Norad private sector grant scheme targeting renewable energy: a results assessment

Summary, Norad private sector grant scheme targeting renewable energy: a results assessment

Background

Norad has supported the development of renewable energy projects in ODA-eligible countries for several decades. Since 2017, the support has been largely channelled through the grant scheme Enterprise Development for Jobs. Among other sectors of focus, this scheme targets renewable energy projects. This assignment will be an input to Norad’s reporting on results of energy-related development assistance. The main purpose is to identify and assess results of Norad’s private sector support scheme and is limited to energy projects only.

Between 2010 and 2020, Norad entered into agreements with 38 companies for 78 projects through 102 grant applications. The grant scheme is a risk reducing measure for companies and provides up to 50% of project costs. Norad’s granted support is about 382.7 MNOK, with corresponding disbursements of NOK 188.3 MNOK. Disbursements are made against actual expenditure. Norad supports mainly early phase project development, prior to financial close and investment decisions, and does not support the implementation of the renewable energy project itself. Norad can also support training, and underlying investments (transmission and distribution etc) as well as subsides for risk premiums to facilitate project development, but historically the main support has been for (pre-) feasibility studies, market scoping, and project development work.

Key findings

The results in this survey are based on responses from 25 companies for 59 projects through 86 grant applications, of which 59% are in Africa and the Middle East and 29% are in South and East Asia. The main reason for why the data is not available for all projects is because some companies did not respond to the survey while others reported that they were unable to report due the current Covid-19 situation or left out information for some of the projects and applications in their portfolios.

There are material results of 13 commissioned projects under the grant scheme. Norad has contributed to 709 MWs of expanded capacity in developing countries, realised through the allocation of NOK 188 million in Norad support.

Projects that are yet to be commissioned and are still in the process of active project development account for 32% of the portfolio (19 of 59 projects). Within this group of projects, some companies report to be in good position for their projects to reach financial close within five years. The potential value of those projects amounts to 647 MW installed capacity, 2,860 GWh annual generation and a mobilization of 18.7 BNOK.

1. Key outcomes and impact:

Investment – Following Norad support, investments for 13 commissioned projects to date amount 6.4 BNOK. The majority of investment has gone towards solar projects (92%). A handful of countries have benefited from the investments: 61% in Egypt, 21% in Ukraine,10% in Mozambique, 3% in Uganda and 3% in Indonesia. This corresponds to 14% of investments in low-income countries, 83% in lower middle-income countries and 3% in upper middle-income countries.

Financing – The reporting on financing of commissioned and yet-to-be commissioned projects is incomplete and it is difficult to read too much into the data (see section 2.3 on data limitations). The main sources of financing are reported to come from Development Finance Institutions and sponsors’ own sources. Regarding commercial sources of financing, mobilization has been somewhat limited which can be attributed to the often high commercial and political risk among jurisdictions supported, which limits the long-term local or international financing available. As a result, triggering commercial financing is somewhat limited across the portfolio beyond the project owners own financing, which in many cases is significant. In certain cases where commercial financing has been accessed, for instance in Pakistan, it has proved catalytic.

Energy outcomes – Following Norad support, commissioned projects lead to 709 MW generation capacity created and 1,591 GWh generated annually. In terms of off-grid unit sales (cookstoves, SHS, etc.), 108,643 units were sold based on five off-grid companies that provided unit sales.

Employment outcomes I – Employment outcomes amount to 7,622 direct and 1,267 indirect jobs created.

Employment outcomes II – The proportion of local jobs was 65% and 14% female jobs.

2. Norad’s value addition:

Some points from the case studies offered added nuance to the value- addition provided through Norad grant support, including flexibility of support, enabling new and emerging market entry, a dependable partner, building developer credibility in the market, and reducing regulatory, political, or financial bottlenecks in particularly challenging investment contexts.

3. Risk-mitigation approach of Norad:

The risk appetite of the grant scheme appears balanced. Norad’s strategy in supporting the feasibility stage could be considered, in project terms, high-risk, high reward. When considering the size of grant, averaging 2.4 MNOK for commissioned projects, the successful cases outweigh those disbursements that did not materialize in a commercially viable operation. And in those cases where projects did not materialise, the project development efforts, including market scoping, capacities built and jobs created, and visibility among counterparts, were seen as value adding for other potential opportunities by IPPs.

4. Tailoring Norad’s support:

The grant scheme is mainly focused on early-stage development, which is beneficial when considering that the risk profile of projects are at their highest and project development and progression is at its most challenging and uncertain. For more results, a more holistic model of support that leverages multiple agencies and instruments could be considered. And there are cases that illustrate this approach well, for instance, the combination Norad-Norfund- Embassy support is perhaps a model worth investigating further having yielded results in certain utility-scale cases.

5. Mobilization effect:

The likelihood of projects moving from (pre-)feasibility stage to commercial operation is fluid and subject to many externalities beyond the control of the developer. Norad’s support is just one of many necessary interventions. It is therefore logical that some Norad- supported projects never materialize or that some of the companies supported go out of business. The mobilization effect of the 6.4 BNOK of investments is not directly attributable to Norad as Norad is only contributing to a selected stages of project development. In order to gauge the degree to which Norad grant support was catalytic in mobilising co-financing for the project, a simple metric was used for respondents to rate the mobilization effect of the project. There is an indication that Norad’s support is catalytic, but the method has to be refined moving forward to more accurately capture the mobilization effect.

6. Reporting:

There are clear results of the grant scheme, however capturing them in a systematic way is challenging for a variety of reasons related to the nature of project development, questions of contribution/ attribution, methodologies for data capture etc. This makes quantitative statements of material results difficult.

Reporting recommendations

1. Reporting expectation management– Reporting should be introduced in some fashion either through a clause in the agreements or in another way to enable Norad to receive reports on outcomes beyond the phase it supports.

2. Methodology – Propose methodologies for data collection of agreed indicators, especially for how jobs should be measured and tracked and advise companies on how to collect material information for reporting to Norad.

3. Self-reporting introduction – create the space for companies to report on impact, for instance through the Norad Results Portal or dashboard for private sector development support on the Norad portal.

4. Mobilization effect and contribution/ attribution – Clarify and perhaps introduce contribution/ attribution proxy metrics for the added-value of grant-based support as Norad’s mobilization effect, the degree to which its funding is catalytic is not directly attributable to Norad.