Approaches and Financial Models for Scaling up Norwegian Development Assistance to Clean Energy

While Norwegian development assistance to the power sector is relatively small compared with the needs of developing countries, its financial and technical contributions can have a significant impact, particularly if it is successful at leveraging additional resources to the sector. Accordingly, the aim of this report is to arrive at recommendations for a set of approaches and financial models which will optimize increasing Norwegian support to renewable energy projects. The primary concern, in this respect, is how other partners and additional resources can be mobilized, and more efficient implementation of on-going projects can be achieved. Put simply, financial
mechanisms relevant for this report should contribute to more effective project implementation in partner countries, thus achieving greater development impact from a given level of support.

The recommendations should be considered as inputs into the ongoing work to develop a comprehensive support strategy under the auspices of the 'Clean Energy for Development' Initiative. Accordingly, the recommendations are meant to contribute to Norway's overriding development objectives, including; improved access to modern energy services, development of clean energy sources, and promotion of an enabling environment for private sector development. Furthermore, this report is a contribution to the implementation of the climate change and clean energy component of the Norwegian Action Plan for Environment in Development Cooperation.

The following guiding principles provide the basis for the recommendations:

• Mechanisms must comply with overarching Norwegian aid principles/policies regarding (among others); recipient orientation, donor harmonization and untying of support.
• Mechanisms must contribute to Norway's overarching development objectives including contributing to economic growth, poverty alleviation, anti-corruption, gender equality and environmental sustainability.
• It is noted that public intervention is justified by the public good component of electricity access and the persistence of inefficient renewable energy markets which are yet to fully internalize relevant environmental and social concerns.
• A growing financing gap requires renewed public (donor) support to the power sector.
• Mechanisms should reflect an increased focus on climate change concerns while recognizing the energy needs and priorities of development partners.
• Different countries and sub-sectors (e.g. generation, transmission, distribution and rural electrification) require different types of interventions.
• The application of mechanisms should be demand driven, while looking to maximize the usefulness of Norwegian experience and competencies.

The scope of this report encompasses support to most types of power sector projects (particularly renewable energy projects), both small and large, including: generation, transmission, distribution and integrated rural electrification. Additionally, the 5 approaches and financial models described in the report may be relevant for support to other types of infrastructure projects.

Financial models