Power sector reforms divide industry leaders as financing hurdles persist

Nigeria’s electricity market reforms came under intense scrutiny as operators across the power, gas, and renewable energy value chain warned that weak market fundamentals continue to stall investment despite policy changes aimed at liberalising the sector.

The discussion, which centred on financing options for the power sector, exposed sharp differences over the implementation of the Electricity Act 2023, even as participants agreed that capital will remain elusive without bankable structures and predictable returns.

The discourse was held in a panel session titled “From Decentralisation to Integration: Aligning State Electricity Markets with Private Sector Investment” at BusinessDay’s Energy Conference 2026.

Edu Okeke, managing director of Azura Power, said the current framework risks fragmenting the market and undermining large-scale generation projects.

According to him, decentralising generation, transmission and distribution to sub-national entities could weaken economies of scale, raising the cost of electricity over time.

“The bigger the plant, the cheaper the power,” he said, noting that no state, with the possible exception of Lagos, currently has the demand capacity to absorb large-scale generation of about 500 megawatts.

Okeke warned that under the present structure, projects similar to the Azura-Edo independent power plant may no longer be viable, particularly where developers cannot secure bankable power purchase agreements across multiple jurisdictions.

He said that while states should be allowed to regulate tariffs, generation and transmission should remain centrally coordinated to preserve efficiency and grid stability.

Gas investment tied to payment guarantees

Operators in the gas segment maintained that Nigeria’s challenge is not supply but the absence of a functional market that guarantees payment.

Olarewaju Daramola, GM Commercial at Aradel Holdings, said upstream investors require clear visibility on offtake before committing capital to gas development projects.

He explained that gas production involves significant upfront investment and cannot proceed without enforceable gas sales and purchase agreements, backed by credible buyers.

“You don’t drill unless you know who will take the gas and pay for it,” he said.

Nigeria holds one of the largest gas reserves globally, but stakeholders said the lack of bankable contracts and weak payment discipline in the power sector continue to limit supply to power plants.

Tariff distortions, regulatory risks

Across the panel, participants identified non-cost-reflective tariffs as a major constraint on investment.

Industry operators argued that persistent subsidy regimes distort the market, weaken revenue recovery and deter private capital.

Okeke described Nigeria’s regulatory environment as interventionist, noting that price controls and policy inconsistencies create uncertainty for investors.

He advocated a transition to market-based tariffs, with targeted subsidies directed at vulnerable consumers rather than blanket price suppression.

“Once investors cannot see how they will recover their money, the investment will not come,” he said.

Renewables constrained by financing gap

While renewable energy is gaining traction globally, stakeholders said adoption in Nigeria remains limited by financing constraints and weak policy execution.

Sunit Arya, an executive at Simba Group, said solar technology is no longer a barrier, but high interest rates and lack of affordable financing continue to slow deployment.

According to him, borrowing costs of up to 30 percent make renewable energy projects commercially unattractive for both businesses and households.

He also cited poor coordination among regulatory institutions and weak implementation of existing policies as additional constraints.

“Financing is the biggest gap,” he said, adding that investors require clarity on tariffs, permitting processes and revenue frameworks before committing capital.

Grid realities challenge decentralisation

Technical constraints within the national grid also featured prominently in the discussion, with experts noting that electricity flows cannot be confined within state boundaries once connected to the transmission network.

This raises operational challenges for a decentralised system, particularly where states lack the infrastructure to operate independently.

Industry players warned that without coordinated planning, the current structure could lead to inefficiencies and higher system costs.

States face steep implementation task

With states now empowered to design their own electricity markets, stakeholders said the focus must shift from policy articulation to execution.

Key priorities identified include establishing transparent regulatory frameworks, ensuring cost-reflective tariffs, and providing guarantees to support power purchase agreements.