Financing of Solar Projects from ADB

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Asian Development Bank (ADB) has launched India Solar Generation Guarantee Facility to mobilizes long-term funding for solar energy development and support India’s push to diversify its energy mix away from a heavy reliance on fossil fuels to lower-carbon, renewable sources. The guarantees support ADB’s Asia Solar Energy Initiative (ASEI) to promote the development of solar energy in developing member countries into a competitive and prominent energy source.

 

The partial credit guarantees (PCGs) will be available to local and foreign commercial banks that finance private sector solar power plants in the country and will cover up to 50% of the payment default risk on bank loans made to project developers.  The aggregate amount of the guarantees cannot exceed $150 million, per the approval by ADB’s Board of Directors.  The program will be available until April 2014 or until the maximum amount is reached.

ADB will also provide hands on support to partner banks to complete technical due diligence on the projects covered under the ADB guarantee facility through a parallel technical assistance. To facilitate this support, ADB has contracted a well-known lenders’ engineer on a retainer basis to provide support to the banks.

A PCG provides comprehensive coverage for all commercial and political risks for a specified portion of the debt financing of a project. Effectively, the PCG covers lenders for any non-payment by the project on the guaranteed portion of the scheduled principal and interest payments. ADB is also conducting a series of technical training programs on solar technology and risks.

The Government of the United Kingdom, acting through its Department of Energy and Climate Change, as approved a £6 million ($10 million) grant for this project.  The grant is part of DECC’s  low-carbon growth strategy.  The grant will be used to defray the annual cost of the guarantees, helping to lower the overall cost of financing for the projects and encourage banks to take more exposure to the solar sector in India.

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