Solar Power in India: ADBs Guarantee Facility and Technical Assistance Program

By Don Purka Principal Investment Specialist (Climate Finance) ACEF June 2012

The Landscape
Persistent energy deficits across India, heavy dependence on coal-fired power, inability to sustain affordable supply of coal, of course environmental concerns on GHGs the need to harness all renewable sources of energy in India In 2010, Government of India launches the National Solar Mission (NSM) to develop 20 GW of grid-connected solar power capacity, encourage local manufacturing of solar components, also promote off-grid and solar home systems

Phase I 1,000 MW by 2013 -- 150 MW of PV and 500 MW of CSP allocated in Dec 2010; an additional 350 MW allocated in Dec 2011
In addition, several states (e.g., Gujarat, Maharashtra, Karnataka) are directly contracting with solar power developers under their own states solar policy

These programs generate a large number of relatively small solar projects in the range of 2-20 MW (project costs of $6 - 60 million)
900 MW+ of grid-connected solar commissioned in India (end March 2012) includes both central and state level projects.

ADBs Support for Solar

ADB provided technical assistance to MNRE on the NSM, the PPA structure and eligibility criteria (2009-2011) public and private sector collaboration Most of the first private sector projects were too small (< 20 MW) for direct funding by ADB, extensive discussions with the lending community:
Local banks were concerned on technical risks of solar need to build due diligence capacity in commercial banks for lending to solar projects
Foreign banks/investors were concerned on offtaker default risk, governments deciding to renege on PPAs or feed-in tariffs later

In April 2011, ADB approved a $150 million risk sharing scheme through partial credit guarantees to commercial banks to support such projects Replace 50% of the lenders risk on a project (e.g., B - BB) with ADB credit risk (AAA); extend loan tenors >12 years

Back-Ended Guarantee Cover

No cover in 1st 7 years; 95% -100% in last 8 years
Outstanding Principal + one period of Interest Guarantee terminated if payment default / insolvency

Gte becomes effective provided no EoD exists

95% PROJECT RISK

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

100%

YR 15

Standby Fee

On-risk Guarantee Fee

Parallel Technical Assistance

ADB providing technical support to partner commercial banks to complete technical DD of projects to be guaranteed by ADB $1.25 million grant administered directly by ADB, $750,000 funded by The Asia Clean Energy Fund (the Government of Japan) Engineering consultant scope of work includes:
Review of insolation data and energy yield Assess site risks and project preliminary design Commercial assessment of proposed solar technology Assessment of PV panel manufacturer and experience analysis of performance warranties, other contractual arrangements

TA includes solar training programs in India for commercial bankers, other financiers, prospective investors
March 2011: Mumbai June 2011: Delhi May 2012: Ahmedabad, Bangalore, Kolkata

Innovative Grant Financing

The Department of Energy and Climate Change (DECC) of the UK Government approved a grant of 6 million ($10 million equivalent) to ADB to support this guarantee facility The grant is part of the UKs International Climate Fund to promote low carbon development in developing countries The grant will buy down 50% of the annual guarantee fees for solar power projects that qualify under this scheme The objective is to reduce the overall financing costs, benefit is passed through to the project and to catalyze additional lending to the nascent sector Non-traditional use of grant resources, expanded under Clean Energy Financing Partnership Facility (CEFPF) administered by ADB

Facility Progress Update

2 partner banks (L&T Infra Finance and NORD/LB) endorsed under the program 3 more banks have applied, under review 2 solar projects (one 25 MW and one 10 MW) approved for partial credit guarantee; 3 more under review Program is complemented by PSOD directly funding larger solar projects:
40 MW Dahanu Solar PV Project 100 MW Rajasthan Concentrating Solar Power Project

ADBs guarantee program selected by the UNFCCC as one of 10 global Lighthouse Projects at the COP17 (Durban) under the Momentum for Change Initiative, supported by the Bill and Melinda Gates Foundation.

Program Contacts
Aniruddha Patil Investment Specialist Private Sector Operations Department apatil@adb.org (Ms.) Sujata Gupta Principal Investment Specialist ADB Resident Mission in India sgupta@adb.org

Bart Raemaekers Senior Guarantees Specialist Private Sector Operations Department braemaekers@adb.org

Amit Kumar Consultant (Solar Energy) ADB Resident Mission in India akumar.consultant@adb.org

ADB Solar Guarantee Facility Website: http://www.adb.org/site/private-sector-financing/india-solar-generation-guarantee-facility