By Khalil Woli
Across Africa, the clean energy transition is gaining momentum. In Nigeria, we’ve seen increased investor interest in solar farms, mini-grids, and battery storage systems. From international climate funds to sovereign green initiatives, capital is flowing. And yet, many projects remain uncompleted or underperforming. The challenge isn’t just raising money—it’s making sure the money works.
As someone who has worked across Nigeria’s energy value chain—first in utility operations, then in investment research covering infrastructure and power companies—I’ve seen why energy projects fail despite good intentions. They often don’t fail because the sun stopped shining or the turbines stopped spinning. They fail because the financing models were flawed, the demand was misunderstood, or the incentives were misaligned.
To unlock a truly inclusive and sustainable energy future for Africa, we need a smarter, more localized approach to capital deployment.
The True Risk: Capital Without Context
At CardinalStone Securities, I covered publicly listed companies in Nigeria’s energy and industrial sectors. Many were affected not only by domestic policy volatility—such as subsidy removal or FX rationing—but also by sector-wide challenges like liquidity shortfalls and non-cost-reflective tariffs. These are precisely the conditions that discourage long-term energy investment unless risk is properly structured.
Mini-grid developers, for instance, often rely on grants or concessional debt from donor agencies. But once those grants expire, the business model becomes shaky. Tariff caps, seasonal demand, and default risk from rural customers make it hard to scale sustainably. The African Development Bank has noted that 40% of mini-grids underperform financially within three years.
On the utility-scale side, large solar farms or gas plants may be built far from demand centers, with no clear offtakers or grid access. This mismatch between project design and commercial viability undermines investor confidence.
Smarter Structures for Smarter Power
Africa doesn’t just need capital—it needs capital that fits local realities. Here’s how we can do better:
1. Anchor-Backed Project Finance
Projects should be designed with a reliable offtaker—such as a manufacturing plant, agro-processing facility, or data center—in place from the beginning. This is called anchor-based financing, and it improves predictability of cash flows.
Think of it like building a water tank for a village. It’s more viable if you already know that a factory next door will pay to use the water every day. That anchor buyer makes the project more bankable, attracting additional funding and lowering risk.
In Nigeria, regions like Ogun and Kano—with clusters of small manufacturers—are perfect candidates for anchored solar or hybrid microgrids.
2. Performance-Based Subsidies (PBs)
Instead of paying developers upfront, governments and donors should tie financing to actual performance—such as how many kilowatt-hours are delivered, how many customers remain connected, or how often the system stays up.
It’s like paying a contractor only after they finish building the house—not just when they show up with bricks. This ensures value for money and accountability.
The Nigerian Electrification Project (NEP) already uses this model, but it should be scaled up across all off-grid and rural electrification programs.
3. Blended Finance Vehicles
Africa needs more blended finance platforms—where public or donor money takes the first risk, allowing private investors to come in safely.
Imagine if a group of friends wants to invest in a risky venture, but one person agrees to take the first hit if anything goes wrong. That gives everyone else confidence to join. That’s how blended finance works.
In Nigeria, a blended finance facility could be set up to fund distribution infrastructure upgrades, rural mini-grids, or captive solar for public hospitals and markets. This could be managed by a local asset manager but backed by institutions like the AfDB or DFC.
4. Carbon Credit Monetization
Renewable projects in Nigeria could also tap into carbon credit markets by measuring and selling their emission reductions to international buyers.
When a clean energy project avoids CO₂ emissions—by replacing diesel, for instance—it can earn “credits” that companies in polluting countries can buy to offset their own emissions. It’s like paying someone else to keep the air clean on your behalf.
Nigeria’s Renewable Energy Master Plan can be linked to platforms like Gold Standard or Verra’s VCS to allow developers to monetize these credits, generating extra revenue that can make projects viable.
5. Green Sukuk for Energy Access
In addition to traditional green bonds, green sukuk can be used to raise ethical capital from Islamic markets in support of clean energy projects.
A green bond is like a loan to fund environmentally friendly projects. A sukuk is a type of bond that follows Islamic finance rules—it doesn’t pay interest, but gives investors a share of profit from the project. Green sukuk combine both ideas: climate-friendly and Sharia-compliant.
States like Lagos or federal institutions can issue green sukuk to fund solar electrification for schools, hospitals, and SMEs—especially in underserved northern regions.
Why the U.S. and Global Players Must Localize Capital
American and European institutions are increasing their exposure to African energy markets. The U.S. Development Finance Corporation (DFC), Power Africa, and other partners are eager to co-finance. But to succeed, they must move from extractive investment models to co-creative ones—partnering with local fund managers, African banks, and professionals who understand the unique risks and opportunities.
Joint facilities—like a U.S.-Nigeria Clean Energy Co-Investment Fund—could de-risk projects using partial guarantees, currency hedging tools, and first-loss tranches. These tools already exist—we just need to deploy them with purpose and precision.
In conclusion, We Must Build Markets, Not Just Projects. Africa’s energy future won’t be secured by importing solar panels or building mega-projects alone. It will be built by creating financing systems that reflect how people live, how businesses grow, and how trust is built.
We must focus on results, not ribbon cuttings. On demand, not just supply. On financial resilience, not just technology.
If we succeed, the continent won’t just close the energy access gap—it will leapfrog into a cleaner, more decentralized, and locally driven future.