According to the ADB, the guarantees will be available to both local and foreign commercial banks that finance private sector solar power plants in the country, and will cover 50 percent of the payment default risk on bank loans made to project developers.
It states that the guarantees will help mobilize long-term funding for solar energy development and support the government in its bid to diversify its energy mix.
"Solar energy is ideally suited to India because it has available land with strong sunlight," states Philip Erquiaga, Director General of ADB’s Private Sector Operations Department. "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."
However, despite this, and the country’s high level of irradiation, ADB says that companies have been slow to tap into Indias solar potential, due to the high up-front costs of solar plants and a lack of affordable long-term finance from banks.
It says that its 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. They will support projects of up to 25 megawatts.
ADB adds that it is 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," says Don Purka, Senior Investment Officer in ADB’s Private Sector Operations Department.
Alongside the guarantees, ADB is also making $1.25 million available for training on solar technology and risk issues, and to assist participating banks in carrying out technical due diligence on individual solar projects.
A grant of $500,000 will reportedly 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.