Electricity projects are built with steel, concrete, and transformers, but they are financed with something far less tangible: confidence.
Without investor confidence, power projects struggle to secure financing, build partnerships, or achieve long-term sustainability. This explains why some electricity markets attract billions of dollars in private capital while others — despite high demand and abundant resources — continue to struggle. The determining factor is rarely technology; it is trust.
As states begin establishing their own electricity markets under the Electricity Act 2023, one primary lesson stands out: investors can manage technical, commercial, and market risks, but they struggle to manage regulatory uncertainty.
The long-term nature of power investments
Electricity infrastructure requires immense capital with exceptionally long horizons. Power plants operate for 20 to 30 years, transmission assets last for decades, and distribution networks demand continuous long-term investment.
Because of these long timelines, investors evaluate more than technical feasibility. They ask crucial questions: Will market rules remain stable? Will tariffs be predictable? Will contracts be honoured across political transitions?
The answers determine whether capital flows. A technically superior project in an uncertain regulatory environment will struggle to secure funding, whereas a moderately attractive project in a stable regulatory environment can easily attract capital.
When rules change midway
Few things damage infrastructure development more than altering rules after capital has been committed. Common examples include:
- Sudden tariff adjustments and regulatory interventions
- Delayed approvals and altered licensing conditions
- Forced contract renegotiation and policy reversals after political transitions
When rules shift mid-game, uncertainty becomes embedded in project economics. Investors respond by demanding higher risk premiums, delaying decisions, or redirecting capital to other jurisdictions — ultimately raising financing costs for everyone.
Why predictability matters more than perfection
Policymakers often assume investors demand perfect market conditions. In reality, investors prioritise predictability over perfection.
A market can have infrastructure bottlenecks or operational challenges, provided the rules are transparent and consistent. In a predictable market, investors can model risk and plan accordingly. Conversely, when future conditions are unpredictable, financial modeling breaks down, capital deployment slows, and viability disappears.
Predictability creates confidence. Confidence attracts capital. Capital drives infrastructure development.
Political cycles vs. Infrastructure lifecycles
A fundamental tension exists between political timelines and infrastructure lifecycles. Governments operate on short electoral cycles, while power assets span multiple administrations.
Without institutional continuity, projects become vulnerable to shifting political priorities. Investors pay close attention to this risk and naturally favour markets that demonstrate policy continuity across administration changes. Successful electricity markets are built on strong institutions rather than individual personalities.
The cost of delayed decisions
Regulatory uncertainty isn’t caused only by bad policy; it is often created by inaction. Delayed approvals, slow permitting, and unresolved disputes severely hurt project economics.
While waiting for regulatory decisions, project sponsors continue to incur expenses, financing commitments expire, construction schedules slip, and market opportunities are lost. In practice, delayed decisions are often as damaging as bad decisions.
The advantage of state electricity markets
State electricity markets possess a unique advantage: they are not burdened by decades of regulatory baggage. States can build clear, transparent, and efficient systems from scratch and establish early credibility.
In the coming years, states will actively compete for power sector investment. Investors evaluating opportunities will naturally choose jurisdictions where rules are clear and commitments are respected. The winners will be the states that inspire confidence.
Strategic lessons for state governments
To build regulatory credibility, state governments should apply key lessons from the national grid experience:
Maintain transparency: Keep market rules transparent and publicly available.
Ensure predictability: Implement evidence-based, predictable tariff methodologies.
Streamline processes: Create efficient, time-bound licensing and permitting processes.
Honour contracts: Respect legal commitments regardless of political transitions.
Protect independence: Maintain independent regulatory oversight aligned with public objectives.
Every regulatory decision sends a direct signal to the market. States must ensure that signal builds confidence rather than undermining it.
The competition for capital has begun
Electricity investment is becoming increasingly mobile. Developers, financiers, infrastructure funds, and strategic investors have options:
- They can choose where to deploy capital.
- They can choose which markets to support.
- They can choose which states to prioritize.
This means that attracting investment will require more than good intentions. It will require credible institutions.
The states that build trust will attract capital. The states that create uncertainty will struggle to compete.
Looking ahead
The future of Nigeria’s electricity sector may not be determined solely by engineering excellence or financial capacity.
It may be determined by governance. The states that establish transparent, predictable, and investor-friendly electricity markets will possess a significant advantage in attracting infrastructure investment and accelerating economic growth.
Because in every successful electricity market, one principle remains constant: Capital does not fear risk. Capital fears uncertainty.
- This concludes the multi-part series, “Developing State Electricity Markets: Lessons from The National Grid.” Thank you for following along.
- business a.m. commits to publishing a diversity of views, opinions and comments. It, therefore, welcomes your reaction to this and any of our articles via email: comment@businessamlive.com
Masah Emmanuel Ikus is a Power and Energy Infrastructure Strategist and the Principal Consulting Partner at EMI Resources Limited. A University of Lagos-trained Electrical Engineer with an EMBA from Lagos Business School, he possesses over 27 years of experience managing complex infrastructure projects across the ICT, Oil & Gas, and Power sectors, specialising in the design of decentralised power systems and solar integration. He currently advises investors, project sponsors, and public institutions on leveraging Nigeria’s energy deficit into bankable commercial opportunities. He can be contacted via masahikus@gmail.com
Developing state electricity markets: Lessons from the National Grid (5) Regulatory uncertainty, political risk, and investor confidence challenge