The impacts of incentive policies on improving private investment for rural electrification in Nigeria – A geospatial study

Abstract

In Nigeria, 86 million people lack electricity access, the highest number worldwide, predominantly in rural areas. Despite government efforts, constrained budgets necessitate private investors, who, without adequate incentives, are hesitant to commit capital due to perceived high risks. This study identifies three existing incentive policies—concessionary loans, capital subsidy, and financing productive use equipment—aimed at promoting rural electrification in Nigeria. Employing geospatial and regulatory analyses, we evaluate their impact on electrification planning across 22,696 population clusters. While all incentives encourage mini-grids and stand-alone systems, results show varied impacts, predominantly favouring mini-grids. Under the baseline, grid extension is optimal for 66% of clusters, followed by mini-grids (27%) and stand-alone systems (7%). Concessionary loans boost mini-grid and Stand-Alone Systems shares by 10% and 5%, respectively. Capital subsidies increase the mini-grid share to 41%, surpassing concessional loans (37%). Financing productive equipment enhances Stand-Alone Systems and mini-grid shares to 15% and 43%. Incentives impact LCOE, CAPEX, and OPEX, with average LCOE reducing to 0.31 EUR/kWh (concessionary loans), 0.30 EUR/kWh (capital subsidy), and 0.27 EUR/kWh (financing productive use). Financing productive uses proves decisively more effective in lowering costs for mini-grids and stand-alone systems than loans or capital subsidies. The important policy implications of this study reinforce the need for tailored incentives for distinct electrification options.

Keywords

• Electricity access
• Mini-grid
• Incentives
• Regulatory framework
• Geospatial analysis
• Nigeria