Unlocking Nigeria’s solar potential: An innovative commercial structure for scaling utility-scale solar photovoltaic (PV) projects

Nigeria, with its abundant solar radiation and vast untapped potential for renewable energy, stands at the precipice of a transformative energy revolution. However, despite the country’s favourable solar conditions, its energy sector has struggled with financing and bankability issues that have hindered the widespread development of large-scale solar power. To realise the country’s solar potential and accelerate its energy transition, innovative commercial structures are needed to attract private sector investment and mitigate risks for utility-scale solar developers.

The current landscape: Challenges in scaling solar

Although Nigeria has immense solar resources, only one utility-scale solar photovoltaic (PV) project—the 10 MW Kano Solar Power Project—has been completed and connected to the national grid. This project, developed through a Special Purpose Vehicle (SPV) involving the federal government, Kano State, and the Kumbotso Local Government Area, underscores the complexity of financing and scaling solar power in Nigeria.

For the country to fully leverage its solar potential, it is critical to establish a commercial framework that addresses the main challenges developers face: financing, bankability, and a sustainable off-take for power generated. This framework must unlock private sector participation and de-risk utility-scale solar PV projects.

A scalable and bankable commercial model

One promising solution is hourly matching Power Purchase Agreements (PPAs), a structure that matches renewable energy generation with the energy demand of large commercial and industrial (C&I) customers. This model makes utility-scale solar PV projects bankable for developers and has incentives for C&I customers, aligning with their sustainability goals while ensuring long-term financial viability for investors.

Example: A Hypothetical 50 MW utility-scale solar PV project in Abuja

The project developer would create an SPV that would sign long-term hourly matching PPAs with large C&I customers. These customers, motivated by the need to reduce carbon emissions and meet their sustainability targets, would commit to purchasing the energy from the solar plant at a power price that makes the economics of the project bankable.

In addition to securing contracts with C&I customers, the SPV would also sign a power supply agreement with the Distribution Company (Disco) to sell energy onto its market perimeter at the prevailing Band. A market price during the period the solar plant is producing energy. This dual off-take model—combining power sales to C&I customers and the grid—ensures a stable cash flow for the project and de-risks the solar project.

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Every month, the C&I customers would then pay the difference between the PPA price and the grid price. And if the grid price is higher than the PPA price, the SPV shares the upside with the C&I customers. This arrangement ensures that the SPV receives a reliable PPA price, while C&I customers benefit from the green energy solution, and the local Disco can provide wheel power to Band A customers within their market perimeter.

This innovative model creates a win-win situation: Developers secure financing and minimise risks, while large consumers access carbon-free electricity, helping them meet their sustainability and decarbonization goals.

C&I customers can leverage green bonds for investment

The development of bankable solar projects in Nigeria also opens up new opportunities for green bond financing. With Nigeria’s commitment to the Paris Agreement and the Nigerian Stock Exchange’s (NGX) Green Bond Market Development Programme, there is an avenue for C&I customers to raise capital through green bonds to fund operations. When a C&I signs a PPA with the utility-scale solar PV plants and matches their energy demand hourly, they can use that in their sustainability reporting for green bonds.

Best practice: South Africa’s Teraco model

A successful example of this commercial structure can be seen in South Africa, where Teraco, a subsidiary of global data centre leader Digital Realty, is developing a 120 MW solar PV power plant. The project is designed to meet the energy needs of Digital Realty’s data centres, matching renewable energy generation with the energy demand of the data centre operations. This approach not only meets Digital Realty’s sustainability goals but also provides a scalable, bankable model for the utility-scale solar PV company.

In Nigeria, a similar model could be replicated across energy-intensive sectors such as manufacturing, telecommunications, oil and gas, and mining, where large companies face increasing pressure to reduce their carbon footprints. By hourly matching solar power generation with the energy demand of companies in these industries, solar power developers can create a robust, scalable commercial model that attracts private investment and accelerates the country’s clean energy transition.

Unlocking Nigeria’s solar future

To unlock the full potential of Nigeria’s solar resources, it is essential to create a commercially viable framework that aligns the interests of developers, investors, and large-scale energy consumers. Through innovative models like hourly matching PPA, Nigeria can unlock the investment needed to scale utility-scale solar and pave the way for a cleaner, more sustainable energy future.

This approach will not only help Nigeria meet its renewable energy targets and reduce its carbon emissions but will also create a thriving solar industry, driving economic growth, creating jobs, and ensuring energy security for the country’s future.