Financing Trends Driving the Growth of Off-Grid Solar Markets: Implications for Nigeria

Summary

This article examines recent developments in financing the global off-grid solar sector and analyses their implications for Nigeria's decentralised energy transition. Drawing upon recent publications by GOGLA, the Rural Electrification Agency (REA), and other international organisations, the article explores emerging financing mechanisms, market trends, investment patterns, challenges, and opportunities for expanding sustainable energy access.

Article Information

Sector	Renewable Energy
Sub-sector	Off-grid Solar
Country Focus	Nigeria
Theme	Energy Finance
Primary Sources	GOGLA, Rural Electrification Agency (REA), World Bank
Related SDGs	SDG 7, SDG 8, SDG 13

Key Takeaways

• Access to finance remains one of the strongest determinants of off-grid solar market growth.
• Commercial investment is increasingly complementing donor funding in the off-grid energy sector.
• PAYGo financing has significantly improved affordability for low-income households and micro-enterprises.
• Local-currency financing is helping reduce foreign exchange risks faced by solar companies.
• Nigeria has emerged as one of Africa's most significant destinations for off-grid solar investment through programmes such as the Nigeria Electrification Programme (NEP) and the Distributed Access through Renewable Energy Scale-up (DARES) initiative.
• Strengthening domestic financial markets and policy certainty will be essential to sustaining investment and accelerating universal electricity access.

Introduction

Financing has become one of the defining factors influencing the pace and sustainability of global off-grid solar deployment. While technological advancements have significantly reduced the cost of photovoltaic (PV) modules, batteries, and associated equipment over the past decade, expanding electricity access still depends heavily on the availability of affordable and accessible financing for both consumers and energy providers.

Recent market intelligence published by GOGLA indicates that the global off-grid solar sector continues to demonstrate resilience despite inflationary pressures, supply-chain disruptions and foreign exchange volatility. Member companies sold more than 10 million off-grid solar products during 2025, providing improved electricity access to almost 150 million people worldwide.

The evolution of financing models has played a central role in this progress. Early market expansion relied heavily on grants, concessional loans and impact investment. However, the sector is increasingly attracting commercial banks, institutional investors and private capital through innovative financing structures such as Pay-As-You-Go (PAYGo) financing, receivables financing, blended finance and local-currency lending.

For Nigeria, where millions of households and businesses continue to experience unreliable or limited electricity access, these financing developments have significant implications. Improving access to capital can accelerate deployment of mini-grids, standalone solar systems and productive-use technologies while supporting economic development and reducing dependence on fossil-fuel-based electricity generation.

Background

Globally, approximately 685 million people were estimated to be living without access to electricity in 2024, with Sub-Saharan Africa accounting for a substantial proportion of this population. Extending national electricity grids to remote communities often requires substantial capital investment and lengthy implementation periods. Consequently, decentralised renewable energy systems have become an increasingly important component of national electrification strategies.

Off-grid solar technologies—including solar home systems, institutional solar systems, productive-use appliances and mini-grids—offer a flexible and scalable alternative capable of reaching underserved populations more rapidly. However, the high upfront cost of equipment remains a significant barrier, particularly for low-income households and small enterprises.

To overcome these challenges, the off-grid solar industry has developed innovative financing mechanisms that spread costs over time, improve affordability and attract private investment. These mechanisms have enabled millions of consumers to access modern energy services without the need for large initial capital expenditures.

Evolution of Financing Models

Development Finance and Market Creation

During the early stages of the off-grid solar industry's development, market expansion was driven primarily by development finance institutions, bilateral donors, philanthropic organisations and impact investors. These actors provided grants, concessional loans and technical assistance to support market creation, demonstrate commercial viability and reduce investment risks.

Development finance remains an important catalyst, particularly in frontier markets where commercial investors may perceive higher levels of risk. Nevertheless, reliance on donor funding alone is insufficient to achieve universal electricity access, highlighting the need for more sustainable financing ecosystems.

Transition Towards Commercial Investment

As operational performance has improved and repayment data has become more robust, the off-grid solar sector has attracted increasing interest from commercial investors. Institutional capital is now supporting larger portfolios of solar assets, reflecting growing confidence in the sector's long-term viability.

GOGLA reports that investment in the off-grid solar industry reached approximately US$315 million in 2025, with Nigeria receiving the largest share of investment among the countries analysed.

Commercial participation is expected to improve the availability of long-term capital while reducing dependence on donor-supported financing mechanisms.

Comparison of Major Financing Models in the Off-Grid Solar Sector

Financing Model	Primary Users	Advantages	Challenges
Grants & Development Finance	Governments, NGOs, Start-ups	Catalyses new markets and reduces risk	Limited long-term scalability
PAYGo Financing	Households, MSMEs	Improves affordability and expands access	Requires strong repayment performance
Local-Currency Lending	Solar Companies	Reduces foreign exchange exposure	Limited availability in many markets
Blended Finance	Large Programmes	Mobilises private capital alongside public funds	Complex structuring and coordination
Green Bonds & Structured Finance	Mature Energy Companies	Provides access to institutional capital	Requires strong governance and established portfolios

Pay-As-You-Go (PAYGo) Financing and Consumer Affordability

One of the most transformative innovations within the off-grid solar sector has been the adoption of Pay-As-You-Go (PAYGo) financing. Under this model, customers purchase solar systems through flexible instalment payments rather than making a large upfront investment. Digital technologies—including mobile money platforms, remote monitoring systems and smart metering—have enabled providers to remotely activate or deactivate systems depending on payment status, significantly reducing credit risk while improving affordability.

PAYGo has been particularly successful in expanding access to electricity among low-income households, smallholder farmers and micro-enterprises that would otherwise be unable to afford the upfront cost of solar home systems. Beyond improving access, PAYGo has also generated valuable repayment data, enabling providers to build credit histories that attract institutional investors and commercial lenders.

Recent market reports indicate that stronger portfolio performance and improved repayment rates have contributed to increased investor confidence, supporting the transition from grant-based financing to commercially sustainable business models.

Local Currency Financing

Currency volatility remains one of the most significant financial risks affecting renewable energy developers across many African countries. Historically, many off-grid companies borrowed capital in foreign currencies while earning revenues in local currencies. Exchange-rate fluctuations therefore increased repayment costs and created financial uncertainty.

Recognising this challenge, investors and development finance institutions have increasingly supported local-currency financing mechanisms. Such arrangements reduce foreign exchange exposure, improve financial planning and make renewable energy projects more attractive to domestic financial institutions.

For Nigeria, where exchange-rate volatility has significantly affected infrastructure financing in recent years, expanding naira-denominated lending could improve business sustainability and encourage greater participation by local commercial banks.

Blended Finance

Blended finance combines concessional funding from governments or development partners with commercial investment to reduce investment risk and mobilise private capital. Rather than replacing commercial finance, blended finance is designed to unlock investments that might otherwise be considered too risky.

Examples include:

• first-loss guarantee facilities;
• results-based financing programmes;
• concessional debt;
• investment guarantees; and
• technical assistance facilities.

These mechanisms have become increasingly important for supporting rural electrification projects, particularly where commercial returns may require longer investment horizons.

Nigeria Case Study: Financing the Decentralised Energy Transition

Nigeria possesses one of Africa's largest electricity access deficits while simultaneously representing one of the continent's largest commercial opportunities for decentralised renewable energy. Successive government initiatives have therefore prioritised off-grid electrification as a key strategy for improving energy access.

Nigeria Electrification Programme (NEP)

The Nigeria Electrification Programme (NEP), implemented by the Rural Electrification Agency (REA) with support from the World Bank and the African Development Bank, has significantly expanded investment in decentralised renewable energy. The programme supports mini-grids, standalone solar systems and productive-use equipment designed to improve electricity access for households, businesses and public institutions.

NEP has also demonstrated the importance of combining public finance with private-sector participation, thereby reducing investment risks while encouraging long-term market development.

Distributed Access through Renewable Energy Scale-up (DARES)

Building upon the successes of NEP, the Distributed Access through Renewable Energy Scale-up (DARES) programme aims to further accelerate decentralised electrification across Nigeria.

The programme targets:

• approximately 17.5 million new electricity beneficiaries;
• deployment of more than one million standalone solar systems;
• installation of over 1,200 renewable-energy mini-grids;
• approximately 465 MW of distributed renewable energy capacity.

Unlike earlier interventions that relied heavily on public-sector implementation, DARES places greater emphasis on mobilising private investment through targeted financial incentives and risk-sharing mechanisms.

The programme illustrates how public finance can be strategically deployed to stimulate sustainable private-sector investment rather than permanently subsidising electricity access.

Challenges Affecting Financing

Despite encouraging investment trends, several challenges continue to constrain financing for off-grid renewable energy.

These include:

• high domestic lending rates;
• limited availability of long-term finance;
• currency depreciation;
• regulatory uncertainty;
• insufficient domestic manufacturing;
• concentration of investment among relatively few large companies;
• limited financial literacy among potential consumers.

Addressing these barriers requires coordinated action by governments, development partners, financial institutions and private-sector stakeholders.

Opportunities for Nigeria

Nigeria possesses significant opportunities to strengthen its renewable energy financing ecosystem.

Potential priorities include:

• expanding local-currency financing facilities;
• encouraging commercial bank participation;
• strengthening green finance frameworks;
• supporting carbon finance opportunities;
• increasing investment in productive-use equipment;
• expanding digital financial services;
• strengthening quality assurance and consumer protection.

Combined, these measures can improve investor confidence while increasing access to affordable financing for households and businesses.

Conclusion

The global off-grid solar sector is transitioning from donor-supported market creation towards commercially sustainable investment models. Improvements in PAYGo financing, blended finance, local-currency lending and institutional investment have expanded access to capital while improving affordability for consumers.

For Nigeria, these developments provide important opportunities to accelerate universal electricity access through decentralised renewable energy. Programmes such as the Nigeria Electrification Programme and DARES demonstrate how strategic public investment can leverage substantially larger private-sector participation.

As financing ecosystems continue to evolve, strengthening domestic financial markets, improving regulatory certainty and expanding innovative financing mechanisms will remain central to achieving sustainable and inclusive energy access.

See Also

• Nigeria Off-Grid Solar Knowledge Hub
• Rural Electrification

Further Reading

• GOGLA (2026). The 2025 Global Off-Grid Solar Market Report. Available at: https://gogla.org/reports/semi-annual-solar-market-report/2025-global-off-grid-solar-market-report/

• Rural Electrification Agency (REA). Distributed Access through Renewable Energy Scale-up (DARES). Available at: https://www.nep.rea.gov.ng/dares.html

• World Bank, IEA, IRENA, WHO & UNSD (2025). Tracking SDG 7: The Energy Progress Report 2025.

Attribution and Licence

This article synthesises publicly available information from GOGLA, the Rural Electrification Agency, the World Bank Group and other cited organisations. It has been prepared for educational purposes and does not reproduce the source publications. Readers are encouraged to consult the original reports for comprehensive technical details.