The Asian Development Bank (ADB) revealed plans to offer up to US$150 million in credit guarantees to local and foreign commercial banks to encourage the development of solar power as a renewable energy in India. The credit will cover 50% of the payment default risk on bank loans made to solar project developers with an aim to secure long-term funding for solar energy development in the country.

"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 currently have no other access to energy, suit small-scale demand, and are relatively cheap to operate and maintain," said Philip Erquiaga, director general of ADB's private sector operations department. "In a world of depleting fossil fuels, solar energy is a long-term, sustainable solution to India's energy needs and security."

ADB’s partial guarantees on loans of up to 15 years will back projects up to 25MW. The bank is also contemplating a separate direct finance program for larger solar power projects with the Indian private sector. Currently, ADB will additionally provide US$1.25 million for training on solar technology, risk issues and aiding participating banks in the technical due diligence for individual solar projects.

"What we do in the next 2-3 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," said Don Purka, senior investment officer in ADB's private sector operations department.

ADB’s concessional technical assistance special fund will provide a grant of US$500,000, while the Asian Clean Energy Fund will supply a second grant of US$750,000. The latter Government of Japan-established grant is part of the ADB-administered Clean Energy Financing Partnership Facility.