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

The guarantees – available to banks that finance private sector solar power plant – will help to mobilize long-term funding for solar energy development and support the government of India’s push to diversify its energy mix into renewable sources.

They will cover up to half of the payment default risk on bank loans made to project developers, says the ADB.

“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.”

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.

“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.

The government of India last year 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.

Alongside the 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.