In a bid to diversify India's energy mix towards renewable sources, the Asian Development Bank (ADB) will provide up to $150 million in credit guarantees to local and foreign commercial banks in the country that finance private sector solar power plants.
The guarantees will help mobilise 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.
These guarantees would cover 50% of the payment default risk on bank loans made to project developers.
"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," ADB said in a statement.
"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," ADB Private Sector Operations Department Director General Philip Erquiaga said.
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.
Alongwith these 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.
India's solar energy potential is among the best in the world with around 300 sunny days a year. Companies have so far been slow to tap that potential, because of the high up-front costs of solar plants and a lack of affordable long-term finance from banks.
"What we do in the next 2-3 years is critical for the solar programme 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," ADB's Private Sector Operations Department Senior Investment Officer Don Purka said.
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.
