Reported by Weng Patrick Atokor l Journalist at Weng Global
High interest rates are emerging as a major obstacle to expanding solar energy investment in Nigeria, raising questions about how the country can attract affordable financing, strengthen local renewable energy businesses and improve electricity access for millions of people.
The issue has gained attention as international energy companies, including China’s PowerChina, pursue opportunities across Africa’s energy sector. The central concern is that companies with access to cheaper financing may be better positioned to develop renewable energy projects than Nigerian businesses that depend on expensive commercial loans.
For Nigeria, the problem extends beyond the cost of borrowing. It affects how quickly solar projects can be built, how much customers may pay for electricity and whether local businesses can compete for investment in a sector that is increasingly important to the country’s energy future.
But why do interest rates matter so much to solar power, and what can Nigeria do to address the problem?
What is the problem with high interest rates?
Interest rates represent the cost of borrowing money. When a business obtains a loan, it must repay the original amount alongside interest and any applicable fees.
When interest rates are low, businesses can borrow more affordably and spread investment costs over time. When rates are high, repayments become more expensive, making it harder for projects to generate enough revenue to cover their costs.
This is particularly important for solar energy because most projects require substantial investment before they begin generating income.
Developers need money to purchase solar panels, batteries, inverters, cables and other equipment. They must also cover installation, engineering, transportation and maintenance costs.
Large solar farms and mini-grids may take years to recover their initial investment through electricity sales.
If borrowing costs rise, a project that would otherwise be commercially viable may become too expensive to develop. Investors may postpone construction, reduce the project’s size or decide to direct their money towards other opportunities.
The problem is especially serious for businesses that cannot finance projects from their own resources and must depend on banks or other lenders.
How interest rates affect a solar project: A simple example
Consider a company planning to borrow ₦100 million to establish a solar installation.
If the company obtains financing at a relatively low interest rate, it may be able to repay the loan while maintaining enough revenue to cover operating expenses and earn a return.
However, if the same loan carries a much higher interest rate, the company’s financing costs increase. More of its revenue must go towards repaying the lender, leaving less money available for maintenance, expansion and profit.
For illustration, a ₦100 million loan carrying simple annual interest of 10 per cent would accrue ₦10 million in interest over one year if the principal remained unchanged. At 28 per cent, the interest for the same period would be ₦28 million.
These figures are illustrative, not actual loan offers. Real borrowing costs depend on the repayment schedule, loan term, fees and whether interest is calculated on the outstanding balance.
The example nevertheless shows why financing terms can determine whether an energy project proceeds.
Solar developers must also consider the fact that equipment can require replacement, customers may pay late, and revenue may fluctuate. Expensive loans leave businesses with less room to absorb these risks.
Why Nigeria’s solar industry faces a financing challenge
An investigation published by TheCable on April 25, 2026, examined the financing barriers affecting Nigeria’s solar industry.
The report described a mismatch between the needs of renewable energy developers and the lending practices of many financial institutions. It cited industry participants who said commercial loans could carry interest rates above 26 per cent, alongside short repayment periods and demanding collateral requirements.
These conditions create difficulties for a business model that depends on long-term revenue.
Traditional bank lending often places considerable emphasis on physical assets that can serve as collateral. Solar companies, however, may rely on future electricity payments, customer subscriptions or pay-as-you-go arrangements to generate revenue.
A company can have a technically sound project and a strong customer base but still struggle to secure financing if a lender considers its business model too risky.
Loan duration is another important factor. A solar project that requires many years to recover its investment may struggle if the financing must be repaid within a much shorter period.
Developers can consequently face pressure to generate revenue quickly, charge customers more or limit their investment.
This helps explain why the availability of financing matters as much as the availability of sunlight and solar technology.
Why PowerChina and other international companies matter
PowerChina, formally known as Power Construction Corporation of China, is a Chinese state-owned engineering and construction company involved in energy and infrastructure projects.
Reuters reported on November 18, 2025, that PowerChina was seeking to expand its presence across Africa, with a growing focus on renewable energy projects.
The company has participated in major energy developments on the continent. In South Africa, for example, it developed the Redstone concentrated solar power project, which entered commercial operation in May 2025, according to PowerChina’s own announcement.
The company’s international activities illustrate the scale at which experienced infrastructure developers can operate.
Large companies may have advantages that smaller developers lack, including stronger balance sheets, established supplier relationships, access to international financial institutions and the ability to structure large projects through partnerships.
Some may also obtain financing under terms different from those available to smaller domestic businesses.
However, it is important not to assume that every Chinese company automatically receives cheaper loans or that PowerChina has a particular financing advantage in every Nigerian project. Such comparisons require evidence about the actual financing arrangements involved.
The broader concern is that unequal access to capital can influence competition. A company able to borrow more cheaply may be able to offer more competitive project prices or finance infrastructure that a local competitor cannot afford to develop.
For Nigeria, attracting international investors is important, but so is ensuring that domestic companies have a realistic opportunity to participate in the renewable energy market.
Does this mean Chinese companies will dominate Nigeria’s solar sector?
Not necessarily.
Access to affordable financing is one factor in competition, but it is not the only one. Technical expertise, project experience, equipment costs, regulatory compliance, customer relationships and the ability to deliver projects on schedule also matter.
International companies can bring capital, technology and experience that help accelerate infrastructure development. Partnerships with Nigerian firms can also create opportunities for skills transfer, employment and local business growth.
Nevertheless, if domestic developers consistently face much higher borrowing costs, they may find it difficult to compete for contracts or expand their operations.
This could increase reliance on foreign companies for project development and delivery.
The policy challenge is not to prevent foreign investment. It is to create a market in which international expertise complements, rather than displaces, the development of local capacity.
That requires access to appropriate financing, predictable regulations and stronger links between international investors and Nigerian businesses.
Why solar power is important to Nigeria
Nigeria’s electricity challenges have increased the importance of alternative energy sources.
Households and businesses often seek solar systems to reduce their dependence on unreliable grid electricity and expensive petrol or diesel generators.
For small businesses, reliable power can make a direct difference to daily operations. A shop may need electricity for refrigeration, lighting or electronic payments. A clinic may require dependable power for essential equipment, while a rural enterprise may need electricity to operate machinery or preserve agricultural products.
Solar systems can help meet these needs, particularly when combined with batteries that store electricity for use when sunlight is unavailable.
Mini-grids can also provide power to communities where extending the national grid may be difficult or costly.
However, the upfront cost of installation can place these solutions beyond the reach of many customers.
If developers face expensive financing, they may have to charge higher prices, restrict payment options or delay expansion. Customers who could benefit from solar power may consequently remain dependent on less reliable or more expensive alternatives.
The financing problem therefore affects not only investors but also households, businesses and communities seeking dependable electricity.
The difference between cheap solar panels and affordable solar electricity
Solar technology has become more widely available, but the price of a panel does not represent the total cost of delivering electricity.
A functioning solar installation may require panels, inverters, batteries, wiring, mounting structures, installation work and ongoing maintenance.
For larger projects, developers must also finance land preparation, grid connections, distribution infrastructure, regulatory compliance and other expenses.
Even if the equipment becomes cheaper, a developer with an expensive loan may still struggle to provide electricity at a competitive price.
Currency movements can add another challenge. When imported equipment is priced in US dollars, a weaker naira can increase the amount local developers must pay.
If a company borrows in foreign currency but earns revenue in naira, exchange-rate changes can also increase its effective repayment burden.
These risks help explain why a solar market needs more than affordable technology. It also needs financing that matches the expected lifespan and revenue profile of energy projects.
What Nigeria can do to solve the problem
Nigeria can take several steps to improve access to financing and attract investment into renewable energy.
1. Expand affordable long-term loans
Financial institutions and development finance partners could provide financing with longer repayment periods and lower interest rates for viable renewable energy projects.
The aim would be to match loan repayments more closely to the time projects need to generate revenue.
2. Strengthen guarantees and risk-sharing arrangements
Credit guarantees can help reduce the risks lenders face when financing qualifying solar projects. Institutions that share part of the lending risk may encourage banks to support businesses they would otherwise consider too risky.
Such programmes need transparent eligibility rules and careful oversight to avoid creating unsustainable financial obligations.
3. Improve access to local-currency financing
Loans denominated in naira can reduce the direct exposure of developers to foreign-currency debt repayments.
This is particularly relevant when electricity customers pay in naira but imported equipment is purchased in dollars.
Local-currency financing does not eliminate inflation, interest-rate or equipment-cost risks, but it can reduce one important source of uncertainty.
4. Support partnerships between local and international companies
International developers can work with Nigerian businesses to share technical knowledge, develop supply chains and train workers.
Public policy can encourage partnerships that create lasting local benefits instead of focusing exclusively on the amount of foreign capital attracted.
5. Improve the business environment
Investors need clear regulations, reliable contractual arrangements and confidence that projects can earn revenue over time.
Policies that improve payment reliability, clarify project approvals and reduce unnecessary uncertainty can make renewable energy investments more attractive.
6. Scale up targeted energy programmes
Nigeria’s Distributed Access through Renewable Energy Scale-Up programme, known as DARES, is an example of an initiative designed to support electricity access through distributed renewable energy.
The World Bank-supported programme uses mechanisms intended to encourage private-sector participation in expanding electricity access.
Well-designed programmes can help reduce some investment risks, but their impact depends on effective implementation, adequate funding and the ability of developers to access the support.
Will lower interest rates alone solve Nigeria’s solar problem?
No.
Cheaper loans would help, but financing is only one part of the challenge.
Developers also need customers who can pay for electricity, dependable equipment supply, technical expertise and viable business models. Exchange-rate instability, regulatory uncertainty and infrastructure limitations can continue to affect projects even when borrowing costs fall.
Likewise, lenders need confidence that projects can generate sufficient revenue to repay their loans.
Government support should therefore combine affordable financing with policies that improve project viability and protect public resources.
The goal should be to create conditions in which responsible developers can raise capital, deliver electricity at competitive prices and maintain their systems over the long term.
What happens next?
Nigeria’s ability to expand solar investment will depend partly on whether affordable financing becomes available at a scale that matches the country’s energy needs.
Developers will continue to assess borrowing costs, customer demand, currency risks and the rules governing electricity projects. International companies may pursue opportunities where the commercial conditions are attractive, while domestic firms will need financing and partnerships that allow them to compete.
Policymakers and financial institutions face a practical question: how can they mobilise enough long-term capital to expand electricity access without placing excessive risk on taxpayers or consumers?
Progress will require more than announcements of new investment. It will depend on whether projects actually secure financing, reach construction, begin supplying electricity and provide lasting benefits to communities.
The Weng Global Explains takeaway
High interest rates threaten solar investment because renewable energy projects require substantial upfront capital and often take years to recover their costs. When loans become expensive or repayment periods are too short, developers may struggle to build projects or provide electricity at affordable prices.
Companies with stronger financial resources or access to alternative funding may be better placed to compete, although the actual advantage varies by project.
For Nigeria, the solution is not simply to attract more foreign investors. It is to build a financing system that supports both international investment and local enterprise, reduces unnecessary risks and enables more households and businesses to access reliable electricity.
Ultimately, Nigeria’s solar opportunity will depend not only on its renewable energy resources, but also on whether the money needed to develop them is available on terms that make projects economically sustainable.
Weng Global – Stories beyond borders
Sources
- TheCable — How financing gaps are stalling Nigeria’s solar revolution, April 25, 2026.
- Reuters — PowerChina targets Africa for renewables-focused growth, November 18, 2025.
- PowerChina — POWERCHINA’s Redstone EPC Project in South Africa commences commercial operation, June 4, 2025.
- World Bank — Distributed Access through Renewable Energy Scale-Up (DARES) programme information.
