Nigeria is facing severe climate change impacts, including rising temperatures, flooding, and droughts. In 2022, flooding alone caused 662 deaths and displaced 2.5 million people. The energy sector, responsible for 62.4% of Nigeria’s greenhouse gas emissions, is a key driver of these challenges. Ranked among the most vulnerable yet least prepared countries, Nigeria’s energy sector contributes significantly to economic losses, estimated at USD 6.68 billion.
Building a climate-resilient energy sector is crucial for mitigating these effects. However, transitioning to a low-carbon energy system faces numerous challenges. This article explores these obstacles and provides recommendations to support Nigeria’s energy transition.
Key Challenges to Building a Climate-Resilient Energy Sector
Financing
Financing remains one of the most significant challenges in Nigeria’s energy transition, given the substantial investment required. Several factors contribute to this difficulty, including insufficient financial resources, complex financing structures, and high perceived risks by investors. The financing of climate-smart energy projects in Nigeria can be broadly categorized into domestic public finance, international public finance, and both domestic and international private finance. However, competing national budget priorities often limit the amount of public funding allocated to renewable energy initiatives, making it harder to secure the necessary domestic investment. The private sector is key to bridging the financing gap, but investors are deterred by significant risks, such as exchange rate volatility, an unstable political environment, inadequate credit guarantees for large-scale projects, and challenges related to land acquisition. These issues increase Nigeria’s perceived risk for foreign direct investment (FDI) in the energy sector. Additionally, international finance, provided by international organizations and funds from industrialized countries, often comes in the form of bilateral grants and concessional loans. While Nigeria has benefited from this source of funding, challenges remain, including a complex application and approval process, as well as risks like foreign exchange fluctuations and inflation, which can undermine the effectiveness of international financial support.
Limited Technical Capacity
The successful deployment and maintenance of renewable energy infrastructure in Nigeria is heavily reliant on technical expertise, which remains a significant challenge. Advanced systems such as solar farms, wind turbines, and mini-grids require specialized skills that many local professionals currently lack. This skills gap is compounded by insufficient vocational training programs specifically tailored to renewable energy technologies, further limiting the development of a capable workforce. As a result, the pool of skilled technicians in Nigeria is limited, hindering the ability to scale up renewable energy projects effectively. This reliance on foreign expertise not only increases costs but also leads to delays, as it often involves lengthy training processes and logistical challenges. While the National Energy Policy emphasizes renewable energy and includes provisions for workforce training, concrete and actionable steps are required to build the necessary technical capacity. This gap in workforce development remains a key barrier to the effective and timely implementation of Nigeria’s renewable energy initiatives.
Energy Accessibility vs. Affordability
Despite progress in projects like the Nigeria Electrification Project (NEP), many Nigerians still rely on expensive and polluting energy sources such as diesel and kerosene. The high upfront cost of solar systems and mini-grids remains a significant barrier for low-income households and small businesses. Current financing models, like communal solar systems, lack scalability and affordability. Additionally, government subsidies and financing mechanisms are insufficient to bridge the affordability gap, and favourable tariffs for renewable energy projects have yet to reach underserved communities. These challenges highlight the need for more effective and inclusive financing solutions to ensure wider access to clean, affordable energy.
Fragmented Policy Implementation and Regulatory Challenges
Nigeria has a strong legal foundation for its energy transition, including the Climate Change Act 2021, the Electricity Act 2023, and its Nationally Determined Contribution (NDC) under the Paris Agreement. However, bureaucratic inefficiencies, overlapping responsibilities among regulatory bodies, and limited coordination between agencies like the Rural Electrification Agency (REA) and the Energy Commission of Nigeria hinder effective implementation. Inadequate monitoring of renewable energy targets, along with challenges in land acquisition and community resistance, further delay project execution, highlighting the need for improved coordination and stronger enforcement.
Vulnerability of Energy Infrastructure to Climate Risks
Nigeria’s energy infrastructure is increasingly vulnerable to climate risks such as flooding, heatwaves, and droughts, which disrupt operations and reduce efficiency, particularly in rural areas. The lack of climate-resilient designs for both existing and new energy projects, coupled with poorly maintained grids, makes them more susceptible to extreme weather. Additionally, limited disaster recovery mechanisms hinder quick restoration of energy supply after disruptions, highlighting the need for more resilient infrastructure and recovery systems..
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Recommendations for Overcoming Challenges
Establish Innovative and Inclusive Financing Models
To enhance financing for renewable energy, Nigeria should expand the issuance of green bonds. In 2021, green bonds had reached a total value of N58.51 billion, including N25.69 billion in sovereign green bond issuances. Additionally, corporate green bonds in Nigeria amounted to N32.83 billion in that same year. Exploring new mechanisms, such as carbon markets and climate funds, could further attract investment. Nigeria has already developed a framework to engage in carbon markets under Article 6 of the Paris Agreement, allowing for the trading of carbon credits to offset emissions. This presents an opportunity to reduce the nation’s carbon footprint while generating revenue from carbon credit sales. To de-risk private investments, the government can offer guarantees or co-financing arrangements, alongside developing pay-as-you-go models and low-interest loan schemes to make renewable energy more affordable for low-income households. Furthermore, tax breaks, subsidies, and other financial incentives could be introduced to attract both local and international investors. For example, exemptions on import duties for renewable energy equipment, such as solar panels and wind turbines, as well as corporate tax breaks for companies investing in climate-friendly infrastructure, would help stimulate growth in the sector. Notably, the Development Bank of Nigeria (DBN) secured $250 million in green climate accreditation in July 2024, making it the first Direct Access Entity (DAE) in Nigeria and the only authorized channel for accessing green financing from the Green Climate Fund (GCF), which is a significant step in attracting funding for renewable energy projects.
Build Technical Capacity through Training and Collaboration
The government should partner with educational institutions and international organizations to develop specialized renewable energy training programs. Incentivizing local manufacturing of renewable energy components would reduce costs and build domestic expertise. Additionally, launching a workforce development program to train individuals in installing and maintaining renewable energy systems would reduce reliance on foreign expertise and empower a skilled local workforce to support the country’s energy goals.
Improve Access to Affordable Clean Energy
Despite government efforts with communal solar systems, many Nigerians still depend on costly and polluting energy sources. Scaling up mini-grid and off-grid solutions in underserved areas through public-private partnerships, along with offering subsidies for renewable energy installations, can help reduce reliance on polluting fuels. Flexible financing models, such as instalment plans, would also improve affordability and make clean energy more accessible.
Streamline Policy Implementation
To improve the effectiveness of Nigeria’s energy transition, it is essential to enhance coordination among agencies like the REA, NERC, and the National Council on Climate Change to eliminate redundancies. Additionally, all new projects should undergo thorough climate resilience assessments to ensure their sustainability. Streamlining land acquisition processes and engaging communities early on will help minimize resistance and accelerate project implementation.
Integration of AI into Energy Systems
AI integrations such as smart grids which optimize energy storage, detect faults and reroute power; predictive maintenance systems which can predict failures in wind turbines, solar panels, and other infrastructure; AI for carbon capture to analyze carbon emissions data; and AI in solar panel optimization are critical in enhancing energy use and sustainability.
The role of blockchain technology is also very crucial in combating climate change. It is noteworthy that Ethereum is a blockchain that supports tokenized carbon credits which can be used to combat climate change.
Also, smart contracts can be used to mint tokens that represent carbon credits. These tokens can then be traded on Ethereum’s decentralized exchange platform. Examples include Moss Carbon Credit, an Ethereum token that offsets one ton of CO2 for each token burned. This is done by purchasing and protecting land in the Amazon Forest and Base Carbon Tonne (BCT) which uses the Toucan Protocol.
Conclusion
In conclusion, while Nigeria faces significant challenges in building a climate-resilient energy sector, such as financing gaps, limited technical capacity, and policy inefficiencies, these obstacles can be overcome with targeted strategies. By leveraging innovative financing models like green bonds and carbon markets, investing in local expertise, and improving access to affordable clean energy, Nigeria can reduce reliance on polluting energy sources. Streamlining policy coordination and ensuring climate resilience in energy projects will also accelerate the transition to a sustainable, low-carbon future, ultimately strengthening the nation’s energy sector in the face of climate change.
CONTRIBUTORS
Tilewa Oyefeso – Partner at Wigwe & Partners ([email protected])
Emaediong Lawrence – Associate at Wigwe & Partners ([email protected])
DISCLAIMER
This article is for informational purposes only and does not constitute legal advice or establish a lawyer-client relationship. For specific legal advice, please consult a qualified legal professional.
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