Guarantees for renewable energy investments in low- and middle-income countries

Through the new state guarantee scheme, Norway will help to mobilise both private and public sector capital for investments in renewable energy in developing countries by reducing risk and thereby lowering capital costs for investors. 

The scheme is a pilot with a duration of five years and a guarantee 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. As regards the 35 per cent, the guarantees will be provided based on a process involving an open call for applications where both Norwegian and international institutions can apply.

During the start-up phase, the scheme has been granted a temporary loss provision of NOK 750 million (15 per cent), which will be returned to the aid budget once guarantee premiums corresponding to the loss provision have been received. Over time, the scheme will break even through guarantee premiums paid by the guarantee recipients. There is scope for the subsidising of guarantee premiums.

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 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. The sharing of risk with another professional party is a requirement, with the Norwegian state normally taking on a maximum of 50% of the risk.

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

Why Norwegian state guarantees?

Guarantees are a recognised tool, highly recommended by the OECD and others, for triggering major investments, and the Norwegian state 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 will be able to 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 limit both the capital adequacy requirement and the capital cost for the guarantee recipient.

A key principle behind the scheme is that it must be additional, i.e. it must support investments that would otherwise not have taken place. By guaranteeing a proportion of a transaction, Norway will help to trigger sufficient funding, often private sector funding, from other actors, so that the investment actually takes place.

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.