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Asian Business Research Journal 
Vol. 10, No. 9, 62-72, 2025 
ISSN: 2576-6759 
DOI: 10.55220/2576-6759.571 
© 2025 by the authors; licensee Eastern Centre of Science and Education, USA 

 
 

 

 
Subsidy Reform and Private Investment in Nigeria’s Renewable Energy Sector: A 
Post-Petroleum Economic Perspective 

 
Akomolehin Francis Olugbenga1

 
Oluwaremi Joel Bali2 
Ebenezer Olutoye3 
Olusola Anthony Ibitoye4 
 

 
 

1,2,3,4Dept of  Finance, College of Social and Management Sciences, Afe Babalola  University, Ado - Ekiti, Nigeria. 
Email: akomolehinfrancis@pg.abuard.edu.ng  
Email: oluwaremijoel@pg.abuad.edu.ng  
Email: olutoyedayo@abuad.edu.ng  
Email: olutoyedayo@abuad.edu.ng  
(Corresponding Author) 

 

 
Abstract 

The decision of Nigeria in 2023 to end long-standing fossil fuel subsidies brought the country to 
a critical juncture in its energy history. Although this reform is generally viewed as a fiscal 
requirement meant to restore economic efficiency in the market and reduce public debt, the 
subsequent impact on private investment in renewable energy has been little studied. The current 
policy discourse takes for granted that the removal of subsidies will automatically steer capital 
towards cleaner sources of energy, however, it is not clear empirically how such changes influence 
investor confidence, capital deployment, and project tenability. Filling this gap is the objective of 
this study, which carries out a systematic review of peer reviewed-journal articles, policy briefs 
and institutional reports from 2019 up till 2025 using a country-specific lens to monitor the 
situation from Nigeria. The results suggest that the impact of subsidy reform in private renewable 
investment is mixed and depends greatly on supportive factors like regulatory consistency, fiscal 
recycling strategy and risk mitigation tools. Although the phase-out of subsidies is making the 
market place a level playing field for renewables (i.e. eliminating the distortions of fossil fuel 
prices), this is also creating uncertainty in the absence of credible policy frameworks and 
investment triggers. It highlights the need for an integrated policy-finance ecosystem to ensure 
that reforms result in durable investment. It ends with specific policy recommendations to steer 
Nigeria’s energy transition towards its fiscal ends and the Sustainable Development Goals (SDG 7 
and SDG 13). 

 
Keywords: Energy transition, Nigeria, Post-petroleum economy, Private investment, Renewable energy, Subsidy reform. 

 
1. Introduction 

Nigeria's energy scene has been dominated for decades by a fossil fuel subsidy regime, which, although 
politically convenient, has come with heavy fiscal burdens and has discouraged transition to cleaner energy 

sources. For many years, fuel subsidies have captured large shares of national revenue—up to ₦4.39 trillion in 
just 2022—crowding out investments in vital infrastructure, like renewables (Akinyemi et al., 2021; Okonkwo & 
Yusuf, 2023). These subventions have not only engendered economic inefficiencies and rent-seeking tendencies 
but also impaired the allocative efficiency in the energy market, by artificially affecting prices, thereby under-
stimulating the interest to develop alternative energy sources (Oyewo et al., 2021). 

With the acceleration of fuel subsidies in 2023 as part of wider economic reform, Nigeria found itself at a 
crossroads in its energy transition. Subsidy elimination was designed to release fiscal space and decrease the 
country’s unsustainable debt service-to-revenue ratio and to encourage a more market-based energy economy 
(World Bank, 2024). But the sustainability of this transition in the long term will be strongly dependent on not 
just if the policy shift results in significant increase in private sector investment in renewable energy—an area 
with potential for addressing Nigeria’s perennial power shortages, mitigating greenhouse gas emissions, and 
generating green jobs (IRENA, 2023; Abdullahi & Bello, 2020). Renewable energy is a source of energy that is 
utilized in a given area continuously without any time lag. 

The shift to renewables in a post-subsidy world may not just be an environmental imperative, but a strategic 
economic one too. Nigeria has a less than 60% electrification rate and rural areas have little access to power (Eze, 
2022). “Conventional generation capacities thermal and gas-based are not available and are also polluting in 
nature. But renewable options, especially those that are decentralized, such as solar mini-grids and standalone 
systems, provide a scalable and cost-effective alternative, which are also climate-resilient. However, renewable 
energy growth will depend to a great extent on the mobilisation of private capital, as public financing will not be 

mailto:akomolehinfrancis@pg.abuard.edu.ng
mailto:oluwaremijoel@pg.abuad.edu.ng
mailto:olutoyedayo@abuad.edu.ng
mailto:olutoyedayo@abuad.edu.ng
https://doi.org/10.55220/2576-6759.571


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able to close the estimated USD10 billion investment gap in the sector over the next decade (GIZ, 2021; UNEP 
FI, 2021). 

However, there is little empirical knowledge of the impact of subsidy reform on private investment in 
Nigerian renewable energy, in spite of the change in policy. This gap in understanding is especially pronounced 
with regard to inv estors' risk perceptions, regulatory commitment and policy consistency in a post subsidy -
withdrawal world. Previous research has either examined macroeconomic impacts of subsidy withdrawal 
(Akinyemi et al., 2021) or generic constraints to renewable energy penetration (Adedeji and Ajayi, 2024) but has 
not combined both dimensions to understand how fiscal shifts change the investment environment. Further 
complicating matters are erratic policy signals, and immature financial tools that undermine investor 
participation in Nigeria’s clean energy industry (Oyebanji et al., 2023). 

Thus, this study addresses this important gap by seeking to review, based on literature, the following 
cognitive aims: 

The first is to evaluate the linkages between the subsidy reforms and private investment in Nigeria’s 
renewable energy sector. Second, to examine the barriers and drivers of private-sector involvement in a post-
subsidy situation. Third, to offer actionable and implementable policy recommendations that would facilitate a 
just, inclusive, and investment-ready energy transition. 

Given its ability to synthesize a variety of evidence, to highlight theoretical and empirical absences and to 
weave a comprehensive story around changing policy-investment dynamics, a literature-based approach is 
particularly appropriate for this kind of inquiry. This will help to accommodate cross-disciplinary perspectives 
from energy economics, institutional theory, public finance and climate policy – subject areas that are key to the 
intricate interconnection between reform, investment and sustainability within the Nigerian context (Eboh & 
Nwafor, 2020; IRENA, 2023). 

Situating the study within a wider discourse on post-petroleum economic development, the review not only 
situates Nigeria’s energy subsidy reform, but also contributes to global discussions on the socially just transition 
to a low carbon energy future in the emerging market context. The study presents a firm basis for developing 
need-based interventions consistent with the Sustainable Development Goals (SDG 7- affordable and clean 
energy, SDG 13- climate action), and Nigeria’s long-term development plan. 
 

2. Conceptual and Theoretical Review 
2.1. Conceptual Lens  

The theoretical basis of this research is twofold - the Post-Petroleum Economic Framework and the Energy 
Transition Justice Model. These frameworks provide a detailed view of the complex relationship between fiscal 
reformation, investment trend and just energy transition in Nigeria's resource-based economies. 

 

2.1.1. World of Post-Petroleum Economy 
To analyze the transition of Nigeria from oil-based economy to an investment-driven diversified renewable 

based energy system, this chapter offer the Post-Petroleum Economic Paradigm as an instrument of strategic 
analysis. The two key pillars it this framework is a new fiscal course and clean energy investment motivations. 
The latter comprises the re-channeling of public expenditure resources from inefficient and regressive fossil fuel 

subsidies to pro‐development sectors (renewable energy, education, infrastructure) (Eboh & Nwafor, 2020; 
Akinyemi et al., 2021). In the case of Nigeria, the 2023 implementation of subsidy reform is a unique moment in 
budgetary history that can either leapfrog the country into sustainable development or deepen its social inequality 
and investment insecurity, depending on which policies follow (World Bank, 2024). 

The fiscal room generated through subsidies removal which was put at over ₦4 trillion annually can be 
reallocated to targeted investment incentives for the private sector in the clean energy room (Oyewo et al., 2021). 
These incentives could take the form of feed-in tariffs, tax incentives, soft financing, and sovereign guarantees- 
mechanisms that have been effective in stimulating private investment in renewable energy in similar settings 
such as Kenya, Morocco and India (IRENA, 2023; Adedeji & Ajayi, 2024). But with no evidence of co-ordinated 
and transparent mechanism to channel these fiscal increases, the subsidy removal may exacerbate more investor 
lack of confidence and the incidence of energy poverty (Okonkwo & Yusuf, 2023). 

The Conceptual Framework In addition, the model highlights the centrality’s of institutional capacity building, 
regulatory predictability and macroeconomic stability in guaranteeing the attractiveness of Nigeria’s energy sector 
to both local and foreign investors (Eze, 2022). The interaction between fiscal adjustment and investment 
incentives is not only technocratic, it is politically economic, rooted in the legacy of rent seeking, policy reversals 
and governance opacity that needs to be addressed if reforms are to be credible (Oyebanji et al., 2023). 

 

2.1.2. Energy Transition Justice Model   
As the energy transition justice model 8 shows, the transition to renewable clean energy has evolved from 

traditional and industrial revolutions to the current fashionable-big business and technical revolutions. 
Complimenting the economy of reform is the Energy Transition Justice Model, which considers the social and 

distributive justice implications of Nigeria’s post-subsidy energy reform. It is, at root, proposed that any transition 
in energy (including one that would be brought about by the phased neutralisation of pervasive public subsidies) 
will, for reasons of equity and justice, demand a just and inclusive burden-sharing, active participation of 
populations, and diversity in terms of their income level, sex, ethnicity, and local residence (Jenkins et al., 2020; 
UNEP FI, 2021). For instance, in Nigeria, fuel subsidies have traditionally acted as a de facto safety net for low 
and middle income households, even though their aggregate macroeconomic impact is regressive (GIZ, 2021). The 
rapid abnormal suspension of this life wire without compensatory safety net systems put the poor at risk of being 
subjected to unjust suffering even further by perpetuating social discontent and political blow-back (Okonkwo & 
Yusuf, 2023). 

The justice model obliges us to judge the products of reform, not only for their fiscal efficiency or the size of 
the investment they represent, but also for their equitability as regards access toenergy, their affordability and the 



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capacity to sustain them across generations (IRENA, 2023; World Bank, 2024). This could involve reinvesting a 
portion of the fiscal savings in off grid renewables for underserved rural communities, scaling decentralised energy 
technologies and developing social entrepreneurship in the clean energy sector. Regardless, practices such as 
lifeline tariffs, inclusive stakeholder engagement, and transparent reinvestment of proceeds will be important for 
making Nigeria’s subsidy reform a supportive—rather than undermining—force for an equitable energy transition 
(Abdullahi & Bello, 2020; Oyewo et al., 2021). 

Finally, the justice approach highlights the importance of procedural justice: system-wide procedures for both 
reallocating subsidies and granting RE incentives need to be participatory and evidence-based. This reduces elite 
capture and legitimacy in transition (Jenkins et al., 2020; Eze, 2022). 

Collectively, these two concepts account for much of the framework of this study: Post-Petroleum Economic 
Framework and Energy Transition Justice Model. The former is essential to help us understand the re-alignment 
of macro fiscal and investment priorities that are needed to build an energy economy based on sustainability; the 
latter ensures that any shift occurs in a socially inclusive, politically feasible and ecologically sensitive manner. 
 

2.2. Theoretical Framework 
A rational and comprehensive theoretical perspective to investigate the dynamics of subsidy reform and private 

investment in the renewable energy (RE) sector in Nigeria is essential because the impact depends on several levels 
of the economic, political and institutional framework influencing investor decisions. The paper is informed by 
three interconnected theoretical frameworks: Investment Climate Theory, Public Choice Theory and Institutional 
Theory in order to critically analyse the impacts of fiscal and regulatory shifts on the evolution of investment in a 
post-subsidy, renewable-based economy. 

Investment Climate Theory provides a grounding framework for understanding how macroeconomic stability, 
policy consistency, and institutional transparency influences investor confidence in countries with histories of 
volatile markets and lax enforcement mechanisms, such as emerging markets. The theory argues that the 
attractiveness of any investment place is a combination of the predictability, conduciveness of the business 
environment, the availability of infrastructure and the credibility of government commitments (OIET, Kinda, 
2010; Eifert et al., 2015). FOR EXAMPLE Nigeria The sudden withdrawal of the fuel subsidies in 2024 in Nigeria 
changed the financial dynamics, so this may be achieving better budgetary & economic health, at the same time 
creating much volatility to pricing structures and energy costs for comparison purposes. This uncertainty also has 
the potential to amplify the perceived risks of investing unless it is accompanied by clear post-reform policies 
which increase the attractiveness and reduce the risks for the general investment in renewables (Oyewo et al., 
2021; Abdullahi & Bello, 2020). Information coming out of a number of transitional economies shows that reforms 
of subsidies not harmonized with clear policy directions and risk mitigation instruments may trigger some kind of 
investment inertia, rather than acceleration (IRENA, 2023; Adedeji and Ajayi, 2024). 

Public Choice Theory adds value to this analysis because it incorporates the political economy aspects of 
subsidy reform such as the influence of vested interests, populism and rent-seeking behavior on energy policy 
outcomes. It has been posited that public policy choices — including that of fuel subsidies — are the result of the 
strategic game !4 played by political agents motivated by the accrual of votes, command of economic rents, or 
protection of elite benefits (Tullock, 2005, Acemoglu and Robinson, 2012). In Nigerian, decade’s long practice of 
subsidy regulation has not only created fiscal inefficiencies but has also created strong vested interest that have 
hobbled reform efforts as they benefit from subsidy leakages, economically and politically (Akinyemi et al., 2021; 
Okonkwo & Yusuf, 2023). Accordingly, even benevolent subsidy removal measures may encounter operational 
difficulties, popular opinion resistance and policy flip-flops, which will all erode savers' confidence in the market. 
Consequently, the robustness and legitimacy of reform results also lie in political will and stakeholder support 
without which a consistent long-term investment in renewable will not be sustainable (GIZ, 2021; World Bank, 
2024). 

Institutional Theory supplements these views by stressing the role of governance mechanisms, the 
enforcement of rules, and the coherence of our institutions in determining market actions. This theory contends 
that irrespective of policy content, institutional quality; including regulatory bodies, courts, and bureaucratic 
agencies that in turn will account for the effectiveness of policy implementation and the trustworthiness of the 
quality of the environment where investment will be conducted (North, 1990; Scott, 2014). In Nigeria, low public 
sector capacity, fragmented regulatory responsibilities, and lack of clarity and consistency in energy policies have 
consistently undercut private sector involvement in renewable energy development (Eze, 2022; Oyebanji et al., 
2023). For example, the overlapping regulatory roles played by the NERC and REA, as well as federal ministries, 
results in a lack of clarity when it comes to licensing, tariffs, and procurement – which tends to discourage long-
term capital investment. In addition, institutional opacity results in the late approval, non-transparent public- and 
private partnership architecture, weak contract implementation, increased cost of transaction and it undermines 
both local and Foreign Domestic Investors (UNEP FI, 2021; Jenkins et al., 2020). 

When combined, these theories offer a strong, explanatory framework to understand the post-subsidy 
investment landscape in Nigeria’s renewable energy market. Whereas Investment Climate Theory emphasizes the 
economic and regulatory incentives needed to attract capital, Public Choice Theory embeds the politics around 
subsidy reform into the larger story of political opposition and elite negotiations. 5Institutional Theory, in 
contrast, focuses on the systemic governance changes required to translate fiscal policy shifts into investable 
actions. The combination of these theoretical perspectives is particularly applicable to energy transition routes 
which are not only economically feasible but also politically viable and institutionally legitimized. Therefore, this 
study is grounded in them Institutional Theory, which provides the broadest theory that explains how the quality 
of governance, the design of policy, and the execution of regulation jointly indetimension the success or failure of 
private investment in the post-petroleum energy transition in Nigeria. 
 
 
 



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2.3. Conceptual Framework 
 

 
Figure 1. Conceptual Framework Diagram. 

 
The conceptual framework for this study provides a visual and theoretical representation of how subsidy 

reform influences private investment in Nigeria’s renewable energy sector, particularly within a post-petroleum 
economic paradigm. t the heart of this model is the exogenous variable - subsidy reform, which includes fuel 
subsidy elimination, fiscal reorientation due to budgetary redistribution, and deregulation of energy pricing. Such 
policy changes are economically required but cannot in isolation lead to the type of investment occurred if not 
combined with some facilitating instruments and influenced by certain external factors. 

The mediating variables are mechanisms by which the subsidy reform influence investment outcomes is 
channeled. These could be the modalities for the provision of renewable energy incentives like feed-in tariffs, tax 
holidays, concessional grants, among others that would help address market failure and create a fair playing field 
for renewable energy investors. Another important path is regulatory clarity and the licensing process, as murky 
policies and long permitting schedules can scare investors away. If subsidy reforms such as these are linked to 
clear, enforceable regulatory tools (such as transparent power purchase agreements and standardized grid codes), 
then they can be investor-friendly and also minimize transaction costs. 

Closely related to this is the go-between mediating the market signals and confidence by investors, on how 
reform is affecting the overall investment climate. Pricing energy predictably, ensuring macro economic stability, 
and timeliness in removing subsidies all give good signals to investors. Further, administration and capacity-
building of energy institutions, such as NERC, REA, and their parent ministries' quality also matter in the 
translation of policy intentions into investable prospects. When institutions are sufficiently well-resourced and 
cooperative, they minimize bureaucratic waste and promote an environment conducive to public-private 
partnerships. 

But the power of subsidy reform on private investment is not absolute; it is a function of some moderating 
variables. These involve the macro-economic atmosphere such as inflation, volatility in currency as well as interest 
rates, which influence the cost of capital and project feasibility. Ignatieff) "Governance and political stability are 
equally important, as they shape the credibility of reform and the possibility of reversal of policy. A shaky 
governance foundation undermines confidence and discourages long-term investment. Infrastructure 
preparedness, such as grid connections and transmission capacity, also conditions how efficiently private 
investments can be used and scaled. Finally, access to green finance, in the form of domestic capital markets, 
international climate funds or blended finance and others, affects the availability and terms of investment. 

The framework also provides a dynamic, multi-layered process for subsidy reform to facilitate enhanced 
involvement of the private sector in renewable energy so long as the mediating mechanisms work and the 
moderating conditions are optimal; particularly, monitors are effective and dynamic. In bringing together 
economic, institutional and political aspects, this conceptual framework provides a comprehensive perspective on 
the relationship between reform and investment in Nigeria. It follows Institutional Theory which emphasizes the 
impact of governance structures and regulatory environments on market functioning, and also is informed by 
insights from Investment Climate Theory and Public Choice Theory to consider policy design and political 
economy constraints. Hence, the framework offers a well-structured basis for the determination of the 
conditionality of what Nigeria’s energy transition, in both fiscal and investment terms, should be sustainable.  
 

3. Methodology 
The specific approach taken in undertaking this study is qualitative systematic literature review, in its attempt 

to search and synthesize extant knowledge on subsidy reform versus the inflow of private investment that the 
country Nigeria will have in the renewable energy sectors vis-à-vis its development post petroleum. The strategy is 
intended to help you achieve depth of analysis, clarity of thought, and relevance of findings-undergraduate project 
publication, but now published in impact factor, Scopus-indexed journals. 

The literatire review is systematically organized in order to include both theoretical and empirical 
contributions from various academia and institutions. This approach is especially relevant given that the research 
focus is multi-faceted, including areas related to fiscal policy reform, energy transition, investment behavior and 



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institutional dynamics in Nigeria. A qualitative synthesis can combine a variety of perspectives and context-specific 
explanations that are difficult to synthesise quantitatively, especially in a rapidly changing policy area. 

Focused on Nigeria geographically, the review is primarily temporally delimited to cover the critical period 
between 2019 and 2025, during which the country officially abolished the fuel subsidies in 2023, and intensified 
efforts to develop its renewable energy capacities to respond to financial, environmental and geopolitical 
compulsions. Within this time frame, the paper explores the extent to which policy changes—specifically in the 
form of energy price adjustments and fiscal tightening—have impacted, and will impact, private sector involvement 
in the renewables market. 

Stringent inclusion criteria were developed to maintain relevance and academic rigour. Firstly, only peer-
reviewed journal articles (2019-2025) were combined to guarantee the quality and up-to-datedness of the results. 
Second, policy briefs and technical reports issued by international organisations such as IRENA, World Bank, 
UNEP FI, African Development Bank, GIZ© have been incorporated, since they provide important indications of 
energy policy reform and investment movements in emerging markets. Third, the review also included country-
based reports and working papers that specifically concentrate on subsidy reform, renewable energy growth, or 
private investment outcomes in Nigeria. General or uncontextualized analysis papers were also excluded to preserve 
geographical and substantive specificity. 

Search strategy Searches were conducted on a number of scholarly databases (Scopus, ScienceDirect, Google 
Scholar and JSTOR) which together provide extensive coverage of peer-reviewed academic literature, and grey 
literature. Boolean operators and additional filters were applied when possible to focus the search and avoid the 
repetition. Search words Key search terms utilized included: “subsidy reform,” “renewable energy,” “private 
investment” “Nigeria,” and “energy transition.” Variations of these search terms were used in singular and 
compound forms (e.g. “subsidy reform AND private investment”, “renewable energy investment AND Nigeria”) to 
guarantee inclusiveness and coverage of the topic. 

All the articles were subject to a two-layer screening process. All titles and abstracts were screened manually 
in the first phase for relevance according to the inclusion criteria. In the second stage, full text review was done, 
while significant findings were extracted, and sectioned thematically based on four main areas: (i) political economy 
of fuel subsidy reform (ii) incentives and barriers to investment in renewable energy (iii) institutional and regulatory 
quality (iv) evidence on investment trends post-subsidy. The literature was then coded and woven together within a 
narrative for their patterns, gaps, and conceptual connections between the literature. 

This in turn allows for a nuanced analysis of how subsidy reform – in concert with enabling regulatory and 
financial instruments – can catalyse private investment in Nigeria’s renewable energy future. It is also consistent 
with the rigors of qualitative energy policy research by upholding methodological transparency, replicability, and 
policy relevance—an important quality of high-ranking, Scopus-indexed journal articles. 
 

 
Figure 2. Prisma 2020 Flow Diagram. 

 
The PRISMA 2020 diagram illustrates the systematic review process for this study, beginning with 865 records 

identified across major databases. After removing 242 duplicates and excluding irrelevant records, 64 reports were 
assessed for eligibility. Of these, 17 studies were included in the final review, ensuring a focused and transparent 
selection process aligned with indexed journal standards. 
 



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4. Literature Review 
4.1. Overview of Nigeria’s Fossil Fuel Subsidy Regime 

Nigeria has, for decades, had arguably one of the most expansive fossil fuel subsidy regimes in the world, 
justified in much of the past by successive governments as a means to cushion the population from global oil price 
fluctuations and improve affordability for transport and production inputs. In particular, subsidies on petrol and 
diesel have been framed as a pro-poor measure yet several empirical studies revealed that such subsidies have 
offered higher-income groups and urban elites disproportionate benefits and caused a leakage of public resources 

(Akinyemi et al., 2021; Oyewo et al., 2021). Nigeria has spent over ₦13 trillion on fuel subsidies between 2006 and 
2022, larger than the federal capital expenditure in most fiscal years (World Bank, 2024). 
 

 
Figure 3. Timeline of Nigeria’s Fuel Subsidy Reform (2000–2025). 

 
This timeline highlights the evolution of Nigeria’s fuel subsidy regime, from its institutionalization in the early 

2000s to reform attempts in 2012, eventual removal in 2023, and emerging post-reform actions. It underscores how 
historical inertia and political resistance shaped delays, while recent fiscal urgency has triggered a transition toward 
a post-subsidy energy economy. 

The politics surrounding subsidy reform in Nigeria have been intensely contentious. Attempts to phase out 
subsidies—such as the failed partial removal in 2012 under President Goodluck Jonathan—triggered widespread 
protests and political resistance, driven by entrenched interests in the fuel importation value chain (Okonkwo & 
Yusuf, 2023). The eventual full removal of fuel subsidies in 2023, under the administration of President Bola Ahmed 
Tinubu, marked a watershed moment. While framed as a necessary economic correction to curb fiscal leakages and 
stabilize public debt, the removal exposed underlying institutional weaknesses and a lack of a robust social safety 
net, sparking inflation and public discontent in the short term (Eze, 2022; GIZ, 2023). 

 

4.2. Implications of Subsidies Reform to Energy Dynamics Market 
Nigeria’s power market has been drastically impacted by the cut in subsidies. First, the immediate deregulation 

of the price of petroleum products raised the retail price of fuel which also hiked the price of conventional power 
generation, as Nigeria mainly depends on diesel and petrol generators (Oyebanji et al., 2023). This unintended 
consequence has attracted the interest of the market in renewable energy technologies as substitutes for price 
certainty and long-term savings for commercial and industrial users (IRENA, 2023). 

However, in practice, although subsidy reform effectively equalises such distortions, the perceived investment 
risk in Nigeria’s energy sector is still high because of policy uncertainty, inflation, and the challenge of contract 
enforcement (Abdullahi & Bello, 2020). It is this relatively lower level of maturity that makes hesitant many 
investors to clearly distinguish between temporary volatility and systemic risk, becoming eventually apprehensive 
to invest money in long-gestation renewable projects. Besides, there is a real investment risk due to the instability 
of currencies and a lack of local capacity to produce to a scale that reduces the cost of and barriers to investment in 
renewables projects (Adedeji & Ajayi, 2024). 
 

4.3. Patterns and Constraints in Private Investment in Nigeria’s Renewable Energy Industry 
While the private sector investment in Nigeria’s renewable energy sector remains low, there has been modest 

growth the recent decade with the focus on solar mini-grids, stand-alone systems and hybrid solutions. There 
remain significant obstacles, despite advances. Infrastructure gaps—such as inadequate grid access and weak 
transmission—are barriers to the scale-up of grid-connected renewables (World Bank, 2024). The regulatory 
framework is fragmented and there are interlocking authorities between the Nigerian Electricity Regulatory 
Commission (NERC), the Ministry of Power and sub-national governments This has resulted in bureaucracy and 
lack of clarity in the licensing process (Eze, 2022). 

Another key challenge is funding. Further, project developers find it difficult to structure bankable transactions 
due to high interest rates, short tenor of local loans and absence of hedging instruments (Oyewo et al., 2021). The 
Nigeria Electrification Project (NEP) and Rural Electrification Agency (REA) donor-funded projects have 
stimulated demonstration effects, but their ability to scale and be integrated with national SRFs has been restricted 
(GIZ, 2021; UNEP FI, 2021). By contrast, sector-specific efforts have had some success in other areas — solar mini-
grids and off-grid installations, in particular, are now feasible in rural areas — but biomass and wind projects are 
only beginning to emerge because they face the same market failures. 
 



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Figure 4. Investment Barrier Heat Map. 

 
This heat map visualizes the severity of key constraints affecting private investment in Nigeria’s renewable 

energy sector. High-impact barriers include grid infrastructure deficits, FX volatility, and limited access to long-
term finance. Moderate challenges such as regulatory uncertainty and weak institutional coordination also hinder 
progress. Addressing these critical bottlenecks is essential to building a more investment-friendly energy ecosystem.  
 

4.4. Comparative Lessons-What Works Elsewhere in the Developing World 
Lessons from other developing countries have much to teach Nigeria’s post-subsidy experience. For example, 

India has introduced direct capital support and accelerated depreciation facilities for solar and wind with 
tremendous success in rapidly scaling up renewable energy (Bhattacharya et al., 2022). In Kenya, feed-in tariffs and 
policy guarantees led to considerable off-grid solar deployment, especially in arid and semi-arid areas (Ondraczek et 
al., 2020). In Morocco, the 'substituted fossil fuel subsidies for investment' were redirected to establish the Moroccan 
Agency for Sustainable Energy (MASEN) and develop projects with a combined financing approach in order to de-
risk utility scale solar investments (IRENA, 2023). 

Two common themes emerge from these cases: the need for policy coherence, and strategic re-allocation of 
subsidy savings for clean energy initiatives. Unlike Nigeria in which the withdrawal of the subsidy was done before 
the development of strong investment channels, these countries established proactive set-ups to soak up the fiscal 
and social shocks from energy reforms. Furthermore, long-range planning and open stakeholder engagement were 
essential for maintaining confidence by investors and support by the public (UNEP FI, 2021; World Bank, 2024). 
 

Table 1. Comparative Matrix: International Case Studies. 

Policy 
Instrument 

Nigeria India Kenya Morocco 

Feed-in Tariffs 

Limited and 
inconsistent FiT 
implementation; 
mostly focused on 
mini-grids. 

Established FiTs; 
accelerated 
depreciation and GST 
exemptions. 

FiTs for wind, 
geothermal, and solar 
with government 
backing. 

Long-standing FiT and 
utility-scale 
procurement via 
MASEN. 

Subsidy 
Rechanneling 

No structured subsidy 
reallocation plan yet. 

Redirected subsidies 
to rooftop solar, EVs, 
and storage tech. 

Funds redirected to 
off-grid solar and rural 
electrification. 

Redirected fossil 
subsidies into renewable 
megaprojects. 

Public-Private 
Partnerships 
(PPPs) 

Emerging PPPs in 
solar mini-grids, but 
weak enforcement. 

Strong PPP 
frameworks in solar 
parks and hybrid 
systems. 

PPPs active in wind 
and geothermal 
sectors. 

PPP-led investments in 
solar thermal and wind 
parks. 

Green Finance 
Mechanisms 

Sovereign green bond 
issued; private sector 
uptake is low. 

Extensive use of 
blended finance and 
green bonds. 

Green Climate Fund 
(GCF) and donor-
backed finance widely 
used. 

Strong public-private 
funding mix (e.g., EU, 
WB, AfDB). 

Investor 
Response 

Cautious optimism; 
high risk perception 
due to policy 
uncertainty. 

Positive; large-scale 
private investment in 
solar and wind. 

High private sector 
engagement, 
particularly in off-grid 
renewables. 

Stable and favorable; 
low perceived 
investment risk. 

 

4.5. Tools and Mechanisms to Attract Private Investment After Subsidy 
Nigeria should also scale up innovative financial and policy instruments in order to fill the investment gap 

opened by a reduction or withdrawal of fossil fuel subsidies, such as levies on new coal and clean energy levies, as 
part of the proposed energy transition. Sovereign and corporate green bonds have been popping up all over the 
world as instruments to funnel climate-related capital. Nigeria launched the first-ever African sovereign green bond 
in 2017 and though green bonds issued by the private sector are low; this is primarily due to low investor 
knowledge as well as lack of compatibility of verification processes (Oyebanji et al., 2023). 

Public private partnerships (PPPs) seem to be a promising option for de-risking massive infrastructure 
investments. But if PPPs are to flourish in the renewables space, government commitments have to be underpinned 



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by contracts that are enforceable, risk-sharing instruments and credible dispute resolution mechanisms (Adedeji & 
Ajayi, 2024). Risk premiums and bankability can be further improved with the provision of guarantees and 
concessional capital, offered by multilateral development banks and donor agencies, especially for first-of-its-kind 
projects (IRENA, 2023; GIZ, 2021). 
 

 
Figure 5. Instruments for De-risking Investment – Strategic Funnel. 

 
This strategic funnel visualizes how layered financial and policy instruments reduce risk and guide capital 

toward bankable renewable energy investments. At the top, systemic risks are identified. In the middle, de-risking 
tools—such as power purchase agreements (PPAs), green bonds, guarantees, and concessional loans—narrow risk 
exposure. At the bottom, mitigated risks translate into increased private investment inflow. 

Finally, feed-in tariffs (FiTs) and power purchase agreements (PPAs)—when transparently administered and 
linked to tariff recovery mechanisms—can incentivize investment by offering predictable revenue streams. In 
countries like South Africa and India, these instruments have catalyzed rapid scale-up of utility-scale solar and wind 
projects. For Nigeria, adapting FiTs to mini-grids and embedded generation, coupled with sovereign-backed PPAs, 
could be game-changing for attracting long-term private investment (World Bank, 2024; UNEP FI, 2021). 
 

5. Discussion 
A synthesis of the reviewed literature the literature reviewed portrays a multi-level policy making and 

implementation process that has characterised the relationship between subsidy reform and private investment in 
Nigeria’s renewable energy sector. The central caveat is a dichotomy defining the social implications of the reform: 
although is itfiscally efficient and environmentally rational to phase out subsidies, its actual impact on the 
investment behavior in the real economy is filtered through structural, political and financial factors. This complex 
situation highlights the necessity of an enlightened (in the best sense of the word), well-sequenced and participatory 
policy implementation so that fiscal reforms are translated into tangible gains on the field of development of 
renewable energy. 

In literature, we recognize that subsidy reform plays a dual role as the driver and supplier. First, it reduces 
historic economic imbalances by ending the semature underpricing of fossil fuels, which raises the marketplace 
attractiveness of renewable substitutes, like solar minigrids, off-grid systems, and bioenergy (Oyewo et al., 2021; 
IRENA, 2023). Siphoning away those government subsidies will make market signals clearer than they would 
otherwise have been, and gives Nigeria a chance to redirect public monies toward grid expansion and incentives 
designed to draw in private capital. On the flip side, however, the suddenness and opaqueness of the processes of 
reform implementation have generated investor fears, most especially in the absence of compelling reinvestment 
frameworks, transitional safety nets and regulatory assurances (Adedeji & Ajayi, 2024; Abdullahi & Bello, 2020). 
These concerns are exacerbated in the macroeconomic environment of inflation, exchange rate variability, and poor 
institutional trust. 

Central to investment outcomes, the political economy of reform delivery is a determining factor in investment 
outcomes. The subsidy regime in Nigeria was deeply entrenched in patronage politics and public expectations, and 
its removal - although laudable - was met with cynicism and opposition from interest groups which had benefited 
from decades of rent-seeking (Okonkwo & Yusuf, 2023). The absence of participatory consultation on and 
abruptness of the removal of subsidy in 2023 has created fears on policy reversal and social turmoil which have 
further undermined the confidence the investors have in the economy. Public Choice Theory and Institutional 
Theory stress the significance of coordinating reform with credible institutions and inclusive governance processes 
– a consideration that has been insufficiently addressed in Nigeria’s reform trajectory to date (Eze, 2022; Jenkins et 
al., 2020). 

Here, the function of international development finance becomes an indispensable facilitator. Donor supported 
programs like the Nigeria Electrification Project (NEP) being financed by the World Bank and the African 



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Development Bank, have begun to build momentum for off-grid electrification, particularly in underserved rural 
areas. However, such initiatives are still being led by donors, rather than the market, which makes them difficult to 
sustain over the long-run unless they are further integrated into Nigeria’s wider fiscal, investment and budgetary 
landscapes (GIZ 2021; UNEP FI 2021). Instruments such as blended finance, green bonds, and risk guarantees—
especially when scaled up through co-operation with domestic-based financial institutions—can help to address 
investment gaps and deliver the market stability needed to scale up renewable deployment (IRENA, 2023). 

From a developmental lens as well, Nigeria’s post-subsidy reform trajectory needs to be appraised through the 
prism of Sustainable Development Goals (SDG) 7 and SDG 13. SDG 7 reflects the idea that everyone should have 
affordable, reliable and modern energy services, whereas SDG 13 requires us to take action immediately on 
combating climate change and its consequences. If done right, subsidy reform can serve both objectives by ending 
environmentally damaging subsidies and freeing up resources for clean energy investment. Despite the removal of 
subsidies, progress would not be achieved in isolation, unless steered by programmes to facilitate energy equity, 
financial inclusion, and environmental justice (World Bank 2024, Oyebanji et al 2023). The shortfall of a 
comprehensive post-reform roadmap focused on the energy poor and decentralized renewables—while ensuring 
consumer affordability—risks negating Nigeria’s SDG commitments. 

In short, while subsidy reform offers a necessary structural reset for Nigeria’s energy economy, its potential as a 
lever for private investment and long-term sustainability is conditioned by a matrix of factors that exceed merely 
fiscally recalibrating. A consistent policy framework, strong institutions, transparent reinvestment plans and 
continued international cooperation are all necessary in order to guarantee that such a reform effectively spurs a fair 
and sustainable energy transformation. The upside is potentially huge — but so are the downsides of policy inertia, 
social exclusion, and lost investment if reform execution remains uncoordinated and obscure. 
 

 
Figure 6. SDG Alignment Dashboard – Nigeria’s Post-Subsidy Energy Transition. 

 
Logical, this radar chart illustrates Nigeria’s alignment with key targets under SDG 7 and SDG 13 following 

fuel subsidy reform. While moderate progress is observed in access to electricity and policy integration, gaps persist 
in renewable energy share and infrastructure for least-developed communities. Strategic focus on clean energy 
financing and climate resilience is needed to close these alignment gaps. 
 

6. Policy and Practice Implications 
The implications of the results have important policy and practical implications for a wide range of actors such 

as public authorities, private investors and international development partners. The effectiveness of the energy 
subsidy reform in Nigeria in driving private sector investments in the renewable energy market will be determined 
by the adoption of an integrated, transparent and inclusive policy realignment and institutional strengthening 
programme. 

In Nigeria there is a pressing need for the government to prepare a robust subsidy reinvestment roadmap which 
includes specific fiscal obligations, clear financial commitments and the allocation of a specific percentage of its 
subsidies saved from the removal of subsidies to investments in clean energy infrastructure, decentralized energy 
access and sectoral incentives. Measurable targets, transparency of budget, and a collaborative governance 
structure that includes representatives of those along the energy value chain should support such a roadmap. 
Without a disciplined reinvestment program in place, the fiscal space freed from subsidy reform would continue to 
be occupied by recurrent spending with the attendant undermining of public confidence and investment 
predictability (Oyewo et al., 2021; World Bank, 2024). 

Just as important are the creation of enabling, enforceable regulatory and licensing frameworks which minimise 
administrative bottlenecks, facilitate contractual commitments, and accelerate the approval process for projects. On 
the licensing and tariff front, investors are keen to get greater clarity about how the government is going to handle 
licensing procedures and tariff structures for mini-grid development as well as for utility-scale renewables. The 
NERC will need to liaise with the states and development institutions to standardize the process, and provide clarity 
on the interconnection rules, environmental compliance and the tariff review process (Eze 2022). If these regulatory 
areas were predictable, Nigeria would have a much-improved investment climate and perception of sovereign and 
regulatory risks would be much lower. 



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A requirement before a longer term of capital is open is the access to bankable PPAs for private investors. A 
fixed tariff regime, ease of access to forex for the importation of equipment and transparent revenue remittances 
form some of the indices required to set up a viable investment community. This is especially significant in 
Nigeria's macro-economic reality today where currency instability and inflation have eroded the cost of capital and 
also hampered the financial certainty in infrastructure developers' financial planning. Risk insurance products or 
sovereign guarantees, possibly channelled through public-private risk sharing facilities, can also boost investor 
confidence and mobilize capital for high-impact renewable energy initiatives (Adedeji & Ajayi, 2024; IRENA, 2023). 

There is also an important contribution to be made by international donors and international financial 
institutions (IFIs). In addition to concessional finance, their backing has to be oriented towards meeting the 
financing gap with green finance instruments, such as climate bonds, blended finance and result-based grants. They 
can de-risk projects and draw in private capital to those areas of the energy market that have been left underserved. 
In addition, development partners have a role to play in prioritizing the technical capacity of project developers, 
regulators, and local financial institutions to guarantee the longevity and expansibility of deploying renewable 
energy. Building the technical and administrative capacity of institutions such as the Rural Electrification Agency 
(REA), and local banks, would guarantee not only the deployment, but also the effective management and scaling up 
of clean energy solutions (GIZ, 2021; UNEP FI, 2021). 

Together, these policy and practical measures form a roadmap to turning Nigeria’s subsidy reform into a true 
enabler of clean-energy investment and sustainable development. Carried out methodically and together, they can be 
the key to changing the country’s energy future, aligning the interests of the public and private sector, and finally 
achieving the SDG 7 and SDG 13 targets. 
 

7. Conclusion 
Nigeria’s recent ending of its decades-old fossil fuel subsidies marks an important turning point in its fiscal and 

energy policy context. Presented as a means to correct market distortions, slash inefficiencies in public expenditure 
and expand fiscal space for development, the reform is an audacious push for the realignment of the economy. But 
as this analysis has demonstrated using an extensive literature review, the post-subsidy world also holds great 
transformational promise and disruptive capability. Although in theory the reform makes RER more competitive, 
provides new opportunities for clean energy investment, the road to these promised gains is far from automatic. 

One of the most important lessons drawn from the literature is that private investment is unlikely to be 
spontaneously released by the mere withdrawal of subsidies. When there is no market clarity, enforceable regulatory 
structures, or a clear reinvestment strategy, investors are likely to see more risk than opportunity. This 
apprehension is compounded by Nigeria’s macroeconomic fluctuations, institutional vulnerabilities, and governance 
incoherencies that combine to create an air of uncertainty that has the potential to disincentivise inflows of capital in 
RE, despite the urgent need for electrification and sustainable development. 

Thus, an important lesson of this study is that there is a requirement for an integrated policy and financing 
framework to bridge fiscal reform to actual investment momentum. That includes both transparent and credible 
subsidy reinvestment plans, smart and supportive regulatory mechanisms for the investor, availability of risk 
reduction instruments, and strategic international partnering. Just as critically, the transition needs to be fair and 
equitable – to ensure the near-term socio-economic costs of the reform are not borne by marginalised populations 
and that the benefits of a renewable energy expansion are shared equally. 

At the end of the day, Nigeria has been presented with an extraordinary opportunity to re-imagine its energy 
future. By combining fiscal prudence with investment ingenuity and institutional solvency, the nation can not only 
achieve what it hopes to with respect to domestic energy but also make a useful contribution to the climate agenda. 
The challenge is not the reform itself, but the governance of its end, when vision, coordination and policy discipline 
could turn the transition of post-petroleum into a springboard for sustainable development, or, in retrospect, as an 
occasion missed. 
 

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