Over the last two decades, Nigeria has witnessed a growing interest in renewable energy as part of its energy transition, largely due to the federal government’s commitment to diversifying the country’s energy mix and improving modern energy access for the Nigerian population.

While rich in renewable energy sources, such as solar, biomass, thermal, wind, geothermal, tidal, hydro, biogas, wave, and ocean energy, less than 25% of Nigeria’s renewable energy potential has been utilised.

Status of Nigeria’s Energy Transition

Seizing on the commitments Nigeria made at the Conference of the Parties (COP) 26, Nigeria’s Energy Transition Plan (2022) (ETP) – a data-driven, multi-dimensional policy – was launched as a means to achieving clean and affordable energy by 2030 and net-zero emissions by 2060, while catalysing industrialisation, economic growth, and access to energy. The ETP policy guideline sets out Nigeria’s plan to reduce emissions from five key sectors, namely:

• power;
• cooking;
• oil & gas;
• transport; and
• industrial.

The ETP recognises the usage and wide availability of natural gas and therefore regards it as a “transition fuel” to complement renewable sources pending fossil fuel phase-out. In the power sector, the ETP highlights how solar energy, hydropower, wind energy, and biomass energy (Nigeria’s key renewable energy sources) will improve the living conditions of the population, lifting millions of Nigerians out of poverty. 

According to Markwide Research, fossil fuels, specifically crude oil and natural gas, accounted for 77% of electricity generation. In contrast, renewable sources contributed 23%, with hydropower representing 22.6%, solar energy at 0.25%, and bioenergy at 0.15%.

Targets and Objectives

The Renewable Energy Master Plan (2013), the National Integrated Resource Plan, the National Renewable Energy and Energy Efficiency Policy (2015), and the Energy Transition Plan (ETP) (2022) all focus on increasing the deployment of renewable energy and achieving net-zero emissions by 2060, outlining the renewable energy targets established to help meet these net-zero emission goals.

Outlined below are the targets that the ETP policy guidelines aim to achieve within the power sector by 2030.

• Electricity generation increases by 6.5 times between 2020 and 2060, with an annual growth rate of 32% due to universal electrification in 2030.
• Replacement of decentralised oil and gas generators by centralised technologies due to the achievement of universal electrification in 2030 and the decarbonisation objective in 2060.
• Significant uptake of solar photovoltaic (solar PV) in 2060 of 446 TWh due to the replacement of gas to achieve net zero emissions.
• Increase of biomass reaching 32 TWh in 2060 in replacement of gas and the need for dispatchable power.
• Increase of hydropower generation, 39 TWh in 2060 and hydrogen of 4 TWh due to limited fossil fuel generation and the need for dispatchable power.
• Increased penetration of battery storage (0.5 TWh) and hydrogen storage (0.14 TWh) for security of supply due to increased penetration of renewables and hydrogen.

The implementation of the renewable energy policies has resulted in significant progress across several sectors.

• In the transportation sector, the Presidential Compressed Natural Gas (CNG) Initiative was launched in 2023 to promote the adoption of CNG and electric vehicles in Nigeria’s transit system.
• The Nigerian Automotive Industry Development Plan 2023 aims that Nigeria will achieve at least 30% local production of electric vehicles by 2032.
• Under the Distributed Access through Renewable Energy Scale-up (DARES) project – a USD 750 million initiative sponsored by the World Bank – electricity will be provided to over 17.5 million Nigerians, thereby bridging the energy access gap.
• To promote the adoption of solar systems, the Nigeria Customs Service issued a circular in April 2024 stating that, in line with the ECOWAS Common External Tariff for the period of 2022-2027, there is no import duty or VAT on solar panels or modules that include components such as diodes and motors.

Across other sectors, the National Clean Cooking Policy 2024 promotes the adoption of clean cooking energy solutions, such as liquefied petroleum gas, biogas, biofuels and briquettes – all by 2030. With the second phase of the ETP, it is projected that the total installed power capacity will be 277 GW by 2060, with renewable energy driving the majority. It is also expected that 72% of diesel decentralised generators would be phased out by 2030. Some additional clean energy targets include:

• large-scale deployment of solar PV between 2025 and 2035;
• 100% access to electricity in urban and peri-urban areas by 2030;
• deployment of biomass technologies to replace existing gas technologies by 2030;
• production of green and blue hydrogen between 2030 and 2040;
• widespread adoption of electric cooking stoves in rural areas by 2025, and in urban areas by 2030;
• hydrogen in ammonia/chemical production by 2030;
• electric cars by 2025, and electric buses by 2045; and
• hydrogen light- and heavy-duty trucks by 2045.

The key renewable energy technologies utilised in Nigeria’s energy sector are:

• photovoltaic (PV) systems;
• concentrated solar power;
• wind turbines;
• biomass gasification;
• hydroelectric turbines;
• geothermal heat pumps; and
• battery storage solutions.

Hydropower

Nigeria has significant potential for electricity generation through hydropower, thanks to its abundant water resources, including the River Niger, the River Benue, the Chad Lake Basin, and various smaller water bodies. Currently, hydropower is the only renewable energy source integrated into Nigeria’s national grid system.

In 2022, the International Energy Agency reported that hydropower accounted for 24.3% of Nigeria’s electricity generation. The Nigerian Electricity Regulatory Commission (“NERC”) Q3 2024 (“NERC Q3 Report”) reports that a total of 28 on-grid power plants currently exist, of which five are hydropower plants (“HPP”).

The Kainji Dam in Niger State was the first hydropower source in Nigeria, commissioned in 1968 with an estimated capacity of 760 MW. Other large HPPs currently have the following capacities:

• Jebba (570 MW);
• Shiroro (600 MW); and
• Zungeru (700 MW).

However, their actual electricity generation has consistently fallen short of these capacities. According to the NERC Q3 Report, the generated outputs were as follows: Kainji produced only 374 MW, Jebba 437 MW, Shiroro 406 MW, and Zungeru 413 MW.

Recently, the Federal Government has awarded concessions for build, operate, and transfer agreements to private sector investors for the development of HPP. Notable projects include:

• the 3.05 GW Mambilla HPP in Taraba;
• the 40 MW Dadinkowa HPP in Gombe;
• the 30 MW Gurara HPP project in Kaduna;
• the 360 MW Gurara Phase II HPP project in Niger;
• and the 40 MW Kashimbila HPP in Taraba.

In addition to these large hydropower plants currently under construction, small hydropower stations (SHP) are also operational in various locations throughout Nigeria.

Solar

Nigeria is fortunate to receive an annual average daily solar radiation of about 5.25 kW/m²/day along the coastal regions and about 7.0 kW/m²/day in the northern areas, with approximately 6.25 hours of annual average daily sunshine.

Nigeria has significant solar radiation potential, albeit its solar energy output is still well below what it could achieve. Under the National Renewable Energy and Energy Efficiency Policy (NREEEP), the target was to have solar power contribute 3% to the energy mix by 2020 and 6% by 2030. However, as of 2022, solar energy only accounted for 0.3% of Nigeria’s total energy mix.

Despite the shortfall in solar power generation, the issuance of off-grid generation licences by NERC to private sector participants has significantly accelerated the adoption of solar PV systems. Between Q3 2024 and Q1 2025, off-grid generation licences with a cumulative capacity of about 18MW were issued across Lagos, Ogun, and Abia states. Some solar PV facilities include:

• 100MW solar PV module assembly factory in Lekki (2023);
• Kumbotso 10 MW solar PV park (2023);
• the Federal University of Agriculture Makurdi 8.25 MW solar PV park (2020);
• the Bayero University Hybrid 7.1 MW solar PV park (2019); and
• the Federal University of Agriculture 3.5 MW solar PV park.

Other renewable resources with potential for development are wind, biomass, and geothermal heat.

Wind

Harnessing wind energy could be an additional resource for electricity in Nigeria. In April 2025, the federal government reinitiated negotiations with the Katsina State government on recommissioning the 10 MW Lambar Rimi wind farm in Katsina (Nigeria’s first major wind project), which was halted nearly two decades ago, due to insecurity. The project, in partnership with Genesis Energy, is set to be hybridised with the addition of solar power to enhance capacity and improve local electricity supply.

Biomass/Biogas

Very little development has been made in biomass technology in Nigeria. In 2016, the Ebonyi state government was set to develop a 10 MW rice husk power plant in Ebonyi, and the Kwara state government expressed interest in developing a 1 MW waste-to-energy facility in 2022. The previously recorded facilities were the two (2)100 kVA biogas generators, developed by Ajima Farms and General Enterprises Nigeria Limited to power the 20 kWp mini grid in Rije village, but operations halted in 2021.

Geothermal Heat

Geothermal energy in Nigeria remains untapped, in spite of identifying certain sites’ (Lamurde Hot Spring in Adamawa, Ikogosi Warm Springs in Ekiti, and the Wikki Warm Springs in Bauchi) potential for geothermal exploration.

Some developments witnessed over the past 12 months in the renewable energy market have been outlined below.

Inauguration of the Technical Working Group on Carbon Budget

In alignment with the government’s commitment to achieving net-zero emissions by 2060 and as outlined in the Climate Change Act of 2021, a technical working group was established in July 2025 to determine Nigeria’s carbon budget. This initiative complies with the Climate Change Act, aiming to maintain the average global temperature increase within 2°C and to limit the rise to 1.5°C above pre-industrial levels.

National Public Sector Solarisation Initiative

The Federal Government allocated NGN100 billion in the 2025 Appropriation Budget to equip public institutions across the country with large-scale solar energy systems, transitioning from reliance on diesel-powered generators. Beneficiaries of this initiative include: University of Lagos, University of Nigeria, Nsukka, and Ahmadu Bello University. 

Development of 300 KWp Solar Project in Kainji, Niger

In 2024, the Federal Government launched a 300 KWp solar PV project, which also included a 675 kWh battery energy storage system (BESS) linked to the Kainji HPP in Niger State. The project would provide sustainable and reliable electricity for homes and businesses within the area.

Strategic Partnerships

In May 2025, the Rural Electrification Agency (REA) commissioned a 2.5 MW solar hybrid power plant at the Nigerian Defence Academy, Kaduna, through the Energising Education Programme (EEP). Similarly, in March 2025, the REA signed a Memorandum of Understanding (MoU) with WeLight to deploy 400 mini-grids and 50 Metro Grids by 2030.

In October 2024, to promote the adoption of renewable energy solutions in key institutions in Nigeria, the REA executed a multi-stakeholder MoU with four government agencies, namely:

• the Nigeria Immigration Service;
• Nigeria Police Trust Fund (NPTF);
• the National Training Institute of Nigeria (NAPTIN); and
• the National Agricultural Development Fund (NADF).

Previously, the REA signed an MoU on 4 July 2024 (as part of the DARES project) with five renewable energy companies for the delivery of a combined capacity of 1,265 MW. 

Inauguration of the National Committee on Renewable Energy, Energy Efficiency, Innovation & Certification

In August 2025, the Energy Commission of Nigeria announced its MoU in collaboration with the Ministry of Innovation, Science and Technology, to launch the National Committee on Renewable Energy, Energy Efficiency, Innovation & Certification (NCREEIC), aimed at driving research and innovation in renewable energy, local content development, and setting global-standard certifications for renewable technologies.

Principal Laws and Regulations

The Nigerian energy market operates a decentralised electricity structure. The Constitution of the Federal Republic of Nigeria 1999 (as amended) (“Constitution”) vests both the Federal and State governments with concurrent authority to regulate the electricity market.

The National Assembly, the legislative body of the Federal Government, has the authority to create laws for the Federation or any part of it regarding the generation and transmission of electricity within Nigeria and between states. This lawmaking authority extends to matters concerning the right of any person or authority to interfere with the flow of water from sources in any part of the Federation for electricity generation.

Additionally, the Constitution grants each state's House of Assembly (which serves as the lawmaking body of the state government) the authority to regulate the corresponding intrastate electricity market. Accordingly, we will provide the principal laws and regulations governing the federal and state-level energy markets, with a focus on Lagos State (“State”), which hosts the largest energy market in Nigeria. The analysis includes relevant provisions on renewable energy.

Electricity Act 2023 (the “Act”)

This is the primary law that establishes the regulatory framework for the Nigerian electricity supply industry (NESI). The Act establishes the NERC, which is the apex regulator of the NESI. Notably, the Act provides specific provisions for renewable energy, as outlined below.

• A major objective of the Act is to provide a framework that stimulates the development and utilisation of renewable energy sources, creating an enabling environment to attract investment in renewable energy sources to increase the contribution of renewable energy to the energy mix.
• The Act also aims to improve access to electricity in rural, unserved, underserved, peri-urban and urban areas through the use of conventional sources and renewable energy off-grid and mini-grid systems. It further promotes public education on renewable energy production and consumption to increase the generation and consumption of electricity from renewable sources.
• Through the Act, the Federal Government set out clear objectives, which cover the utilisation and inclusion of renewable energy in Nigeria’s energy mix. To ease the implementation of the renewable energy objectives of the Act, the Act provides key provisions that aim to promote the inclusion and utilisation of renewable energy in Nigeria.
• In line with the above objectives, section 3 of the Act directs the Federal Ministry of Power to publish an integrated national electricity policy and strategic implementation plan, which will include but is not limited to ensuring the optimal utilisation of non-renewable sources and renewable sources such as solar, wind, and hydropower.
• The NERC is empowered to issue federal licences to entities seeking to participate in the NESI. According to section 80(2) of the Act, when issuing these licences, NERC is required to promote embedded generation, hybrid generation, and co-generation of electricity using renewable sources such as solar power, wind, small hydropower, biomass, and any other renewable energy sources specified in the Act.
• In addition to its drive to support the development and efficiency of renewable energy utilisation, section 164 of the Act extensively directs the NERC to issue a simplified licensing and fees regime for the issuance of licences to renewable energy companies for the provision of electricity to consumers. NERC is also required to issue technical and commercial regulations for connectivity to the national grid and distribution network for the sale of electricity generated from renewable energy sources to electricity traders and consumers alike. This aims to drive the utilisation of renewable energy in the country.
• To accelerate the adoption of renewable energy in Nigeria, the Act establishes key bodies tasked with driving renewable energy initiatives, such as the National Hydroelectric Power Producing Areas Commission and the Rural Electrification Agency.

The Lagos State Electricity Law (the “Law”)

The Law regulates the electricity market within Lagos State. It aims, among other things, to promote the adoption of diverse, secure, and environmentally sustainable energy sources, as well as energy efficiency and demand-side management within the state. We note that the law provides specific provisions for renewable energy adoption in the state.

In line with its bid to encourage renewable energy utilisation and efficiency, section 116 of the Law encourages the State’s Ministry of Power to develop a renewable energy, energy efficiency, and demand-side management strategy and action plan for the state (the “State Plan”).

The State Plan is expected to provide direction on the state’s short, medium, and long-term renewable energy efficiency targets, and the role of the state in incentivising and creating an enabling environment to encourage the utilisation of renewable energy sources for the generation of electricity.

Regulations on Feed-In Tariff for Renewable Energy-Sourced Electricity in Nigeria (“Feed-in Guide”)

Designed to encourage greater private sector participation in power generation from renewable energy technologies, the Feed-in Guide provides investment security and market stability for investors, as well as offering direction for entities generating and distributing renewable energy to offtakers by setting out standardised tariff rates, eligibility criteria, and power purchase procedures. It outlines the conditions under which qualifying renewable projects can sell electricity to the grid or designated offtakers at pre-determined rates. This framework ensures predictable revenue streams for developers, while supporting Nigeria’s broader energy transition objectives.

Mini-Grid Regulations

Generally, electricity licences are issued by NERC for the generation and distribution of electricity exceeding 1 MW and an aggregate of 100 KW at a site, respectively. In this regard, the Mini-grid Regulations (the “Regulations”) aim to regulate the commercial activities of NESI that fall below the above threshold for generation and distribution of electricity.

While the Regulations do not include specific provisions on renewable energy, they cover the whole spectrum of renewable energy activities that fall within the threshold of the Regulations. This is particularly instrumental given the fact that section 164 of the Act requires that in supporting the development of renewable energy utilisation, NERC shall ensure to facilitate the provision of the Regulations on renewable energy to cater for installation, metering, billing and other requirements for renewable energy mini-grid systems.

Accordingly, Federal agencies such as the Rural Electrification Agency, as well as investors and stakeholders in the NESI, have utilised the mini-grid framework to own, construct, and maintain renewable energy solutions for the sustainable, reliable, and efficient supply of electricity to customers.

Environmental Impact Assessment Act (EIA)

The EIA mandates that all renewable energy projects likely to significantly affect the environment, such as solar farms, wind installations, and hydroelectric projects, must undergo an EIA before commencement. This ensures that environmental considerations are integrated into project planning and decision-making. Project developers are required to submit detailed reports assessing the potential environmental impacts and proposed mitigation measures.

The primary regulators for energy activities, including renewable energy, in Nigeria are the NERC at the federal level, the federal ministries of environment and water resources, and the state electricity regulatory commissions (SERC) established by individual states pursuant to the provisions of the Act, for the intrastate regulation of electricity (“Regulators”). This dual regulatory structure reflects the constitutional decentralisation of the electricity sector, with the federal government overseeing inter-state and national grid-related activities, while state governments are empowered to regulate electricity generation, transmission, and distribution within their respective territories.

In terms of enforcement powers, both NERC and the respective SERCs are vested with significant enforcement powers, as explained below.

Right to Information

The Regulators are vested with the powers to request detailed technical, financial, and operational data from licensees and market participants to ensure compliance with licensing terms and applicable regulations.

Right to Inspections

The Regulators have the power to conduct routine and ad-hoc inspections of generation facilities (including solar farms, wind installations, and mini-grids), transmission systems, and distribution networks. These inspections verify compliance with safety standards, grid codes, environmental guidelines, and technical performance specifications.

Binding Instructions

The Act provides that, unless stayed by a court of competent jurisdiction, a licensee is required to implement or follow, as the case may be, NERC’s orders and written notices, notwithstanding that the licensee has or may intend to take legal action challenging such order or notice.

Penalties

A key feature of the regulatory framework is the inclusion of sanctions and enforcement mechanisms. The Act empowers NERC to impose penalties on defaulting licensees and individuals found liable for breaches of its provisions. For example, unlawful participation in the electricity value chain may, upon conviction, attract imprisonment for a term not exceeding five years and/or a monetary fine.

Power to Intervene

The NERC has the authority to intervene in the management and operations of its licensees and permit holders that are:

• deemed to have failed;
• failing; or
• in crisis.

This includes the right to enter their premises and take any necessary actions to ensure the continuity of electricity service and to maintain the integrity of the NESI as a whole.

Power to Resolve Petitions

The Act also grants NERC the authority to receive, hear, and resolve disputes between licensees and electricity customers, as well as among licensees and other industry participants.

The Regulators are authorised to regulate all aspects of renewable and non-renewable energy. Hence, without prejudice to the power of states to make electricity laws (see 2.2 Regulating Authorities), the Act in section 63 provides that no person, except in accordance with a licence or permit issued under the Act, shall construct, own or operate such infrastructure or engage in the business of the following activities:

• electricity generation (from renewable and non-renewable sources) for commercial and personal use, exceeding 1MW;
• electricity trading (of renewable and non-renewable energy) from generators mentioned in (a) above;
• electricity transmission;
• electricity supply; and
• electricity distribution exceeding an aggregate of 100 kW at a site, respectively.

Notwithstanding the above, the Act also grants to individuals the capacity to approach the NERC for clarification on whether any of their electricity activities fall within the threshold for applying and obtaining regulatory approval.

Generally, no individual or entity may own or operate an energy asset that falls within the regulatory scope of the Act without the appropriate licence or authorisation. This restriction does not prejudice the rights of individuals or entities to acquire and use small-scale renewable energy technologies, such as solar PV panels for personal or commercial consumption that fall below the regulatory thresholds (1MW) prescribed under the Act.

If renewable energy assets are owned by a person or entity licensed to operate or maintain them, prior written consent from the relevant regulator must be obtained before transferring or assigning those assets. A failure to obtain the requisite consent renders the purported assignment null and void.

Generally, there are no express restrictions on access to or foreign investment in Nigeria’s renewable energy market. The sector is open to both local and foreign participants, subject to compliance with applicable regulatory requirements under the Act, as well as investment-related laws such as the Nigerian Investment Promotion Commission Act, the Companies and Allied Matters Act, and relevant sector-specific regulations. To employ foreign nationals, it is necessary to first obtain an expatriate quota from the Federal Ministry of the Interior. Following this, a valid Combined Expatriate Residence Permit and Aliens Card (CERPAC) must be issued by the Nigeria Immigration Service before employment can commence.

Nigeria’s renewable energy market is generally liberal and investor-friendly. However, foreign participants must navigate regulatory and procedural requirements to ensure lawful market entry and operation.

The market for the generating electricity from renewable energy sources in Nigeria is dependent on the type of licence issued by the NERC. Under Sections 63(2)(a) and 65 of the Act, any entity wishing to engage in the generation of electricity exceeding 1 MW shall obtain a generation licence from the NERC. The following types of generation licences can be obtained from NERC.

On-grid Generation

The facility responsible for generating electricity is connected to the national grid. Electricity generated from the renewable source is transmitted through the national grid, operated by the Transmission Company of Nigeria (TCN), for delivery to end-use customers either through licensed electricity distribution companies (“DisCos”) or directly to eligible customers. The NERC routinely issues on-grid generation licences to companies operating hydropower plants. For instance, in the NERC Q3 Report, on-grid generation licences were issued for five hydropower projects.

Off-Grid Generation

Off-grid electricity generation facilities are standalone power systems that generate electricity independently of the national grid, such as solar plants. In Q1 2025, the NERC issued a total of four off-grid licences, with three of them awarded for solar power generators.

Embedded Generation

Embedded electricity generation involves the direct connection of small power sources like rooftop solar panels to the local distribution grid. This licence is issued by the NERC, where the electricity generated from the generation plant is directly connected to and evacuated through a distribution system.

Captive Power Generation

NERC issues this permit for electricity generation exceeding 1MW, intended solely for the generator’s own use and not for sale to third parties.

Key Parties

The parties in the market for the generation of electricity from renewables include:

• generation company (“Producer”) – the Producer is responsible for generating electricity from renewable energy sources;
• TCN – the TCN is responsible for wheeling the electricity generated above at a high voltage from an on-grid generation facility to the delivery points owned by a DisCo;
• ISO – the ISO is responsible for the transmission scheduling and generation outage coordination of the electricity transported by TCN;
• distribution company: The DisCo is responsible for ensuring that the electricity wheeled by TCN is distributed to end-users; and
• mini-grid operators – a mini-grid is any electricity supply system with its own generation capacity, supplying electricity to more than one customer, and which can operate in isolation from (such as an isolated mini-grid) or be connected to a DisCo’s network (for example, an interconnected mini-grid).

Assets Involved

The primary assets involved in the generation of electricity are the natural assets, ie, the renewable resources – water, sunlight, wind, feedstock, etc. Other infrastructure assets include:

• dams, turbines, spillways, canals, and transmission systems for hydropower plants;
• solar PV panels, inverters, and batteries, solar home systems;
• wind turbines and towers;
• biomass gasifiers, biogas digesters;
• transmission and distribution lines to integrate renewable sources into the national grid; and
• mini-grid systems.

Applicable Rules & Regulations

The following laws apply to the generation of electricity from renewable sources:

• the Act and relevant state electricity laws;
• NERC Feed-In Tariff Regulations 2015;
• NERC (Embedded Generation) Regulations 2012;
• the Regulations;
• NERC Regulation for Application for Licences, 2010;
• Environmental Impact Assessment Act 2004 (EIA Act);
• Nigerian Electricity Management Services Agency (NEMSA) Act; and
• Water Resources Act, and the various state laws on water resources.

The market for biogas production in Nigeria is largely underdeveloped. The lack of infrastructure for waste management has hindered the development of biogas. Notwithstanding, Nigerian Breweries Plc has reported that its Aba Brewery Wastewater Treatment Plant uses renewable biogas generated from its wastewater treatment plant to power its boilers, thereby reducing its carbon emissions. This facility is operated based on the captive power generation permit issued by NERC.

Given that the market is predominantly for the generation of electricity for own use, the key parties include the NERC and the captive power generator.

Applicable rules and regulations in this area are:

• the Act and the respective state electricity laws; and
• NERC (Permits for Captive Power Generation) Regulations 2012.

Geothermal heat production in Nigeria is still in its early stages. Locations such as the Lamurde Hot Spring in Adamawa, the Ikogosi Warm Springs in Ekiti, and the Wikki Warm Springs in Bauchi have been identified as potential sites for geothermal exploration, although this renewable energy resource remains largely untapped.

Nigeria currently has no commercial-scale hydrogen production, and the market has yet to witness any large-scale hydrogen projects. However, under the ETP, hydrogen is earmarked as a strategic fuel, with a target to integrate it into ammonia and chemical production by 2030 as part of the country’s broader net-zero ambitions.

Captive Generation

In Nigeria, individuals or entities may generate electricity from renewable sources, such as rooftop solar PV systems, for personal or local use without requiring formal licensing or approval, provided the installed capacity remains below 1 MW. However, such producers must still adhere to applicable technical, health, and safety standards. This measure is to promote the adoption of distributed renewable energy solutions in the country.

If the generation for self-use exceeds 1MW, the producer must obtain a captive generation permit from NERC, as per the Captive Power Generation Regulations. This permit is necessary for the construction, installation, maintenance, or operation of a captive power generation plant. A formal application must be submitted to NERC to obtain the permit.

Rules applicable here are:

• the Act and relevant state electricity laws;
• NERC (Permits for Captive Power Generation) Regulations 2012; and
• NEMSA Act.

Renewable energy producers may operate within either the on-grid or off-grid market structure, subject to the applicable rules and commercial arrangements.

On-Grid Market Structure

Electricity generated from renewable sources is transmitted through the national grid, operated by the TCN, and ultimately delivered to end-use customers through licensed DisCos or directly to eligible customers. To participate in the on-grid market, the renewable energy producer (“Producer”) must execute several agreements, including some of those outlined below.

Market Participation Agreement

This agreement is administered by the Independent System Operator (ISO) – licensed by NERC to act as the sole market operator of the electricity wheeled through the national grid.

Power Purchase Agreement (PPA)

This agreement is between the Producer and the offtaker, who is either a government utility company (Nigerian Bulk Electricity Trading Plc), a licensed trader or distribution company or an eligible customer.

Transmission Use of System (TUoS) Agreement and Grid Connection Agreement

This agreement is between the Producer and TCN to facilitate the transportation of the electricity generated by the Producer.

Grid stability and distribution tariffs

Given the current limitations in large-scale electricity storage, the on-grid system is designed as a real-time balancing market, with the ISO maintaining grid stability by ensuring system frequency (50 Hz ±0.5%) and voltage (330 kV ±0.5%) remain within operational limits.

NERC determines distribution tariffs in accordance with the provisions of a Multi-Year Tariff Order (MYTO). The MYTO is based on a set of principles designed to provide tariffs for each sector of the NESI. The on-grid tariff system operates as a pass-through cost-recovery mechanism, in which the costs of generation, transmission, and distribution are recovered from end-use customers. The ISO oversees the market settlement process, ensuring that market participants, including Producers, are paid based on electricity delivered and consumed.

Off-Grid Market Structure

Producers generate and distribute power without transporting the power generated through the national grid. This power generated may either be embedded directly into an electricity distribution network, or the Producer generates and distributes the electricity through a single mini-grid asset to end-use customers. The Producer may utilise any or all of the following assets to transport or consume the electricity generated:

• mini-grids;
• standalone solar home systems; and
• captive power plants for self-use.

Key parties

• NERC;
• the Producer;
• electricity trader;
• TCN;
• electricity distributor;
• end-use customers; and
• ISO.

Applicable rules and regulations

• the Act and relevant state electricity laws;
• the regulations;
• market rules for transitional and medium-term stages of the NESI;
• the grid code for the Nigerian electricity supply system;
• the distribution code for the Nigerian electricity supply system; and
• multi-year tariff order for the NESI.

Nigeria’s grid infrastructure faces significant challenges in terms of grid stability and efficiency. To manage any potential grid congestion in Nigeria, the NERC has directed GenCos, including renewable energy producers, to integrate and utilise Supervisory Control and Data Acquisition Systems (SCADA). This enables real-time monitoring, control, and data acquisition for the entire electricity supply chain, ensuring better grid management and efficiency.

Nigeria does not currently operate a formal system of voluntary or forced curtailment for electricity generated and wheeled through the national grid. However, the ISO may curtail or reject power dispatched to the grid when transmission capacity is insufficient to accommodate the generated load, to preserve grid stability.

Off-grid solutions are a critical and growing part of Nigeria’s energy landscape, especially for rural and underserved communities. To support the delivery and utilisation of renewable energy by end-users, the following mechanisms and infrastructure play a key role:

• mini-grids;
• solar home systems; and
• electricity distribution networks.

The Nigerian electricity sector majorly utilises natural gas as feedstock for its power plants. Although the industry has made significant strides in the integration of renewables (such as biogas and green gas into its energy mix), the country lacks significant transportation and storage infrastructure for gas from renewable sources (including biogas and green gas).

Notwithstanding the above, off-grid customers have utilised the following modes of transportation for gas from renewable sources:

• Bio-CNG, which is the process of compressing the biogas in high-pressure cylinders for transportation by trucks; and
• utilisation at source, which involves the consumption of such gas from renewable sources, either for electricity or domestic consumption.

In Nigeria, the transportation and storage of heat from renewable sources is not yet formally developed as a distinct sector within the energy market. Unlike electricity and natural gas, there is currently no centralised heat market or heat grid infrastructure regulated under Nigerian laws.

The use of heat from renewable sources is still in its early stages, especially for domestic applications. However, as the adoption of renewable energy increases in Nigeria, a market structure for renewable heat will gradually develop, which could help address the country’s significant energy access gaps.

As with heat, the transportation and storage of hydrogen and other biofuels are not yet formally developed as a distinct sector within the energy market. In addition, we note that there is currently no hydrogen grid and/or infrastructure for the transportation of hydrogen as a renewable energy source.

Electricity trading is a regulated activity in the Nigerian market where a trading licensee (“Trader”) is permitted to engage in the purchase, sale, and trade of electricity generated from renewable sources. A trading licence, issued by NERC, authorises the Trader to enter into a contract with Producers for the purchase and resale of electricity and ancillary services. Prior to the Act, the NBET was the sole bulk purchaser of electricity in the NESI; however, further to the Act and NERC’s Order on the Transition to Bilateral Trading in the Nigerian Electricity Supply Industry (the “Order”) in July 2024, NBET has now ceased engaging in the purchase and resale of electricity with other licensees. The NESI now accommodates participation from licensed electricity traders. Accordingly, between Q3 2024 and Q1 2025, the NERC has issued six trading licences.

Key parties are:

• NERC;
• Licensed Traders;
• Producers;
• DisCos; and
• NBET (to the extent permissible under the Order).

Standard Contracts

The following agreements are customarily involved in electricity trading in Nigeria:

• PPA between Producer, the licensed trader or distribution company, or an eligible customer;
• vesting Contract between Producer, NBET, and DisCos; and
• bilateral trading agreement between Traders and DisCos.

Under the Order, hydropower Producer are required to equitably apportion their current contracted capacity with NBET to DisCos based on the shared capacity in the vested contracts.

Applicable Rules and Regulations

• The Act and relevant state electricity laws.
• The Order.
• NERC Tariff Regulations.
• NERC Eligible Customer Regulations 2024.

There is currently no structured market for the supply of biogas to end users in Nigeria. The activities within this sector of the renewable energy market are largely confined to captive generation projects at industrial sites (eg, breweries), whereby biogas is produced on a captive basis and not supplied to third parties. 

The Nigerian market for the trade and supply of heat from renewable sources is undeveloped. Most activity is largely captive and project-based, where heat (if generated) is consumed on-site. For instance, according to the Nigerian Breweries Plc, its Aba Brewery Wastewater Treatment Plant has the potential to provide up to 15% of its brewery process heat demand.

There is no functional market for the trade and supply of hydrogen or biofuels such as biodiesel. The Nigerian Biofuels Policy and Incentives of 2007 aimed to establish a Biofuel Production Programme, an agricultural integration initiative involving the establishment of plantations and the construction of biofuel distilleries and plants. The goal was that by 2020, the demand for biodiesel would rise to approximately 900 million litres; however, the market is still nascent.

Renewable Energy Certificates (RECs)

Generally, RECs, though still novel and with limited transactional use in Nigeria, are tradable certificates that serve as proof that electricity is generated from renewable sources. The International Tracking Standard Foundation provides a registry for International Renewable Energy Certificates (I-RECs) that can be tracked and verified from their generation source. This provides not only economic benefits to the project developer but also environmental and social benefits for companies to demonstrate their commitment to reducing carbon emissions through sustainability reporting.

Despite their alignment with Nigeria’s net-zero targets, there is currently no formal or structured market for the trade and use of RECs.

Corporate Power Purchase Agreement (CPPA)

A CPPA is a long-term contract between a company and a renewable energy generation company to facilitate the development of a renewable resource. Unlike the typical PPA prevalent in Nigeria, which involves an agreement to supply electricity from the generator to the off-taker’s system at a pre-agreed price, the CCPA is often structured as an agreement where electricity may not necessarily be supplied or traded. It involves the exchange of financial commitment for certificates, with the project developer benefiting from a predictable cash flow to finance its renewable energy project. The PPAs in Nigeria are structured for the supply of electricity.

Onshore renewable energy project development is typically divided into three phases:

• the pre-construction phase;
• construction phase; and
• post-construction stage (operational stage).

Pre-Construction Stage

At this stage, the project developer conducts a study and analysis of the project’s technical, financial, legal, and operational feasibility. At this stage, the project developer identifies the target market for the project, the offtaker(s), the stability of the laws governing the market, and the overall business environment in which such investments are to be made.

Upon satisfaction of the investment opportunities and stability of the laws of the target market, the project developer would be required to register a project company. Typically, a new legally distinct and ring-fenced entity for the development and operation of a renewable project, known as a Special Purpose Vehicle (SPV), is established specifically for the purpose of owning, constructing, and operating the project Thereafter, the project developer would apply and obtain all applicable licences/permits for the project, including the acquisition/lease of the land, generation licence/permit, environmental impact assessment permit, the approval of the Nigerian office for technology acquisition and promotion agency, where the project requires the importation of foreign machinery or consultants to construct the project.

Most importantly, the project developer would be required to negotiate and execute relevant project documents with counterparties. These documents include PPA, engineering procurement and construction agreements (EPC), water supply agreement (where it is a hydro project), and other relevant documentation.

The negotiation of the project documentation is a key phase in project development. The project developer must ensure that all associated risks are adequately allocated among stakeholders, including the offtaker under the PPA, the contractor under the EPC and other relevant parties. A proper risk allocation and well-structured agreements ensure the bankability of the project to make it attractive to financiers.

Construction Stage

This involves implementing all pre-construction analysis, including the construction of the renewable energy plant. To ensure a seamless and efficient project construction, developers typically ensure that the EPC is turnkey, meaning the contractor assumes all tasks, from design and purchase of equipment to construction.

At this stage, the project’s risks are examined and efficiently allocated pre- and post-completion. This ensures that the project’s development is carefully managed and that risks are efficiently allocated to ensure its successful completion and operation.

Post-Construction Stage

This is the operational phase of the renewable energy project. At this stage, the project begins to generate revenue through the sale and purchase of renewable energy by the offtaker under the PPA.

The EPC contractor may continue to be responsible for the operation and management of the project to ensure the efficient and reliable supply of energy generated from the renewable plant.

Rules and regulations applicable to the onshore project developments are:

• the Electricity Act;
• Environmental Impact Assessment Act;
• Land Use Act or, where applicable, state registration law;
• relevant state electricity law;
• the Regulations;
• regulations for investment in the electricity network regulations; and
• regulations on feed-in tariff for renewable energy-sourced electricity in Nigeria.

Key Parties

• NERC or the relevant state regulator;
• the project developer;
• the sponsors/financiers;
• EPC contractors; and
• renewable energy off-takers.

In Nigeria, offshore renewable energy projects are not yet formally developed. However, we note that requirements for onshore renewable energy project development also apply to any potential offshore renewable energy project development, subject to any regulatory changes.

The project financing of renewable energy assets presents several challenges and considerations that a developer/investor must consider for the development of renewable energy assets and infrastructure, some of which have been outlined below.

Government Support

A less favourable support regime from governments can affect the profitability and viability of renewable energy projects.

Policy Uncertainties

Government energy policies and subsidy programmes can impact the economic benefits of a project. For example, adjustments to feed-in tariffs and changes in tax policies can affect project revenue.

Grid Infrastructure

Insufficient investment in grid infrastructure hinders the rapid expansion of renewables.

Market Risk

Fluctuations in the electricity market could lead to a decline in electricity prices, affecting project revenue. For instance, a significant drop in traditional energy prices could challenge the competitiveness of renewable energy, or a rapid increase in market participants could lead to lower purchase offers.

Efficient Allocation of Project Risks

Each risk needs to be assigned to the party best positioned to manage it – whether that be the contractor, the offtaker, or the government. This not only improves contractual clarity and investor confidence but also facilitates access to financing by meeting the expectations of financiers. The project developer must therefore ensure that risks are clearly identified, contractually allocated, and appropriately mitigated from the outset of the renewable project.

Negotiation of Key Project Agreements

As stated above, the renewable energy project must appear bankable to financiers/sponsors. To ensure the foregoing is achieved, the project developer will need to engage expert legal advisers tasked with drafting and negotiating all relevant documents for the project. This includes the heads of terms between the project company and the offtaker, the PPA, the EPC, and any financial commitments made by the offtaker towards meeting its financial commitments.

There are several available subsidy and incentive schemes for renewable energy in Nigeria.

Nigeria’s renewable energy sector presents huge opportunities for investment across the value chain of the sector, as follows.

Exemption from Value-Added-Tax

Under the Value Added Tax (Modification) Order, 2020 (“VAT Order”), the Federal Government, through the Ministry of Finance, expanded the items exempted from VAT to include:

• wind-powered generators;
• solar-powered generators;
• solar cells, whether or not in modules or made into panels;
• other photosensitive semiconductor devices;
• solar DC generators of an output not exceeding 750 W:
• solar DC generators of an output exceeding 750 W but not exceeding 75 kW;
• solar DC generators of an output exceeding 75 kW but not exceeding 375 kW; and
• solar DC generators of an output exceeding 375 kW.

Pioneer Status Incentive

The Pioneer Status Incentive (PSI), governed by the Industrial Development (Income Tax Relief) Act, offers qualifying companies an exemption from Companies Income Tax for an initial period of three years. This period may be renewable for an additional two years, totalling a maximum tax holiday of five years. The incentive aims to encourage investment in industries deemed vital to Nigeria’s economic development.

Accordingly, activities in the generation, transmission, and distribution subsectors of the NESI (encompassing both renewable and non-renewable sources) are recognised as pioneer industries, qualifying them for the PSI.

The Nigeria Tax Act

The provisions of the VAT Order and the Industrial Development (Income Tax Relief) Act mentioned above continue to subsist until 1 January 2026. Thereafter, the newly passed Nigeria Tax Act (“Tax Act”) takes effect, effectively abolishing the VAT Order and the Industrial Development (Income Tax Relief) Act. The following incentives are provided under the Tax Act.

Exemption from surcharge

Under Section 159 of the Tax Act, renewable energy products are exempted from the 5% surcharge imposed on chargeable fossil fuel products provided or produced in Nigeria.

Economic development tax incentives

The operation of electricity generation, transmission and distribution facilities using sources such as thermal, nuclear, hydro, gas turbine, and renewables is classified as a priority sector under the Tax Act.

Hence, investors seeking investment opportunities in the renewable energy sector may benefit from tailored tax reliefs, which may last for up to 20 years. These incentives are designed to encourage long-term investment in clean energy infrastructure and to support Nigeria’s energy transition goals.

The Electricity Act

The Act provides for incentives for investors looking to participate in the renewable energy value chain. Some of these incentives have been outlined below.

Leveraging public-private partnership

The Act provides the framework for investors to collaborate with the federal government through the Rural Electrification Agency (“Agency”) to construct and operate renewable energy equipment in Nigeria.

Simplified licensing regime

To support and incentivise the development of renewable energy, Section 164 of the Act mandates NERC to issue a simplified licensing and fees regime for the issuance of licences to renewable energy companies for electricity generated from renewable energy sources.

Feed-in tariffs

Further to the development of renewable energy, Section 164 of the Act directs NERC to introduce feed-in tariffs for all small hydro schemes, all biomass co-generation power plants, solar and wind-based plants, irrespective of their sizes, within the terms of the tariffs to be up to 20 years to guarantee buyers under standard power purchase agreements and provide return on investments for project developers.

Simplified concession award

To promote investor confidence regarding investing in the renewable energy sector, the NERC may also develop light-handed measures for awarding renewable electricity concessions for the generation and distribution of electricity, specifically where the project involves generating electricity in excess of 1 MW and distributing more than 100 kW in aggregate at a single site, but with a total capacity not exceeding 10 MW.

In Nigeria, while there is no standalone statute exclusively governing the decommissioning and disposal of renewable energy installations, the process is generally regulated under a combination of environmental, energy, and safety laws.

Under the Environmental Impact Assessment Procedures and Charges Regulations 2021, the Federal Ministry of Environment typically requests that a project developer submit its decommission plans, which shall provide an overview of decommissioning plans for the project after the useful life of installed facilities and outline the plans for site restoration and remediation after closure or abandonment.

If a renewable energy installation was developed under a licence granted by the NERC or a state regulator, the terms of that license usually require the licensee to notify the regulator and follow grid disconnection protocols before decommissioning the facility.

The following impacts are anticipated in the NESI.

Decentralised Electricity Market

In this regard, states can regulate electricity activities within their boundaries. This serves as an opportunity for states to participate in passing laws that aim to attract electricity investors to the state, thereby boosting its economy.

Given the high cost of fossil fuel consumption, the utilisation of renewable energy equipment, such as solar PV panels, allow customers to provide their required energy without relying on the national grid. This provides an opportunity for project developers to work with relevant state governments in order to construct and maintain a safe, stable, and reliable renewable energy project to serve the energy needs of the state.

The Nigeria Tax Act

The recent passage of the Nigeria Tax Act of 2025 (“NTA”) introduces a 5% surcharge on chargeable fossil fuel products, excluding clean or renewable energy products, signalling the nation’s clear shift towards cleaner energy. Also, the NTA provides economic tax incentives to investors utilising renewable energy for the generation and distribution of electricity.

These incoming legislative changes are poised to reshape Nigeria’s energy market, particularly boosting the usage and consumption of energy from renewable sources.