Why invest in renewable energy?

Energy is a cornerstone of economic growth and development. In particular, access to reliable electricity is essential for business productivity and competitiveness. It enables firms to operate more effectively, supports the delivery of public services, and drives job creation. At the household level, access to energy improves living standards and empowers people to participate more fully in society. 

Relying on conventional thermal power to meet growing energy demand is no longer sustainable. The climate crisis demands a shift to low-carbon energy systems. Fortunately, many developing countries are rich in renewable energy resources and can leapfrog to cleaner technologies that are now both technically and commercially viable. 

Investments in renewable, reliable, and affordable energy are key to driving productivity growth, reducing energy costs for firms, expanding access to underserved populations, and avoiding greenhouse gas emissions. Scalable renewable energy solutions are essential to achieving a carbon-neutral economy. 

However, the path from project development to operational renewable energy infrastructure is long and complex. Therefore, patient, risk-tolerant investors like Norfund are needed to ensure commercial success. 

To guide our efforts and clarify how our investments contribute to long-term development and climate outcomes, Norfund has developed a Theory of change for renewable energy investments and updated this in 2024 (see below).

Theory of Change

Renewable Energy under the Development Mandate

Climate Investment Fund

Click here to read about our renewable energy investments under the Climate Mandate

Dive into our impact and results in our annual report

Renewable Energy (Development Mandate) accounts for 28% of our total portfolio with 43 direct investments at end of 2024.

Our ambitions

In our strategy for 2023-2026, our defined ambitions are:

    • 6.5 million new households with access to electricity

    • 6.5 GW new capacity financed

What we invest in

Norfund invests in conventional renewable energy sources, such as solar, wind, hydropower, biomass and geothermal. Norfund invests in both utility-scale, grid-connected power plants and distributed generation. The latter includes smaller-scale projects and off-grid solutions that supply power directly to the end-user. Additionally, Norfund invests in enabling technologies that have a significant climate impact such as energy storage and transmission.

We will continue to increase Norfund’s portfolio in renewable power generation in our target markets, building on existing investment platforms and partnerships as well as working with new partners.

Norfund will not make new investments in fossil fuels, with the exception of clearly defined and necessary cases that support energy transition in line with the Paris Agreement.

Business models

Large-scale renewable power generation

Norfund invests in medium to large-scale grid-connected power plants, primarily with or via industrial partnerships. These plants typically supply power under long-term contracts to utilities. Over the past decade, the costs of solar and wind power have dropped dramatically, strengthening the transition to renewable energy sources.

Commercial and industrial power solutions

Norfund invests in smaller-scale power plants that supply energy directly to commercial and industrial consumers. These plants are either located on the customer’s site (“behind the meter”) or deliver power through wheeling over the transmission system. Rooftop solar is a typical example, although larger-scale ground mounted solutions are increasingly common. As a leading investor, Norfund plays a pivotal role in this rapidly changing and challenging market.

Off-grid energy solutions

With cost reductions for solar power and batteries, off-grid power supply is an increasingly cost-effective solution for rural communities. There are two primary business models: (i) establishment of mini-grids for rural communities, and (ii) household solar products, which combine solar panels, batteries, and appliances, typically provided through a pay-go financing solution. Norfund has invested in both these business models, as well as provided loans to some of the more mature home solar products companies, and supported private credit funds providing debt financing to this segment.

Transmission

As the accelerated adoption of solar and wind energy is required to meet increasing electricity demand, significant investments in transmission infrastructure become crucial. Such investments are key to enhancing grid capacity and reliability, alleviating existing bottlenecks, and enabling the efficient integration of new renewable energy capacities. Norfund is actively engaged in this domain.

Photo: Copperbelt Energy Corporation
Photo: WeLight
Photo: Copperbelt Energy Corporation
Mark Davis
Executive Vice President, Renewable Energy