is the main regulator of the electricity sector, as provided for under Section 31 of the EPSRA. It has the power to:

  • regulate and license the generation, distribution, system operation and transmission of electricity, including renewable energy;
  • regulate consumer rights; and
  • establish standards for various services in the sector.

It is NERC that sets the standard power purchase agreement for the electricity sector, including relevant renewable projects. In addition to its licensing powers, NERC has the power to make regulations to support the development of the sector. One such regulation made is the FIT Regulation 2015.

Other bodies such as the Rural Electrification Agency (REA) also have supportive regulatory powers. The REA has the power to promote rural electrification. It has broad powers to manage REF, which disburses capital grants to fund qualifying renewable projects. It has also adopted numerous rural electrification programmes to extend electricity to underserved and remote areas. The Minister of Power is bestowed with the power to make policies for the sector, including renewables, under the EPSRA.

1.4 What role do regional or local government or public bodies play in the renewables industry?

No answer submitted for this question.

2 Renewables industry

2.1 Which renewable technologies are considered relatively mature in your jurisdiction, and which are emerging as potentially new technologies in the market?

Large hydroelectricity is the most mature renewable technology in Nigeria. Solar energy is also emerging and currently dominates the off-grid renewable sector. Other renewable technologies such as wind, bioenergy and geothermal energy are also developing, but still lag far behind solar, especially photovoltaic.

Given that most captive off-grid renewables do not require licensing, there is no accurate record system for all of them. Thus, the exact capacity is not known. However, the installed solar energy capacity in 2019 was estimated to be 2.8 megawatts (MW), with 59 projects serving rural customers. Large hydro comprises about 20% of the available capacity in the national grid, which is 1060 megawatt-hours (MWh). The entire hydropower installed capacity, including off-grid, was estimated at 2062 MW in 2018. The total wind and biomass capacity is also unclear, but there are notable projects. For instance, in 2021, a wind generation capacity of up to 10 MW was identified. There is also biomass generation from the gasifier plant in Ebonyi State that generates 5.5 MW from rice husk.

2.2 Who are the key players in the renewables industry in your jurisdiction?

The primary actors in the on-grid renewable sectors are the generation companies which took over the hydroelectricity plants from the National Electric Power Authority. For the off-grid sector, there are some notable players such as:

  • Engie SA;
  • TotalEnergies SE;
  • Starlight Energy;
  • Enel SpA;
  • North-South Power Co Ltd;
  • CrossBoundary;
  • Shell; and
  • Daystar.

Some telecommunications companies such as MTN are also distinguished in marketing solar photovoltaics and deploying them to households. Some developers have ventured into mini-grid development. Power-Gen has 28 systems of 2.1 MW and 70 kilowatts (KW) per set-up, and 4.5 MWh total battery storage and a mini-network volume of 160 KWh. Havenhill Synergy commissioned a 20 KW solar mini-grid in Abuja and a 100 kilowatt-peak solar hybrid mini-grid in Oyo State in 2020. Beebeejump deployed 500,000 solar systems in rural communities through the output-based fund grant agreement under the World Bank-funded Nigeria Electrification Project. Aiming to power 35,000 businesses and homes, Arnergy has a current installed capacity of 3 MW and a storage capacity of 9 MWh. Lumos Nigeria, in strategic partnership with MTN, has installed over 100,000 solar systems in Nigerian homes. Auxano Solar, a solar panel assembler, had an installed capacity of 100 MW by 2022.

Other notable companies in the sector include:

  • Acob Lighting Technology Limited;
  • Nayo Tropical Technology Limited;
  • Darway Coast Nigeria Limited;
  • Sosa-Protergia Joint Development Company Limited; and
  • A4&T Power Solutions Limited.

Most of them are investors in the off-grid sector.

2.3 How much do renewables currently contribute to the domestic energy mix? What are the near-term projections for the role they will play?

Nigeria has a total installed capacity of about 14 gigawatts (GW) of power, but the current operational capacity is about 5 GW. The National Bureau of Statistics in its Nigeria Electricity Report for Q1 and Q2 2022 claimed that in this period, Nigeria generated 6172.19 gigawatt-hours (GWh) and 5882.57 GWh respectively. Hydropower contributed about 20% of the latter capacity. In 2021, renewables contributed about 2154 MW to the Nigerian energy mix. Nigeria has around 2.1 GW of hydropower installed capacity. The contribution of renewables to the off-grid electricity sector is not well documented, given the exclusion of some projects from registration and licensing with NERC. However, there are some renewable projects which will provide 700 MW of solar and hydro-energy, which have almost been completed.

With respect to projections, the Renewable Energy Master Plan (REMP) 2013 aims to increase renewable generation from 13% in 2015 to 23% by 2025 and to 36% in 2030. By 2025, it is expected that:

  • renewables will account for 10% of total Nigerian energy consumption;
  • small hydro installed capacity will have increased from 600 MW in 2015 to 2000 MW;
  • solar photovoltaic will have increased to 500 MW;
  • biomass-based power plants will have increased from 50 MW in 2015 to 400 MW; and
  • wind power will have grown to 40 MW.

The REMP also aims to increase electrification rates from 42% in 2005 to 60% in 2015 and to 75% by 2025.

3 Utility-scale renewables projects

3.1 What utility-scale renewables projects are currently operational or planned in your jurisdiction? What are their key features?

There are several large-scale on-grid and off-grid renewable projects in Nigeria. The on-grid renewable projects developed by successor generator companies (GENCOs) are:

  • the Kainji Hydro Power Plant – 760 megawatt-hours (MWh);
  • the Jeba Hydro Power Plant – 578 MWh; and
  • the Shiroro Hydro Power Plant – 600 MWh.

Independent power producers (IPPs) have also developed some on-grid electricity projects – for example:

  • 50 MW on-grid solar power has been developed at Onyi, Kokona, Nasarawa State; and
  • 80 MW on-grid solar power has been developed at Katangar Lafiya, Dutse, Jigawa State.

Some notable off-grid renewable projects have also been developed by IPPs – for example;

  • Avensol Solar Limited has developed a 100 MW solar-powered plant in Keffi, Nasarawa State; and
  • Shiroro Hydro Electric Complex has developed a 300 MW solar-powered plant project, which is being executed by North South Power Company Limited.

Licences for these projects have been issued. Many of them have commenced construction, while others are still conceptual.

3.2 What authorisations are required for the construction and operation of utility-scale renewables projects in your jurisdiction?

Licence and authorisation requirements are the same for renewable and non-renewable projects. However, the type of authorisation required varies according to:

  • the type of project;
  • the capacity of the project; and
  • the spectrum of electricity operations involved.

Generation, transmission, system operations, distribution and trading licences cover the spectrum of electricity operations as expressed in their various provisions. Generation licences vary according to the type and capacity of the project. Where the developer is generating electricity of more than 1 MWh for self-use, a captive permit is needed. An off-grid electricity generation licence will permit the developer to generate electricity from renewable sources and sell it to a single buyer. An on-grid electricity generation licence will be needed where the renewable developer wants to generate in bulk and sell through the national grid. An embedded generation licence gives the holder permission to generate renewable electricity in a smaller unit than an on-grid electricity licence and to sell directly to distribution companies through power purchase agreements (PPAs).

There are also other legal requirements. The legal requirements include:

  • the incorporation of companies;
  • audited financial statements and accounts for at least three years;
  • tax clearance certificates;
  • an environmental impact assessment (EIA) report and approval from the Federal Environmental Protection Agency; and
  • applicable agreements such as PPAs and evidence of consent from town and local government planning authorities.

3.3 Do these authorisations vary in respect of the location of the energy source, the location of the asset or the involvement of a foreign entity?

All the requirements mentioned in question 3.2 are general and apply irrespective of energy source, location and involvement of a foreign entity. However, where a foreign entity wants to participate in any or all electricity operations, it must meet the regulatory requirements for the participation of foreign businesses in Nigeria. The entity must obtain an expatriate quota from the minister of interior. Immigrant workers must obtain residence permits to enable them to work on the project site in Nigeria and remit their remuneration.

3.4 What is the procedure for obtaining such authorisations? How long does this typically take? Who is responsible for issuing them?

All electricity licences are awarded by the Nigeria Electricity Regulatory Commission (NERC). For all forms of licences, the commonalities of the procedure are detailed below:

  • A licence application form must be completed and submitted, supported by relevant documentation (eg, the CVs of management and technical staff; a 10-year business plan).
  • The application fee must be paid.
  • Within 30 days, NERC will publish a notice in two newspapers. Interested parties must raise a petition to the notice within 21 days of publication.
  • NERC will review the application to confirm its suitability and will review any public objections, the capacity of the applicant and the documentation submitted. If everything is in order, NERC will grant the licence or reject the application within six months of the date of acknowledgement of the application. This decision will be issued in writing to the applicant.
  • If the applicant is rejected, the applicant can send representation to NERC within 21 days and, where necessary, provide additional documentation.
  • NERC will issue its final decision thereafter; and if the application is still rejected, the applicant can appeal to NERC to review the application.
  • If approved, the applicant must pay the applicable licence fee.

This process takes about six to eight months, depending on whether there are queries regarding the application. A certificate of occupancy is obtained pursuant to an application made to the governor of the state after payment of stamp duties and fees. Depending on the state, this may take between one and five months. An EIA approval application may be made to NERC or to the Federal Environmental Protection Agency. An application is published for 21 days for public scrutiny before approval is issued.

3.5 What are the key features of such authorisations, including any process for renewal and the rights and obligations of the holder?

The key features of a licence are stated in its terms. A licence for power generation empowers the holder to construct, own and operate a generating station for the purpose of generating electricity. A distribution licence permits the holder to distribute electricity from grid supply points to the point of delivery to consumers or eligible consumers. A transmission licence authorises the holder to transmit electricity to distribution companies. A trading licence allows the holder to engage in the purchase and resale of electrical power and ancillary services from IPPs and from successor GENCOs.

A licence issued by NERC is renewable. The application for renewal must:

  • be submitted at least nine months before the expiration of the licence, accompanied by evidence of payment of the prescribed fees; and
  • be in line with the procedure for grant of the licence.

3.6 Can these authorisations be transferred? If so, how and subject to what consents? Do any restrictions apply to the transfer?

A licence may be transferred through an application for approval to transfer made by the licensee to NERC. The application must be supported by:

  • a board resolution of the licensee authorising the transfer;
  • a board resolution of the transferee accepting the transfer; and
  • board undertakings of the transferee:
    • to avoid service disruption;
    • to honour all existing contracts executed by the licensee; and
    • to comply with the terms and conditions of the licence.

The application will also be accompanied by:

  • the incorporation certificate of the transferee;
  • the profile of the transferee;
  • proposed changes to top management (all top management changes must be approved by NERC);
  • the draft deed of assignment (an executed copy must be filed with NERC upon approval of transfer);
  • an application for amendment of the licence;
  • proof of payment of the processing fees; and
  • evidence of payment of all outstanding indebtedness to NERC, including annual operational levies, fees, fines and other penalties.

The transferee must also complete an application for the licence.

NERC will conduct legal due diligence on the transferee and if satisfied, within 30 days will withdraw the licence from the licensee and issue a new licence with accompanying terms and conditions to the transferee.

3.7 What obligations apply in relation to decommissioning? How is this funded?

Currently, under the Electric Power Sector Reform Act 2005, there are no existing decommissioning provisions or obligations. However, it is expected that such obligations will be introduced by the Electricity Bill 2021, which is yet to be passed into law. Section 142(1)(s) empowers NERC to issue standards regarding decommissioning and the disposal of renewable assets.

3.8 What are the main barriers to the development of utility-scale renewables projects in your jurisdiction?

The major barriers to utility-scale renewable development in Nigeria include:

  • funding barriers;
  • regulatory barriers;
  • bureaucratic bottlenecks; and
  • social apathy.

Renewable utility-scale projects in the initial development phase are usually capital intensive. Regrettably, potential investors cannot afford or access the requisite initial capital needed to invest in the sector. Thus, investment in the renewable sector is constrained. Moreover, the pecuniary conditions for the award of licences exacerbate this financial barrier. Investors also encounter delays in obtaining ancillary permits such as a certificate of occupancy to take full ownership of the land on which the renewable project will be situated. In some instances, social apathy is also a barrier. Local landholding regimes, traditional practices of the people and religious issues have also been cited as obstacles to the development of the sector.

3.9 Environmental issues

  1. What environmental regulations or requirements must renewables generators in your jurisdiction observe on an ongoing basis (from pre-development to decommissioning)?
  2. What are the potential consequences of breach of these requirements – both for the renewables generator and for its directors, managers and employees?
  3. Which national and regional regulatory bodies are responsible for the enforcement of environmental obligations, and what is their general approach in regulating the renewables industry?

(a) What environmental regulations or requirements must renewables generators in your jurisdiction observe on an ongoing basis (from pre-development to decommissioning)?

Generators must obtain an EIA prior to the commencement of utility-scale projects. The EIA report will be submitted to the Federal Environmental Protection Agency and NERC. In the latter case, the EIA Report and approval are submitted alongside the licensing application. The EIA confirms that the project can safely operate on the approved site with little or no harsh effects on the environment. The report may also stipulate conditions for such approvals and impose ongoing obligations on the operator. Such obligations are always in the form of pollution prevention plans and environmental remediation plans.

In addition, there are other laws on environmental protection generally which are relevant to renewable projects. The Harmful Waste (Special Criminal Provision etc) Act 2004 makes it an offence to carry, deposit, dump or possess for the purpose of carrying, depositing or dumping any harmful waste anywhere on Nigerian soil or in inland waters and seas, including the exclusive economic zones of Nigeria. Thus, renewable project developers must not dispose of wastes emanating from their projects indiscriminately in the environment. Similarly, the National Environmental Protection (Protection Abatement in Industries and Facilities Generating Waste) Regulations (Federal Environmental Protection Regulations) 1991 prohibit the unauthorised handling of toxic waste and the discharge of effluent, industrial solid waste and similar into drains, water bodies or municipal landfills.

(b) What are the potential consequences of breach of these requirements – both for the renewables generator and for its directors, managers and employees?

Failure to comply with the EIA requirements under the EIA Act 1992 may attract criminal penalties upon conviction of:

  • fines of up to NGN 100,000 and up to five years' imprisonment for individuals; and
  • fines of up to NGN 100,000 for companies.

It may also lead to revocation of the licences and authorisations issued by NERC. Under the Harmful Waste (Special Criminal Provisions, etc) Act, an individual in default may face life imprisonment and must forfeit any craft used in the transportation of the waste or any land on which such waste was deposited or dumped.

Criminal liability will also apply to:

  • any individual caught in the act; and
  • in the case of a company, the directors and any persons who authorised such acts.

(c) Which national and regional regulatory bodies are responsible for the enforcement of environmental obligations, and what is their general approach in regulating the renewables industry?

The implementation of the EIA under the EIA Act 1992 is supervised by the Federal Environmental Protection Agency. The act may be enforced through state or local government councils. The agency has the power to:

  • inspect, examine and take copies of licences, permits, certificates or other documents;
  • demand the production of any information or devices; and
  • conduct searches, seizures and arrests.

These actions may be taken without a warrant.

NERC also implements the EIA Act through the licensing regime. As such, any renewable developer that does not conform to the EIA requirements might have its licence revoked or withdrawn. The Nigerian police are responsible for enforcing the Harmful Waste (Special Criminal Provision etc) Act. In enforcing its provisions, the police have the power to:

  • enter any land, building or craft to conduct searches, perform tests and take samples relating to the offence;
  • seize any items or substance from the premises;
  • arrest any person whom the police believe has committed an offence;
  • seal up a site; and
  • prosecute offenders.

Anyone who breaks a seal will be liable upon conviction to five years' imprisonment or a fine of NGN 50,000 or more.

3.10 Health and safety issues

  1. What key health and safety requirements apply to renewables projects in your jurisdiction and are there best practices in relation to health and safety that should be adopted?
  2. What are the potential consequences of breach of these requirements – both for the renewables generator and for its directors, managers and employees?

(a) What key health and safety requirements apply to renewables projects in your jurisdiction and are there best practices in relation to health and safety that should be adopted?

The same health and safety requirements apply to the industry (renewables and non-renewables) and are captured in:

  • the Electricity Health and Safety Standards Manual Parts 1-5; and
  • the Electricity Health and Safety Code.

Key requirements include:

  • air quality testing and monitoring requirements (eg, noise testing and monitoring, occupational noise exposure standards, first aid and resuscitation, electric shock and lockout/tagout, hand tools, workshop machines and practices, linesmen general safety practices, flash hazard analysis, blast hazard analysis, personal protective equipment (PPE), exterior safety rules, electrical equipment, ladder safety, forklift safety, crane operation, scaffolds and other work platforms, excavations and trenching, safe welding, drum handling);
  • workers' safety (eg, critical incident stress, record keeping, training and inspections);
  • accident investigations and reporting (safety recordkeeping practices, divulgement of records of injury and illness, safety training and recordkeeping, occupational health and safety office);
  • risk and vulnerability assessments (risk management, reporting obligations);
  • review processes; and
  • code disputes.

The code also reflects International Organisation for Standardisation standards and best practices.

(b) What are the potential consequences of a breach of these requirements – both for the renewables generator and for its directors, managers and employees?

Breach of the requirements relating to the following, among others, attracts a fine of NGN 50,000 plus NGN 500 for each additional day, imprisonment for three months or both:

  • the electrical safe work practices plan;
  • the provision of a job hazard analysis assessment and a PPE programme;
  • the provision of a workshop and hand tools safety policy;
  • the provision of an adequate sling safety programme and inspection records;
  • sanitation requirements;
  • the provision of a material safety data sheet and a list and history or properties of toxic industrial chemicals;
  • the provision of adequate electrical protective devices; and
  • the provision of adequate risk, crisis and vulnerability assessment programmes.

Breach of the requirements relating to the following, among others, attracts a fine of NGN 100,000 plus NGN 1,000 for each additional day, imprisonment for six months or both:

  • the provision of linesmen safety practice rules;
  • the provision of an excavation and trenching safety programme and practices;
  • the provision of a first-aid and resuscitation programme;
  • the provision of a hot work programme and elements of safe welding practices;
  • the provision of adequate emergency response and contingency plans;
  • the provision of an adequate safety record log;
  • reporting obligations;
  • the provision of radiation-measuring instruments; and
  • approved level of noise exposures and a hearing conservation programme.

Breach of the requirements relating to the following, among others, attracts a fine of NGN 200,000 plus NGN 2,000 for each additional day, imprisonment for 12 months or both:

  • the control of hazardous energy (lockout/tagout);
  • the provision of training in the contents of the code (general); and
  • the falsification of health and safety records.

4 Distributed generation projects

4.1 What are the key differences in relation to small-scale distributed generation projects compared to utility-scale projects in your jurisdiction with regard to the regime discussed in question 3?

The requirements for small-scale distributed generation projects are the same as those for utility-scale projects, except where the generation is not above 1 megawatt. In that case, there are no requirements for licensing. Thus, for such captive generation, there are no requirements in relation to incorporation, company profile, tax clearance and audited accounts.

4.2 What are the main networks that apply to small-scale distributed generation projects in your jurisdiction?

Electricity generation in Nigeria is either captive, on-grid or off-grid. Captive generation is for personal use and not for commercial purposes. A generator may decide to operate a mini-grid or connect to the existing national grid.

Currently, there are 11 distribution networks in Nigeria operated by independent companies:

  • Kaduna Distribution Company operates a network covering Sokoto State, Kebbi State, Zamfara State and Kaduna State.
  • Kano Distribution Company operates the network covering Kano State, Jigawa State and Katsina State.
  • Yola Distribution Company operates the network covering Yobe State, Borno State, Adamawa State and Taraba State.
  • Jos Distribution Company operates the network covering Bauchi State, Gombe State, Plateau State and Benue State.
  • Abuja Distribution Company operates the network covering Niger State, Nasarawa State, Kogi State and the Federal Capital Territory.
  • Ibadan Distribution Company operates the network covering Kwara State, Oyo State, Osun State and Ogun State.
  • Ikeja Distribution Company and the Eko Distribution Company both operate the networks covering Lagos State.
  • Benin Distribution Company operates the network covering Ekiti State, Ondo State, Edo State and Delta State.
  • Port-Harcourt Distribution Company operates the network covering Bayelsa State, Rivers State, Akwa-Ibom State and Cross-River State.
  • Enugu Distribution Company operates a network covering Anambra State, Imo State, Enugu State, Abia State and Ebonyi State.

5 Taxes and incentives

5.1 What national, regional and/or local incentives are available as subsidies or support to facilitate the deployment of renewables projects in your jurisdiction?

The Electric Power Sector Reform Act 2005 provides for the Rural Electrification Fund (REF) and the Power Consumer Assistance Fund (PCAF). REF disburses capital grants to cover up to 70% of the initial costs of eligible renewable projects. On the other hand, the PCAF is aimed at disbursing subsidies to cover the difference between the tariffs paid by lifeline customers and cost-reflective tariffs. While REF has been disbursing capital grants to support renewable projects, the PCAF is yet to be established. The Biofuel Policy and Incentives 2007 also propose several incentives for the integration of biofuel into the energy mix through the adoption of legislative measures for incentives. Regrettably, these legislative measures are yet to be adopted.

NERC has adopted the Regulation on the Feed-in-Tariff 2015, which obliges the Nigerian Bulk Electricity Trading to treat as a must-buy renewable electricity from eligible projects under the regulation. Other policies have proposed support for renewables, but this support is yet to materialise. These policies include:

  • the National Renewable Energy and Energy Efficiency Policy 2015; and
  • the National Renewable Energy Master Plan 2013.

5.2 Are any tax reliefs available for investment in renewables projects?

Various tax reliefs are available for investments in renewable projects, including:

  • pioneer tax incentives;
  • value added tax (VAT) relief;
  • investment tax relief; and
  • an import duty exemption.

Under the pioneer incentives pursuant to the Industrial Development (Income Tax Relief) Act 2004, renewable projects involving the development and manufacture of solar energy-powered equipment and gadgets are considered eligible for the grant of 'pioneer status' incentives (tax holidays). This exemption is for an initial period of three years and is renewable for a further period of two years.

The Value Added Tax (Modification) Order 2020 clarifies and expands the list of exempt items as contained in the First Schedule of the VAT Act. Notably, the items that are listed as exempt include:

  • wind-powered generators;
  • solar-powered generators;
  • solar cells, whether or not in modules or made into panels; and
  • other photosensitive semiconductor devices.

Moreover, companies which incur expenditure on electricity for the purpose of a trade or business carried on by the company may be granted investment tax relief for a three-year period. However, this relief cannot be enjoyed alongside pioneer status.

A 5% import duty exemption is also applicable to solar panels, solar cells and other components used in the manufacturing or assembly of solar modules.

Finally, investors can enjoy up to a 100% withholding tax exemption from interest on foreign loans as provided for under the Company Income Tax Act (as amended) by the Finance Act 2019.

5.3 Have there been any interventions affecting renewables projects in terms of their ability to be constructed or operated, or their ability to earn revenue, in your jurisdiction?

Existing fossil fuel subsidy programmes are hindering the development of the renewable sector by creating an uneven playground in favour of conventional energy sources. Fossil fuel has benefited from decades of experience in its use, coupled with existing subsidies, translating into cheaper investment costs in comparison to renewables. In order to develop the renewable sector, this should be addressed, as it is harming the competitiveness of renewables.

The capital grants disbursed by REF and the mandatory obligations under the Regulation on Feed-in-Tariff for Renewable Energy Sourced Electricity in Nigeria 2015 ('FIT Regulation') are major interventions in this sector. REF facilitates the construction of renewable projects by enabling investors to overcome difficulties in meeting initial capital costs through the initial capital grants it disburses. The FIT Regulation should also increase the chances of renewable projects earning more revenue by providing a guaranteed market for on-grid developers. However, while REF has achieved much in the context of accelerating renewable development in rural areas, the FIT Regulation has had limited success due to the challenges outlined in question 7.

5.4 What other incentives are available to promote the development of the renewables industry in your jurisdiction?

Donor agencies and international bodies are intervening in the renewable sector for accelerated deployment and development. The Global Environmental Facility (GEF) and the Green Climate Fund – the financial mechanisms under the Paris Climate Agreement 2015 – have given concessionaire funding to some renewable projects in Nigeria. The GEF Small Grants Programme in particular has given and continues to give concessionary grants to support qualifying renewable developers. The federal government also launched the Solar Power Naija Project in December 2020 with the focus of providing 5 million households with solar home systems for off-grid communities under the Nigeria Economic Sustainability Plan. The implementation of the project will be facilitated by the Central Bank of Nigeria, which will make available NGN 140 billion (approximately $340 million) in direct and indirect loans to qualifying projects. Qualifying projects will include renewable manufacturers and not just developers.

6 Financing structures

6.1 Is debt financing typically used and are there any particular structures that are common for renewables projects in your jurisdiction?

Renewable start-ups raise more financing through debt than start-ups in other sectors. One major reason for this is that renewable solutions are capital intensive and high-risk projects for renewable in Nigeria are usually financed through a debt-equity mix. The various types of financing available are:

  • equity capital;
  • debt finance; and
  • other financial instruments from domestic and international capital markets.

Equity capital is usually provided through:

  • the sponsor or developer;
  • private equity funds;
  • venture capital; and
  • impact investors.

Debt finance is provided by:

  • financial institutions in the form of bank loans;
  • loans from private persons; and
  • the issuance of bonds via capital markets.

Domestic and international capital markets are accessed through:

  • project bonds;
  • sovereign bonds;
  • refinancings; and
  • public offerings.

Financing usually involves:

  • international, regional or local investments;
  • grants and public-private partnerships; and
  • concessional loans – that is, financial advances made below market interest rates and which usually include a moratorium period within which the loan recipient is not mandated to repay the debt. Some examples in this regard include:
    • the Green Energy Fund Programme, the brainchild of the African Guarantee Fund;
    • Central Bank of Nigeria (CBN) intervention loans; and
    • the NGN 6 billion Solar Energy Fund of the Nigerian Bank of Industry.

Some venture capitalists are key players in the renewable industry; although Nigeria lacks a developed venture capital structure to cater for its renewable needs, there are some disparate interventions. In June 2019, Arnergy Solar, a Nigerian power start-up, raised $9 million; since its launch, it has delivered 2 megawatts of installed capacity to business and residential clients across Nigeria.

6.2 What are the advantages and disadvantages of these different types of structures?

Equity financing does not take funds out of the business, so it maintains good cash flow and helps in long-term business planning, as investors do not expect an immediate return on investment. On the other hand, admitting several equity partners may create room for dispute as all partners may not always agree with board decisions. Debt financing requires the company and its owners to meet acceptable credit ratings to qualify. Cash flow must be reasonably predictable to promptly make loan repayments. Debt financing may also involve mortgaging certain assets of the company, which will be obliged to repay principal and interest on specific dates without fail. Repayment of principal and interest terminates the relationship and the company will have no further obligation to the creditors. Loan interests are tax deductible, unlike dividends to shareholders which are not tax deductible. Debt repayments are also more predictable, as they are specified in advance and worked into the cash flow.

Venture capital provides a pool of funds and provides networking opportunities; but it may be difficult to identify appropriate deals and in many cases venture capitalists will have high expectations of the company.

6.3 What other considerations and concerns should parties bear in mind when deciding on a financing structure for a renewables project?

Renewable financing decisions will depend on a number of determinants, including:

  • natural resource availability;
  • technical maturity (stage of development);
  • the financial viability of the project;
  • the risk-return profile; and
  • the regulatory environment.

For example, hydroelectric projects require pre-investment funding due to land resumption and the impact of the project on the local communities in the area which might necessitate resettlement and compensation of locals by the promoters. Solar energy projects often require huge sums in investment subsidies to cater for upfront payments and involve the exploitation of tax incentives; but they are generally less reliant on debt. By contrast, debt financing is usually employed for wind farm projects due to lower debt service costs compared to equity dividend payouts. The size of the project may be another factor to consider: larger renewable projects rely on long-term financing acquired on a project finance basis, while smaller projects rely on corporate finance.

6.4 What main financing institutions are active in your jurisdiction?

  • Development finance institutions such as Africa Finance Corporation and International Finance Corporation;
  • The CBN;
  • Commercial banks; and
  • Micro-finance banks.

6.5 Which financing markets are usually turned to for sources of debt in your jurisdiction, (eg, local, London, New York)?

  • The Nigerian capital markets such as the Nigerian Stock Exchange and the FMDQ OTC Securities Exchange; and
  • The money market.

7 Transmission, distribution and export

7.1 What are the applicable processes for connecting renewables projects with transmission, distribution and export networks in your jurisdiction? Do these processes differ between different types of renewable technologies and between renewables and non-renewable projects?

The general process for connecting to the grid is that the developer (seller) enters into a power purchase agreement (PPA) with the Nigerian Bulk Electricity Trading (NBET) (the off-taker), which purchases the electricity and resells it to distribution companies. The developer could be an independent power producer or a successor generation company. The off-taker is obliged to purchase all eligible renewable energy, provided that this is not beyond the limits prescribed under the Regulation on Feed-in-Tariff for Renewable Energy Sourced Electricity in Nigeria 2015 ('FIT Regulation 2015'). Eligible renewable projects include solar, small hydro, bioelectricity and wind. The buy is also contingent on the seller bearing the costs of connecting and upgrading the electricity grid. Subject to the seller meeting these conditions, the off-taker will connect its facilities and purchase the renewable energy produced.

Under the FIT Regulation, the obligation to purchase differs from one renewable technology to another. While the minimum capacity is generally 1 megawatt-hour (MWh), the maximum varies – for example, it is 380 MWh for solar energy and 100 MWh for wind electricity. The other two are small hydroelectricity plants (370 MWh) and biomass electricity (150 MWh). Where the capacity is more than stipulated, the off-taker will be under no obligation to purchase and such procurement may be done through separate PPAs. With regard to non-renewable electricity, the off-taker is under no obligation to purchase it. As such, the bar is raised higher for non-renewable energy, as whether it is fed into the grid is contingent solely on the agreement between the seller and the off-taker.

7.2 What requirements and restrictions apply to the export of renewable energy onto the network?

The Nigerian electricity sector is dominated primarily by gas-thermal (80%) and secondarily by large hydro (20%). The Nigerian electricity grid was designed to accommodate a centralised and stable form of electricity. As such, the national grid must be upgraded to accommodate other sources of renewables, especially intermittent sources. The inability of the national grid to accommodate variant sources of renewables is a restriction in this regard. As reiterated, the FIT Regulation 2015 provides that the developer must bear the connection costs and the cost of upgrading the network to accommodate the renewable from a given project. The latter financial burden coupled with the high initial capital costs of renewable technologies makes it less attractive to on-grid investors, especially when there is a cheaper alternative – that is, centralised fossil fuel which does not need the extra cost of system upgrade or connection.

7.3 What other considerations and concerns should be borne in mind in relation to the transmission, distribution and export of renewable energy in your jurisdiction, including participation in ancillary services, wholesale electricity trading markets, network charging arrangements specific to renewables and the ability to construct part of the connection infrastructure? Are there long queues and delays for connection?

NBET is the sole wholesale trader and bulk purchaser of electricity in Nigeria. Where renewable energy is more than the capacities stipulated in Schedule 2 of the FIT Regulation 2015 NBET may purchase it under separate PPAs. The distribution companies can also buy directly from the renewable developers under a bilateral contract pursuant to the Nigerian Electricity Regulatory Commission (NERC) Regulation on Embedded Generation 2012. The major concern is that developers are mostly unable to foot the connection and system upgrade costs which are required to benefit from the feed-in tariff. Thus, there are few instances of renewable connection to the national grid accounting for the lack of long queues. Once the conditions for accessing the grid under the Feed-in-Tariff Regulation 2015 and the Embedded Generation 2012 are met, there is no delay in connection.

7.4 Are there any initiatives, reforms or consultations relating to the connection of renewables projects?

The Electricity Sector Reform Bill 2022 and the Nigerian Energy Transition Plan 2022 are proposed reforms in this context. Section 81 of the Electricity Sector Reform Bill 2022 provides for renewable purchase obligations and obliges generation licensees to ensure that a certain percentage of the electricity generated is from renewable sources. Section 145 of the bill introduces some changes to the Feed-in-Tariff Mechanism, including a shared responsibility between electricity purchasers and renewables generators with respect to the connection and system upgrade costs. A joint effect of both is that on-grid electricity generators must generate renewable energy. The main barrier to connection – cost – will be reduced by the shared responsibility. Thus, the share of renewables in the national grid will definitely increase. The Rural Electrification and Renewable Fund are proposed to be established pursuant to the 2022Electricity Sector Reform Bill to disburse subsidies to off-grid renewable developers in rural and underserved areas, in order to cover their project costs. This should further promote the development of renewable energy in the country.

The Nigerian Energy Transition Plan 2022 – which sets a target of net-zero emissions, including for the power sector, by 2060 – proposes that renewable energy be integrated into the National Grid to the extent that will displace fossil fuel electricity. While this plan is just a policy, it could result in measures that will enhance the integration of renewables into the national grid.

8 Storage

8.1 What processes and rules apply to parties wishing to construct and operate a storage (eg, battery, hydrogen, hydro) project in your jurisdiction?

There are no specific rules governing the construction and operation of storage facilities. In any case, developers that construct storage facilities do so as part of their activities under a generation, transmission and/or distribution licence. There are no instances of the development of storage facilities outside the existing licensing framework.

8.2 Are there any barriers to the development of storage projects in your jurisdiction?

The obvious barriers include the high initial capital costs, which investors cannot easily afford without recourse to credit facilities. Even the credit facilities that are available cannot easily be accessed due to the conditions for qualification, which investors cannot easily satisfy. There are also regulatory barriers to the development of storage. Finally, there are social barriers such as traditional practices. In some areas, energy elements such as sun and wind have religious and cultural connotations, such that natives are averse to using them as an electricity source. However, such social barriers are not typical.

8.3 What other considerations and concerns should be borne in mind in relation to the development of storage projects in your jurisdiction?

Storage projects are not extraneous from renewable projects. As such, the licensing and regulation requirements for storage projects are embedded in those for generation, distribution, system operation and transmission. In other words, there are no specific regulations for storage projects.

9 Competition

9.1 Are there any dominant players, including dominant purchasers, in the renewables industry in your jurisdiction?

Yes. The major developers are some of the generating companies (GENCOs) that took over from the unbundled Power Holding Company of Nigeria (PHCN). These GENCOs are the developers of large hydroelectricity projects, which generate about 19% of the national grid electricity. There are also distribution companies (DISCOs) which took over the distribution facilities of the unbundled PHCN. While Nigerian Bulk Electricity Trading Plc (NBET) remains the bulk purchaser under the FIT Regulation 2015, the DISCOs are also dominant purchasers where the renewable does not fall under the pre-conditions for a must-buy by NBET.

For off-grid, there are no dominant players or purchasers – partly because of the decentralised and uncoordinated nature of the market. However, some notable projects have been developed by independent power producers – for example:

  • Avensol Solar Limited has developed a 100-megawatt (MW) solar-powered plant in Keffi, Nasarawa State; and
  • Shiroro Hydro Electric Complex has developed a 300 MW solar-powered plant project which is being executed by North South Power Company Limited.

9.2 Are there any pro-competition measures that are targeted specifically at renewables generators?

There are no specific measures targeted at promoting competition in the renewable sector. However, Part 2 of the Electric Power Sector Reform Act 2005 provides for rules that will initiate and sustain competition in the electricity sector generally.

10 Disputes

10.1 In your jurisdiction, do disputes typically go to arbitration or litigation, and does this vary for different types of disputes? What sorts of matters tend to come up in disputes?

The Nigerian judiciary encourages the resolution of contractual disputes through alternative dispute resolution (ADR). Most statutes in Nigerian law which establish institutions usually have a pre-action notice clause and a dispute resolution clause which opts for ADR in place of litigation. For the electricity sector, the Nigerian Electricity Regulatory Commission (NERC) Market Rules (Section 43) provide that parties should explore the least expensive option of dispute resolution. The same section recommends ADR such as arbitration, mediation and conciliation as options in this context. It provides that parties should always provide for how disputes will be resolved in the sector. Sections 45 to 47 of the Electric Sector Reform Act 2005 provide that NERC can adopt regulations that will govern its power to hear and determine cases arising from the electricity sector, including in relation to renewables. To this end, it has established a Dispute Resolution Panel (Arbitration) for the settlement of disputes emanating from the sector.

Criminal matters arising from renewable disputes are not arbitrable. Also, in extending the scope of non-arbitrable matters, the Nigerian Court of Appeal has held that tax disputes are not arbitrable. Therefore, tax disputes arising from renewable matters are not arbitrable. Rather, such matters can be addressed by the Tax Appeal Tribunal and subsequently by the Federal High Court of Taxation.

10.2 Have there been any important disputes in the public domain that relate to or may potentially impact on the renewables industry or the deployment of renewables projects?

Yes. In Ibadan Electricity Distribution Company (IBEDC) v Nigerian Electric Regulatory Commission (Suit FHC/ABJ/CS/665/2018), the court held that NERC does not have the authority to change the board composition and management of Nigerian power sector licensees, as this right is solely reserved by the statute for the shareholders.

Also, in Centre for Oil Pollution v NNPC (2019) 5 NWLR (PT 1666) 518, the Supreme Court demonstrated its awareness of the growing concerns over climate change, global warming and so on by stating that national resources "must be protected and conserved for the benefit of present and future generations through careful planning and management as appropriate". The court further acknowledged that Section 33 of the Nigerian Constitution also enshrines the fundamental right of citizens to a clean and healthy environment. This landmark decision should assist in climate change disputes in the future and help to attract investment in the renewable sector.

11 Trends and predictions

11.1 How would you describe the current renewables landscape and prevailing trends in your jurisdiction?

The Nigerian government has made significant efforts in driving the shift from fossil fuels to renewable sources such as hydropower, wind, solar and hydrogen. In 2022, the government kicked off its energy transition plan as it strives to ensure that Nigeria will achieve its net-zero target by 2060, as well as making available to citizens sustainable, dependable, economical energy by 2030. Currently, renewables are at the forefront of the ongoing reforms in Nigeria's power industry, as reflected in the almost-completed Zungeru Hydroelectricity Power Project, the Dadin Kowa Hydropower Project and the Kashimbila Hydroelectricity Project.

Also, the International Renewable Agency (IRENA), in collaboration with the Energy Commission of Nigeria, has unveiled its Renewable Roadmap, which addresses plausible ways in which Nigeria can develop a cleaner, more sustainable national energy system. This confirms that Nigeria is ambitiously aiming to achieve its net-zero commitments and has set the ball rolling in this regard.

11.2 What influence are net zero commitments having on the development of the renewables industry in your jurisdiction?

Nigeria's net-zero commitments have heightened awareness of the need not only to develop the country's rich natural renewable resources, but also to use renewables to create jobs and power sustainable economic growth while realising global climate and sustainable development goals. IRENA has committed to help Nigeria achieve its objectives in this regard.

11.3 What new developments are anticipated in the next 12 months, including any proposed legislative reforms?

In order to facilitate successful energy transitions, Nigeria established four new renewable policies in 2022:

  • the National Renewable Energy and Energy Efficiency Policy;
  • the National Renewable Energy Action Plan;
  • the National Energy Efficiency Action Plan; and
  • the Sustainable Energy for all Action Agenda.

Additionally, 30,000 megawatts of electricity are expected to be generated via these policies by 2030. Consequently, it is expected that in the course of the next 12 months, there will be significant developments regarding the existing renewable legislation and policies in Nigeria, to help achieve the ultimate target of net-zero emissions by 2060 and improve the lives of citizens and the Nigerian economy.

In the next few months, there may be a reconsideration of the Electricity Bill, 2022, which seeks to repeal the Electric Power Sector Reform Act. New laws may be considered that compel energy-generating/producing companies to adhere to (yet to be passed) laws pertaining to the curbing of carbon emissions to a certain extent so as to ensure Nigeria can meet its commitment to reduce its greenhouse gas emissions by 2030 and achieve its net-zero emissions target by 2060.

It is also expected that Nigeria's abundant natural renewable resources will be rapidly developed to assist its socioeconomic recovery and development while advancing climate change mitigation and adaptation strategies and achieving energy access and security.

12 Tips and traps

12.1 What are your top tips for renewables generators in your jurisdiction and what potential sticking points would you highlight?

The off-grid renewable sector has greater potential and fewer barriers than the on-grid sector. The sometimes-prohibitive connection and system upgrade costs which are impeding the development of the on-grid renewable sector are not present in the off-grid sector. Thus, the latter is developing at a much faster pace in Nigeria. While the affordability and accessibility of initial capital remain an issue in both sectors, support is available in the off-grid sector – for instance, the Rural Electrification Fund established under the Electric Power Sector Reform Act 2005 disburses funding to cover up to 70% of the project costs of eligible off-grid renewable projects.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

See More Popular Content From

Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy.

Learn More