The Asian Development Bank (ADB) will provide up to $150 million in credit guarantees to help India scale up use of solar power as a major renewable energy source.

The guarantees, according to an ADB statement here, will be available to local and foreign commercial banks that finance private sector solar power plants in the country and will cover 50 per cent of the payment default risk on bank loans made to project developers.

The guarantees will help mobilise long-term funding for solar energy development and support the Indian government's push to diversify the country's energy mix away from a heavy reliance on fossil fuels to lower-carbon, renewable sources.

“Solar energy is ideally suited to India because it has available land with strong sunlight. Solar plants are easy to install, even in remote communities that have no other access to energy, suit small-scale demand, and are relatively cheap to operate and maintain,'' Director General of ADB's Private Sector Operations Department (PSOD) Philip Erquiaga said while noting that in a world of depleting fossil fuels, “solar energy is a long-term, sustainable solution to India's energy needs and security.”

India's solar energy potential is among the best in the world with around 300 sunny days a year. Companies have been slow to tap that potential, however, because of the high up-front costs of solar plants and a lack of affordable long-term finance from banks. ADB's partial guarantees on loans of up to 15 years will make the longer-tenor loans to solar power projects more attractive to banks and projects.

While these guarantees will support projects of up to 25 MW, ADB is also separately considering direct finance for larger solar power projects with the private sector in India.

Along with these guarantees, ADB is also providing $1.25 million to provide training on solar technology and risk issues and assist participating banks to carry out technical due diligence on individual solar projects.

“What we do in the next 2-3 years is critical for the solar programme 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,” said Don Purka, Senior Investment Officer in PSOD.

Last year, the Indian government established the Jawaharlal Nehru National Solar Mission under which it intends to commission 20,000 MW in grid-connected solar power by 2022 to help fill persistent energy shortages in the country. The first step to that is building smaller plants that can ultimately be scaled up, the ADB said.