India Solar Power Generation Projects Proposed ADB Solar Power Guarantee Facility

This is a summary presentation. A full term sheet may be made available to prospective partner banks. Any implementation is dependant on full compliance with all ADB policies, including environmental and social safeguards and Approval by ADBs management and board.

ADBs Private Sector Operations Department And Office of Cofinancing Operations April 2011

Background on the Opportunity

Government of Indias National Solar Mission (NSM) will soon allocate to private sector developers a total of 1,100 MW of solar PV and solar thermal capacity, to be commissioned by FY2012 NVVN, NTPCs power trading arm, will be the single buyer of all solar power under the NSM, blend this with uncontracted thermal power and sell it to the state electricity boards / discoms Draft PPAs and Eligibility Criteria have been proposed by MNRE; projects for migration into NSM have very recently signed PPAs NSM allocations in December 2010; 6 months to close financing after signing PPAs (July 2011) In addition, several states in India are directly contracting with solar power developers under their own Solar Projects (e.g., Gujarat has given allocations / signed PPAs in 2 phases for 960 MW outside the NSM) These programs will initially generate a large number of small solar projects in the range of 2-15 MW (project costs of $650 million)

ADBs Participation and Role

ADB has been providing technical assistance to MNRE on the NSM, the PPA structure and eligibility criteria ADB has launched its Asian Solar Energy Initiative whereby it will finance 3,000 MW by mid 2013 in developing Asia India, Thailand and China are the near term opportunities

The first wave of solar projects in India are likely too small for direct funding by ADB (average size of 5 MW)
ADB wants to build technical due diligence capacity in commercial banks for lending to solar projects in Asia

ADB is proposing a risk sharing scheme through partial credit guarantees (PCGs) to commercial banks to support such projects
Addresses lenders concerns both on credit risks and long tenors required for viability of solar power projects

Partial Credit Guarantee (PCG)

Covers lenders against any non payment by the project on the guaranteed portion of scheduled principal and interest payments
Can be denominated in USD or INR Beneficiaries: both local and international banks

Replace half of lenders project risk (e.g., B-BB) with ADB credit risk (AAA); extend loan tenors >12 years
Addresses lenders capital constraints, single borrower limit, sector and country limit

Allows ADB to leverage support for projects too small for typical project financing
ADB Board approval expected 19 April 2011; first partner bank endorsed by investment committee (NORD/LB, Singapore branch)

Parallel Technical Assistance

ADB will provide technical support to partner commercial banks to complete technical DD of these projects seeking guarantees Scope of work to include:

Review of insolation data, site risks Commercial assessment of proposed solar technology Assessment of PV panel manufacturer and experience analysis of performance warranties, etc. Sensitivity analysis of energy yields and revenue variability

Grant of $1.25 million administered directly by ADB guarantee team, partly funded by the Government of Japan International solar engineers to be on board by May 2011 Program will also include regular solar training programs in India for commercial bankers (next scheduled for June in New Delhi)

Proposed Mechanics (for due diligence)

ADB will rely primarily on commercial banks due diligence on sponsors, financial viability, EPC contracts, O&M arrangements. Minimum eligibility criteria for sponsors credit-worthiness and experience, and commercially proven solar PV or thermal technology Sponsors must provide cost overrun undertaking; have sufficient performance warranties from credible PV manufacturers and latent defects cover from contractors Borrower must have signed PPA with NVVN (NSM scheme) or acceptable PPA with selected states e.g., Gujarat (ADB to review others case-by-case) Covered Lenders must screen projects according to ADBs Safeguard Policies, comply with corporate governance and anti-corruption policies (some ADB help on environmental and social elements)

ADB Guarantee Limits

The guarantee can cover principal and accrued interest up to a maximum aggregate liability (MAL) amount

The present value of the debt service obligations guaranteed by ADB cannot exceed 50% of the projects debt (e.g., 50/50 risk sharing with the commercial bank)
This allows the structuring guarantees to meet different banks needs, higher levels of guarantee cover in latter years of the loan tenor (see examples) Door-to-door tenors of guaranteed loans will be limited to 15 years for NSM projects, 12 years for GUVNL projects

Other limits no more than 5 guarantees per sponsor group; a single partner bank cannot consume more than 40% of the facility; limits on direct SEB exposure

Option 1: Back-Ended Cover

No cover in years 0-7; 95% in yrs 8-11; 100% in yrs 12-15

Principal + Interest

PCG terminated if payment default / insolvency

Commercial Loan Tenor: COD: 1st P&I Repayment : ADB PCG Cover Year 1-7: 0% Year 8-11: 95%
PCG becomes effective provided no EoD exists

15 years 1 year 6 months after COD

Years 12-15: 100%

95% PROJECT RISK

ADB PCG
YR 1 YR 3 YR 7 YR 9 YR 11

100%

YR 15

Standby Fee
8

On-risk Guarantee Fee

Option 2: Straight Cover

50% PCG Cover for all years
Commitment Fee

Principal + Interest

Commercial Loan Tenor: COD: 1st P&I Repayment : ADB PCG Cover Years 1-15: 50%

15 years 1 year 6 months after COD

50%

PROJECT RISK

SBL / Solvency Exempt YR 1 YR 3

ADB PCG
YR 6 YR 9 YR 12 YR 15

On-risk Guarantee Fee

9

Timeline (for making a demand)

Borrower Defaults Due Date Day 0 Demand Payment Day 90

Day [45]

Day 75

Day 120

Waiting Period

Determination Period

Payment Period

Demand Service Period

Lender / sponsor considerations

Domestic lenders
Single borrower limit constraints Power sector exposure Constraints on long-term lending Pressure for lending to priority sectors (not solar)

International lenders
Keen to fund renewable / GHG mitigation in countries like India Capital constraints Tenor/risk constraints (e.g., SEB offtake) Country limit constraints for India

Guarantees facilitate raising of INR and USD debt at longer tenors than otherwise would have been available
Improved debt service capacity (especially in critical early years) Improves equity IRR (in light of challenging environment on capital costs) Reduce refinancing risk Sharing of technical risks on solar power technology
11

ADB Contacts for Solar Guarantee Program

Don Purka Private Sector Operations Department dpurka@adb.org +63-2-632-6882

Bart Raemaekers Office of Cofinancing Operations braemaekers@adb.org +63-2-632-6918 Sujata Gupta ADB Resident Mission in India sgupta@adb.org +91-11-2410-7200