MANILA, PHILIPPINES - The Asian Development Bank (ADB) will provide up to $150 million in credit guarantees to help India scale up its use of solar power as a major renewable energy source.
The guarantees will be available to local and foreign commercial banks that finance private sector solar power plants in the country and will cover 50% of the payment default risk on bank loans made to project developers. The guarantees will help mobilize long-term funding for solar energy development and support the Government of India's push to diversify its energy mix away from a heavy reliance on fossil fuels to lower-carbon, renewable sources.
"Solar energy is ideally suited to India because it has available land with strong sunlight. Solar plants are easy to install, even in remote communities that currently have no other access to energy, suit small-scale demand, and are relatively cheap to operate and maintain," said Philip Erquiaga, director general of ADB's Private Sector Operations Department. "In a world of depleting fossil fuels, solar energy is a long-term, sustainable solution to India's energy needs and security."
India's solar energy potential is among the best in the world with around 300 sunny days a year. Companies have been slow to tap that potential, however, because of the high up-front costs of solar plants and a lack of affordable long-term finance from banks. ADB's partial guarantees on loans of up to 15 years will make the longer-tenor loans to solar power projects more attractive to banks and the projects. These guarantees will support projects of up to 25 megawatts. ADB is also separately considering direct finance for larger solar power projects with the private sector in India.
"What we do in the next two to three years is critical for the solar program in India. Banks that finance projects alongside ADB will become more comfortable with solar power and this in turn will eventually transform market risk perceptions and induce other banks to lend to the sector without ADB support," said Don Purka, senior Investment Officer in ADB's Private Sector Operations Department.
The Government of India last year established the Jawaharlal Nehru National Solar Mission under which it intends to commission 20,000 megawatts in grid-connected solar power by 2022 to help fill persistent energy shortages in the country. The first step to that is building smaller plants that can ultimately be scaled up.
Alongside the guarantees, ADB is also providing $1.25 million to provide training on solar technology and risk issues and assist participating banks to carry out technical due diligence on individual solar projects. A grant of $500,000 will be provided from ADB's concessional Technical Assistance Special Fund, with the other $750,000 grant coming from the Government of Japan-established Asian Clean Energy Fund. This fund is part of the ADB-administered Clean Energy Financing Partnership Facility.
The guarantees support ADB's Asia Solar Energy Initiative which ADB announced a year ago to promote the development of solar energy in developing member countries into a competitive and prominent energy source.