Nigerian Banks Face Challenges in Funding Renewable Energy Start-Ups

While prices of solar equipment are falling, the sector still remains a capital-intensive one. This is mostly so for mini-grid and large-scale projects. Access to financing is therefore very important for companies to meet the demand for clean energy and grow their business.

This is even more crucial for companies who use flexible payment options including the Pay-As-You-Go model.

Banks remain an important source of funding for local businesses and project owners. Mini-grid developers and other renewable energy players are looking to local banks to fund their projects but are not getting the kind of support they desire.

While very few Nigerian banks have a policy on renewable energy, some of the ones that do have some concerns that have slowed investment into the renewable energy sector. High-interest rates and short terms are two major factors that discourage stakeholders from seeking loans from banks.

The limited knowledge of the banking sector also means that they have to depend on international partners in order to understand it and also employ international funding models. Furthermore, since there’s competition for funds and the clean energy space is a long-term industry, banks typically give out money to other industries that require short-term funding.

A number of banks have also been cautious about giving money to the clean energy sector due to the exposure they currently have from financing the acquisition of power assets a few years ago. A number of them are yet to recover some of the money back.

While there are very few banks in Nigeria actively developing a policy on renewable energy, those who are doing so are having to deal with issues like limited knowledge of the sector. Others issues include finding borrowers with the required technical expertise and also specific issues like payments collection and meter tampering. However, as knowledge of the clean energy sector continues to deepen and the macroeconomic situation improves, there’s the hope that more banks would be willing to fund the sector.


Source: Energy Mix Report

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