- African countries including Nigeria need to increase clean energy investments.
- Nigeria has already laid some foundation to increase clean energy investments in the country.
- As Nigeria prepares to swear in a new president, it is important to build on the achievements already made.
- The AfDB has made some recommendations to increase private sector investments in clean energy.
Nigeria’s pursuit of increased clean energy access to meet climate goals is hindered by a need for more clean energy investments.
On May 29, Bola Ahmed Tinubu will assume the presidency, stepping into a country grappling with significant gaps in clean energy financing. The World Economic Forum (WEF) recently shed light on the challenges impeding the growth of clean energy investments in Nigeria.
These obstacles include potential risks such as government actions like confiscation, expropriation, nationalization, deprivation, currency inconvertibility, and transfer risk.
Additionally, WEF identified concerns such as political violence, repudiation or cancellation of operating licenses or concession agreements, export embargoes, forced abandonment, selective discrimination, forced divestiture, or defaulting on arbitration awards as hurdles that clean energy investors may encounter in Nigeria.
However, there are ways the president-elect and his potential cabinet can stimulate more private-sector financing in clean energy.
During the ongoing Annual Meetings in Sharm el-Sheikh, Egypt, the African Development Bank highlighted the fact that countries on the continent need long-term green growth strategies to attract private sector investments in clean energy.
While giving a speech during the event, the AfDB President, Dr. Akinwunmi Adesina said to mobilize a lot more private financing for climate change and green growth, governments and development partners should take the following approaches:
Establish national development plans for the green transition for the economy
Nigeria already has the Energy Transition Plan which highlights plans to transition Nigeria to an agas-based and renewable energy-based economy. This is the first step for the Nigerian government to show potential private sector investors that it has a plan or an approach to increasing clean energy access for its growing population.
As president, Tinubu has the chance to build on this plan and implement it while collaborating with the private sector.
Subsidize green industries to spur growth, raise demand, profitability, and sustainability
The Tinubu administration can achieve this by targeting green energy companies in the country and stimulating their businesses so they in turn can create green jobs and widen the green economy. A green economy improves well-being and social equity, while significantly reducing environmental risks and ecological scarcities.
An inclusive green economy is a thriving economy that delivers considerable economic, social, and environmental benefits.
Multilateral and bilateral financial institutions should provide guarantees at scale to help de-risk investments by the private sector
The Tinubu administration should work to make the country receptive to business so that financial institutions can give guarantees to de-risk investments. The government can develop risk mitigation instruments to reduce the perceived risks associated with infrastructure investments.
By sharing or transferring certain risks to the government or other entities, private sector investors may feel more confident in pursuing bankable projects.
Support should be provided for the preparation and development of bankable projects that can provide high-risk-adjusted returns to the private sector.
The Tinubu administration can establish a favorable policy and regulatory framework that encourages private sector participation in infrastructure and development projects. They can also play a crucial role in identifying and planning bankable projects.
This includes conducting feasibility studies, market research, and infrastructure gap analysis to identify potential projects with attractive returns. The government can collaborate with private sector stakeholders to assess the viability and financial attractiveness of these projects.
The government can also establish project preparation facilities or specialized agencies that provide technical and financial assistance to project developers. These facilities can assist in project structuring, financial modeling, risk assessment, and procurement processes.
Existing public finance infrastructure should be transferred to the private sector, which is asset recycling to mobilize more private sector resources for greener infrastructure.
Under the Tinubu administration, this can be achieved through the establishment of a policy and legal framework that supports the transfer of public finance infrastructure to the private sector. This should define the objectives, criteria, and guidelines.
The government needs to determine the most appropriate transaction structure for transferring the infrastructure assets to the private sector. The government must also identify potential private sector investors or operators who have the expertise and financial capacity to take over the infrastructure assets.
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