Biomass Energy Financing and Electricity Generation in Nigeria

Abstract

This research examines the impact of financial allocations for biomass energy on Nigeria's electricity output, a vital element for the country's economic growth. Using an ex-post facto research design, the analysis employs a chronological series of data from 1986 to 2022, sourced from the Central Bank of Nigeria's Statistical Bulletin, various national agencies, and the World Development Indicators. The Autoregressive Distributed Lag (ARDL) method is used to analyse both long-term and short-term relationships between electricity production and several explanatory variables, including biomass energy funding, government spending on the power sector, energy financing from commercial banks, energy-related foreign aid, and electricity consumption. The results reveal that, over the long term, investment in biomass energy, government commitments to the electricity industry, and renewable energy financing from commercial banks all significantly influence Nigeria’s electricity generation. Conversely, foreign aid for renewable energy does not show a statistically significant effect. In the short term, only electricity consumption has a strong and significant causal effect on generation capacity, while the other factors do not exhibit immediate influence. The ARDL Bounds test confirms a stable, cointegrated long-run relationship among all variables, and the error correction term indicates that any deviations from this equilibrium are corrected at an annual rate of 52.2%, demonstrating a considerable level of stability within the model. Overall, the findings highlight the importance of targeted biomass energy funding as a practical solution to Nigeria's electricity generation challenges, underscoring the need for strategic policy reforms to improve investment and development in the country's renewable energy sector.