Renewable Energy Financing Mechanisms and Sustainable Electricity Generation in Nigeria

Abstract

This study examines the effect of renewable energy financing mechanisms on sustainable electricity generation in Nigeria from 1985 to 2022, addressing the nation's persistent energy shortages despite abundant renewable resources. Using an ex-post research design and the Autoregressive Distributed Lag (ARDL) model, the analysis evaluates both long-run and short-run dynamics among electricity generation, financing sources (solar and biomass energy finance, government expenditure, commercial bank investments, and foreign aid), and electricity consumption. The bounds test confirms cointegration among variables (F-statistic = 15.93, exceeding the upper bound at 1 percent). Long-run results reveal that a 1 percent increase in solar energy finance significantly increases electricity generation by 0.04 percent, while biomass energy finance contributes 0.01 percent. Commercial bank energy financing (0.04 percent) and foreign aid (0.03 percent) also demonstrate significant positive long-run effects. Electricity consumption emerges as the strongest determinant, with a 1 percent increase driving 0.63 percent growth in generation capacity. The error correction term (-0.522, p<0.01) indicates a 52.2 percent annual adjustment speed toward long-run equilibrium. However, short-run impacts are limited, with only solar energy finance (0.01 percent) and electricity consumption (0.61 percent) showing significant effects. Diagnostic tests confirm model reliability: normally distributed residuals (Jarque-Bera = 0.261, p = 0.877), no serial correlation, and stable parameters. The findings underscore the need for strategic policies to enhance renewable energy financing mechanisms, attract private investment, and strengthen the consumption-generation nexus to achieve sustainable electricity generation in Nigeria.Keywords: Renewable Energy, Finance, Electricity Generation, Nigeria, ARDL