Thursday, February 6, 2014

World Bank Keen to Finance Solar Projects in India

The World Bank has launched consultations with the ministries of finance and new and renewable energy for financing solar projects under phase II of the National Solar Mission.

“The World Bank is really impressed with the performance of phase I of the National Solar Mission wherein, the installed capacity has risen to 2,000 Mw from 30 Mw. The World Bank was engaged with the ministry of new and renewable energy during phase I in working out the policy and putting in place necessary guidelines but had not provided funds. However, during phase II, the World bank is quite keen to finance solar projects,” Ashish Khanna, lead energy specialist told Business Standard. He however, declined to divulge further details in this regard. The total requirement of funds is of the order of Rs 80,000 crore ($13 billion) of which, as high as Rs 54,000 crore ($9 billion) will be debt based on a 70:30 debt equity ratio. The World Bank has expressed that it was keen to partially finance debt requirement.

Khanna said of the total debt requirement of Rs 54,000 crore, much needed to come from the scheduled commercial banks.

“During the first phase, commercial banks had lent $700 million and they need to scale up to the levels envisaged. In order to make investment in solar power more attractive for scheduled commercial banks, the government will need to strategically use scarce public resources to leverage commercial financing, address structural barriers that prevent commercial banks from participating and facilitate appropriate technology deployment,” Khanna added.

Khanna said the role of facilitating public funding in leveraging commercial lending on a sustained basis through risk reducing instruments as well as innovations in financing is significant and imperative for moving solar development to a largely non-recourse financing mode in India. The World Bank in its report titled, “Paving the way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I”, suggests that the government could offer multiple financial solutions involving viability gap fund, generation-based incentives, credit guarantees, credit lines to banks at a concession to cut interest rates and subordinate public finance to extend the tenor of loans.  According to the World Bank, using public financing for extending the tenor of a loan and providing subordinated debt is least expensive among all other options, with the objective of reducing the solar tariff to Rs 5.50 per unit.


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