Recursive Relationships Between Renewable Energy Policy Stability, Investment Risk, and Climate Outcomes in Nigeria: A Dynamic Analysis

The relationship between renewable energy policy stability, investor risk perceptions, and climate outcome delivery in Nigeria is characterised by recursive feedback dynamics in which policy instability deters investment, investment shortfalls constrain technology deployment, deployment gaps undermine political legitimacy for policy continuation, and weak implementation evidence further erodes policy credibility in a self-reinforcing cycle that requires original dynamic analytical treatment. This study investigates recursive relationships between renewable energy policy stability, investment risk, and climate outcomes in Nigeria through a dynamic analysis combining political economy tracking, real options investment theory, and system dynamics modelling. Renewable energy policy stability indices are constructed for Nigeria covering the period 2005 to 2024 using a methodology drawing on 17 policy stability dimensions including regulatory continuity, tariff consistency, institutional independence, and contract enforcement. Investment flow data disaggregated by technology, financing source, and sub-national location are assembled from the International Renewable Energy Agency, Climate Policy Initiative, and Freedom of Information requests. A dynamic simulation model with three coupled feedback loops, linking policy credibility to risk premiums, risk premiums to investment flows, and investment flows to deployment outcomes, is developed and estimated using structural equation modelling. Real options analysis quantifies the option value of policy stability for renewable energy investors under different uncertainty scenarios. Results confirm a substantial policy stability premium equivalent to a 320 basis point reduction in equity cost of capital when policy stability moves from the median to the 75th percentile among comparable countries. Keywords: policy stability, investment risk, renewable energy, Nigeria, dynamic analysis.