Sovereign Guarantee Scheme for Renewable Energy

Read the Call for Proposals: Norwegian Sovereign Guarantees for Renewable Energy Investments

 

Norway’s Sovereign Guarantee Scheme is now open for applications. The purpose of the scheme is to mobilise investments in renewable energy in low- and middle-income countries by reducing risk and thereby lowering capital costs for investors. 

In contrast to traditional development aid, the guarantee scheme is a financial instrument and not a grant. Guarantees are associated with a cost in the form of a guarantee premium and administration fees, which are covered by the recipient.  

New opportunity to apply for guarantees 

Financial institutions and companies can now apply for guarantees. Through this call, the scheme makes available up to NOK 1 billion. Norwegian and international actors compete on equal terms. 

Guarantees are subject to both a guarantee premium and administration costs, and the minimum guarantee size is NOK 200 million. In exceptional cases, there may be room for subsidising guarantee premiums based on specific criteria and a separate application. 

The scheme is flexible and can cover both portfolios and individual projects, as well as a range of risks, including commercial, political and currency risk. 

The scheme is a pilot with a duration of five years starting from 2025. However, the guarantee tenors may extend beyond this period. The scheme has an overall budget of NOK 5 billion. Sixty-five per cent of the scheme’s total budget must be guaranteed together with multilateral development banks. The remaining 35 per cent can be utilised through other institutions or, in special cases, go directly to companies. For this 35 per cent, guarantees will be provided through an open call for. 

We recommend that interested applicants initiate a dialogue with Norad’s guarantee team before submitting an application. The purpose is to be able to guide the applicant on the scheme based on the project description and the presentation of the need for risk mitigation. Please note, among other things, that there is a requirement for risk sharing with another professional party – the Norwegian state will normally assume a maximum of 50 per cent of the risk. 

Which countries can receive support? 

The guarantee scheme can be used for projects in any country categorised as a developing country by OECD, known as ‘ODA countries’. Up to 30 per cent of the budget can go to low-income countries. Priority will be given to countries with considerable potential as regards poverty reduction, developmental impact and cutting of greenhouse gas emissions, and where there is strong national ownership of the energy system transition in a green and renewable direction.  

Why Norwegian Sovereign Guarantees? 

Guarantees are a recognised tool, highly recommended by the OECD and others, for mobilising major investments. The Norwegian Sovereing Guarantee Scheme, with its budget of NOK 5 billion, will help to trigger investments in renewable energy that far exceed the guaranteed amount. 

With its strong balance sheet and AAA rating, the Norwegian state can provide guarantees that help to trigger investments in renewable energy without depositing corresponding amounts in Norges Bank. This is a capital-efficient way for Norway to contribute to development.  The AAA rating makes the guarantees attractive to recipients, as this can reduce both the capital adequacy requirement and the capital cost for the guarantee recipient. 

A key principle of the scheme is additionality  – the scheme shall support investments that would otherwise not have taken place. By guaranteeing a proportion of a transaction, Norway helps to mobilise sufficient funding, often private sector funding, from other actors, so that the investment actually takes place. 

Norad manages the scheme, while Norfund will provide risk assessments. 

More information 

Find out more about the guarantee scheme Guarantee scheme set to boost renewable investments in developing countries - regjeringen.no 

More information about the guarantee scheme will be published on an ongoing basis on norad.no.

You can also get in touch via the e-mail address guarantees@norad.no