Guarantee scheme set to boost renewable investments: Norway announces its first-ever call for applications for funding of NOK 1.75 billion for the provision of guarantees
For the first time, institutions and companies can now apply for Norwegian state guarantees for investments in renewable energy in developing countries.
“The guarantee scheme is a completely new way of thinking about aid. Norway has the best credit rating available - triple-A (AAA). We will use this to guarantee renewable projects in order to give even more private sector companies and institutions the confidence to invest in what can be challenging markets. In addition to making a vital contribution to the green transition in developing countries and cutting greenhouse gas emissions, these projects create jobs which we know are key to reducing poverty,” says Minister of International Development Anne Beathe Kristiansen Tvinnereim.
Last year, the Norwegian Government decided that Norad, the Norwegian Agency for Development Cooperation, should start developing the scheme, which now has a guarantee budget of NOK 5 billion.
“This is groundbreaking work within the field of Norwegian aid. Experience gained through comparable schemes suggests that, by providing guarantees of NOK 5 billion, we will be able to mobilise investments of up to NOK 15 billion. Using state guarantees as a tool, Norway will contribute to both more and larger investments in renewable energy in developing countries,” says Norad Director General Bård Vegar Solhjell.
Norad is now calling for applications for the provision of guarantees of up to NOK 1.75 billion. The target groups are professional institutions within the provision of guarantees which can re-issue guarantees for smaller projects and actors, although companies with major individual projects can also apply. Both Norwegian and international actors and companies will compete on an equal basis.
“These can become profitable projects for businesses, and I hope private companies and investors won’t pass on the opportunity. The potential and opportunities are huge. The aim is to help realise projects where the risk is considered to be high, and ensure that aid acts as a catalyst for private investments on a large scale,” says Solhjell.
Read the call for applications here (Grants Portal)
FAQ about the call for applications
Guarantee schemes are a tried and tested way of generating multiple investments and a recommended approach by OECD. The guarantee scheme is open to investments in developing countries, including both low- and middle-income countries.
Calculations by the International Energy Agency (IEA) show that the funding gap to provide everyone with access to clean, reliable energy at an affordable price is USD 3,000 billion in annual investments.
Norad will manage the scheme with support from Norfund, the state’s investment fund for businesses in developing countries.
Read more about this scheme at regjeringen.no.
How do state guarantees work in practice?
Through guarantees, the Norwegian state provides financial security for institutions and companies when they enter into loan agreements in order to realise new projects.
The guarantees are valid for a predetermined period of time, and payments under the guarantee will only be triggered if the companies or institutions involved incur losses which are covered under the guarantee agreement.
The companies or institutions pay Norad a guarantee premium which covers administrative costs and the anticipated loss under the guarantee agreement, among other things.
Unlike grants and gift aid, which are transferred to the grant recipient in their entirety, no transfer of money takes place between Norad and the companies or institutions that receive guarantees before any loss payments, with the exception of the guarantee premiums.