Report and Recommendation of the President

to the Board of Directors

Project Number: 44941

April 2011

Proposed Guarantee Facility

Solar Power Generation
(India)

In accordance with ADB's public communications policy (PCP, 2005) this abbreviated version of the RRP
excludes confidential information and ADB's assessment of project or transaction risk as well as other
information referred to in paragraph 126 of the PCP.

CURRENCY EQUIVALENTS
(as of 1 February 2011)
Currency Unit

Indian rupee/s (Re/Rs)

Rs1.00
$1.00

=
=

$0.022
Rs45.91

ABBREVIATIONS
ADB
ASEI
CERC
CO2
DMC
ESMS
GUVNL
MNRE
NSM
NTPC
NVVN
PCG
PPA
REC
RPO
SEB
SERC
SPV
TA

Asian Development Bank

Asia Solar Energy Initiative
Central Electricity Regulatory Commission
carbon dioxide
developing member country
environmental and social management system
Gujarat Urja Vikas Nigam Limited
Ministry of New and Renewable Energy
National Solar Mission
National Thermal Power Corporation
NTPC Vidyut Vyapar Nigam
partial credit guarantee
power purchase agreement
renewable energy certificate
renewable purchase obligation
state electricity board
state electricity regulatory commissions
special purpose vehicle
technical assistance

WEIGHTS AND MEASURES

kWh
m2
MW
MWh

kilowatt-hour
square meter
megawatt
megawatt-hour

GLOSSARY
Insolation

Insolation or irradiance is a measure of intensity and availability of sunlight

in a given location which can be converted to electricity either through
photovoltaic solar panels or concentrating solar thermal power technology.

NOTES
(i)

The fiscal year (FY) of Indian banks and companies ends on 31 March.
FY before a calendar year denotes the year in which the fiscal year ends,
e.g., FY2000 ends on 31 March 2000.

(ii)

In this report, $ refers to US dollars.

Vice-President
Director General
Director

L. Venkatachalam, Private Sector and Cofinancing Operations

P. Erquiaga, Private Sector Operations Department (PSOD)
M. Barrow, Infrastructure Finance Division 1, PSOD

Team leader
Team members

D. Purka, Senior Investment Specialist, PSOD

C. Gin, Senior Counsel, Office of the General Counsel
S. Gupta, Principal Investment Specialist and Unit Head, Private Sector
Operations, India Resident Mission, PSOD
V. Medina, Safeguards Officer, PSOD
J. Munsayac, Social Development Specialist, PSOD
A. Patil, Investment Specialist, PSOD
A. Porras, Safeguards Officer, PSOD
B. Raemaekers, Senior Financing Partnership Specialist (Guarantees
and Syndications), Office of Cofinancing Operations

In preparing any country program or strategy, financing any project, or by making any
designation of or reference to a particular territory or geographic area in this document, the
Asian Development Bank does not intend to make any judgments as to the legal or other status
of any territory or area.

CONTENTS
Page
FACILITY SUMMARY
I. THE PROPOSAL

II. BACKGROUND AND RATIONALE

A.
B.
C.

Project Identification and Selection

Sector Background
Alignment with ADB Strategy and Operations

III. THE FACILITY

A.
B.
C.
D.
E.
F.
G.

Facility Description
Development Impact
Environment and Social Dimensions
Program Financing Plan
Implementation Arrangements
Projected Operational and Financial Performance
Guarantee Pricing

IV. THE PROPOSED ADB ASSISTANCE

A.
B.
C.
D.

The Assistance
Justification for ADB Assistance
Risks and Mitigation Measures
Assurances

1
2
4
5
5
6
7
8
9
10
11
11
11
12
13
15

V. RECOMMENDATION

15

APPENDIXES
1.
Design and Monitoring Framework
2.
Indias National Solar Mission
3.
Pipeline of Solar Power Generation Projects
4.
Summary Poverty Reduction and Social Strategy
5.
Summary Environmental and Social Management System
6.
Partner Bank Due Diligence List
7.
Summary Guarantee Term Sheet and Project Eligibility Criteria

17
19
26
29
32
37
38

SUPPLEMENTARY APPENDIXES (available on request)

A.
Economic and Financial Analysis of Representative Solar Power Project
B.
Credit Analysis of NTPC Vidyut Vyapar Nigam
C.
Credit Analysis of Gujarat Urja Vikas Nigam Limited
D.
Due Diligence Report of Norddeutsche Landesbank Girozentrale (Nord/LB)

FACILITY SUMMARY
Facility Description

A facility whereby the Asian Development Bank (ADB) will issue partial
credit guarantees (PCGs) in an aggregate amount of up to $150 million
of principal (or its equivalent in Indian rupees or other foreign currency
acceptable to ADB), in favor of foreign and local commercial banks
lending to solar power generation projects in India. The facility will
support multiple projects up to a maximum size of 25 megawatts (MW)
under a solar power program with the central or state government.
Under the facility, ADB will issue PCGs to guarantee scheduled
payments of principal and interest under loans to be provided by foreign
or local commercial banks. The PCGs will be provided without
government counter-guarantee.

Classification

Targeting classification: General intervention

Sector (subsector): Energy (Renewable energy)
Themes (subthemes): Environmental sustainability (eco-efficiency);
economic growth (promoting economic efficiency and enabling
business environment); capacity development (institutional
development); private sector development (private sector investment)
Location impact: National (high), regional (medium), rural (medium)
Partnership: Foreign and local commercial banks, development partners

Environmental and
Social Safeguards
Classification

Environment:
Involuntary Resettlement:
Indigenous Peoples:

Impact, Outcome,
and Benefits

The outcome will be the demonstration of the profitable and sustainable

solar power generation plants under the National Solar Mission (NSM)
and state power schemes, which will contribute to the growth of Indias
power generation supply through low carbon resources. The impact will
be successful implementation of phase I of the NSM, increased foreign
direct investment by the private sector in the solar power industry and
long-term cost reduction for solar power in India.

Project Borrowers
and Sponsors

Projects will be implemented by special purpose vehicle companies,

incorporated in India, which will develop, construct, commission, and
operate solar power generation projects. Project sponsors will include
local and foreign investors with at least 50% of their shares held by
private sector entities.

Guaranteed
Lenders

Select local and foreign commercial banks operating in the project

finance market in India. ADB will conduct due diligence and seek the
Investment Committees approval of each partner commercial bank to be
eligible under the facility. ADB will not issue PCGs to any single lender
that in aggregate would exceed 40% of the facility.

FI
FI
FI

ii

Proposed ADB
Assistance

A guarantee facility of $150 million backed by the ordinary capital

resources of ADB. Project loans under the facility will have a term of up
to 15 years (18 years in some exceptional cases) including a grace
period of up to 1 year, and other terms and conditions as approved by
ADBs Investment Committee. The guarantees will partially cover
nonpayment by the borrower. The net present value of the guaranteed
outstanding principal and accrued interest will not exceed 50% of the
loan amount for the project.

Implementation
Arrangements

Projects will be initially screened by partner commercial banks and

assessed as to whether they are in line with ADBs eligibility criteria for
the facility. Banks will conduct due diligence in accordance with ADBs
requirements and in line with ADB policies on anticorruption, safeguards,
integrity, and procurement. ADB will conduct due diligence on partner
commercial banks and submit this to the Investment Committee prior to
any guarantees being issued. PCGs will be materially in line with the
agreed terms for the facility. Appropriate facility limits and other sublimits on sponsors, partner banks, and projects will be maintained,
unless otherwise approved by the Investment Committee.

Risks and
Mitigating
Measures

Key risks examined and mitigated during due diligence include (i)
technology risk and equipment manufacturer risk; (ii) sponsor risk; (iii)
off-taker risk; (iv) regulatory risk, (v) risk sharing with partner banks, (vi)
lack of technical expertise of partner banks in the evaluation of solar
energy projects, and (vii) selection of partner banks. These risks will be
mitigated by: (i) establishment of well defined eligibility criteria for
equipment manufacturers and sponsors, (ii) appropriate structuring of
the facility, (iii) the strong commitment of the government to support
solar power projects, (iv) continuous involvement of ADB in the selection
process of each of the partner banks, (v) parallel technical assistance
provided by international solar experts, and (iv) detailed evaluation of
potential local commercial banks.

Justification / ADB
Value-Added

ADB assistance (through the facility and parallel technical assistance)

will help solar projects close affordable long-term financing, which is a
necessary condition for the viability of a solar power project. ADBs
assistance will mobilize the participation of local and foreign commercial
banks with little or no experience in solar energy in India. The assistance
will demonstrate the commercial viability of utility-scale, grid-connected
solar photovoltaic technology in India.

I.

THE PROPOSAL

1.
I submit for your approval the following report and recommendation on a proposed
guarantee facility for solar power generation projects in India. The design and monitoring
framework is in Appendix 1.
II.
A.

BACKGROUND AND RATIONALE

Identification and Selection

2.
Asian Development Bank (ADB) technical assistance (TA) supports the Ministry of New
and Renewable Energy (MNRE) in the formulation and implementation of Indias National Solar
Mission (NSM), announced by the Government of India in January 2010. 1 The NSM intends to
commission 20,000 megawatts (MW) in grid-connected solar power generation by 2022 to help
fill persistent energy shortages with diversified low-carbon power generation, secure its energy
independence using indigenous resources, and become a manufacturing hub for the solar
energy industry in Asia.
3.
During TA implementation, ADB staff engaged the MNRE in various discussions on how
to encourage private sector investment in and financing of solar projects under the NSM
program. This included specific assistance on drafting a bankable power purchase agreement
(and a subsequent power sales agreement with the states), transparent eligibility guidelines and
selection criteria, and an enhanced regulatory framework for green energy. All parties stressed
the importance of long-term financing and the impact of its cost on the levelized cost2 of solar
electricity. Given the high up-front but low operating cost profile of solar power generation, the
profile, tenor, and cost of debt play a significant part in optimizing costs and viability; and have
been the main focus of ADBs efforts in this area.
4.
As the MNRE defined the details of the NSM program, it became clear to the project
team that the first phase projects would be relatively small (2 MW25 MW), mostly solar
photovoltaic projects. Based on current cost estimates (about $3,000$3,300 per kilowatt of
installed capacity), the total costs of such projects are likely to be too small for direct ADB
lending. The challenge thus became how to support the financing of multiple small solar
projects that would demonstrate their viability in the context of Indias operating and climatic
environment. ADB discussed various financing structures and support mechanisms with local
and foreign commercial banks. Based on the feedback received from these banks, there is an
immediate window of opportunity for ADB to make a real impact in this nascent but critically
important sector, by mobilizing available commercial funds into solar projects and building
capacity within the local banks on the technical and commercial risks of solar power projects.
This iterative consultation process led to the design of a multi-project partial credit guarantee
(PCG) facility structured to provide long-term financing and share commercial risks between
banks and ADB for the first wave of solar projects. Commercial risk mitigation and extension of
debt tenors are critical to ensure the bankability and viability of, and to lay the groundwork for, a
sustainable solar program.

ADB. 2008. Technical Assistance to India for Integrated Renewable Energy Development. Manila (TA 7099-IND).
This ongoing TA will fulfill ADBs participation requirement for nonsovereign guarantee operations.
Levelized cost refers to the present value of the total cost of constructing and operating a generating plant over its
economic life converted on an annual basis.

B.

Sector Background

5.
As of October 2010, installed power generation capacity in India was 167,278 MW,
64.9% of which is fired from thermal sources (coal and gas), 22.3% from hydropower, 2.7%
from nuclear power, and 10.0% from renewable energy. Indias growth rates in energy
consumption are much higher than the gross domestic product growth rate, reflecting an
increasing share of energy investment. Indias energy sector contributes about 58% of the
countrys greenhouse gas emissions.3
6.
Solar energy is abundant in India, with high insolation measured at about 300 sunny
days on average per year4 and estimated to be 5 billion megawatt-hours (MWh) per year of
energy over Indias land area. Most regions receive 47 kilowatt-hours (kWh) per square meter
(m2) per day; the national average is 4.5 kWh/m2/day. This rate of insolation is among the
highest in the world, comparing favorably with Australia (4.7 kWh/m2/day) and ahead of the
Peoples Republic of China (3.4 kWh/m2/day) and Western Europe (2.9 kWh/m2/day).5 Effective
unlocking of this huge potential, through photovoltaic or concentrating solar thermal power
development, provides the ability to generate power on a distributed basis and enables rapid
capacity addition with relatively short lead times (e.g., less than 1 year).
7.
From an energy independence and security perspective, solar is the most secure of all
sources since it is renewable and abundantly available. Given the large number of poor and
unserved people in India, all efforts need to be made to exploit this source of energy. Solar
projects can be flexibly sited within high insolation areas to avoid competing for scarce land that
may have other productive uses. The acquisition of land has become a major hurdle for
infrastructure development projects in India and other developing member countries (DMCs).
While domestic coal-based power generation is the cheapest electricity source today, future
scenarios suggest that this could change. Under current electricity deficit conditions and
looming domestic coal shortages, peak energy prices could reach Rs8.50 per kWh ($0.18 per
kWh) as the country begins to partly rely on imported coal to meet its energy demand. Given
energy shortages, India is increasing the use of diesel-based electricity, which is both expensive
(up to Rs15.00 per kWh) and polluting.
8.
The NSM is an initiative of the central and state governments to promote ecologically
sustainable energy growth while addressing Indias energy security challenge. It will constitute a
major contribution by India to the global effort to meet the challenges of climate change. The
NSM helps implement some of Indias objectives under the National Action Plan on Climate
Change, which recognizes that solar energybecause of Indias tropical climate and abundant
sunshinehas great potential as a future energy source and will enable the decentralized
distribution of electricity production. However, solar power generation is the least developed
form of renewable energy in India because of technical and financial challenges (Table 1).

3
4

Agence France-Presse, 2010.

Government of India, Ministry of Power, Central Electricity Authority. 2010. Monthly Power Sector Report: April
2010. New Delhi.
Conergy. 2009. Deployment Challenges for Large Scale On-Grid Solar PV Implementations. Singapore.

Table 1: Renewable Energy in India

(MW)
Source
Biomass
Wind
Small hydro (up to 25 MW)
Cogeneration (bagasse)
Waste-to-energy
Solar (under the National Solar Mission)
Total

Potential
16,881
45,195
15,000
5,000
2,700
20,000
104,776

Installed FY2009
131
683
129
253
4
3
1,203

Cumulative Installed
834
10,925
2,558
1,302
65
6
15,690

MW = megawatt.
Source: Ministry of New and Renewable Energy.

9.
Unfortunately, the total costs (capital and operating costs) for solar power generation are
currently much higher than for thermal power stations, which are centralized and sized to reap
economies of scale (e.g., 2,0004,000 MW). One of the objectives of the NSM is to create
conditions (through a rapid scaling up of capacity, technological innovation, and indigenization)
that will drive down the capital costs of solar power generation toward grid parity.6 The NSM
aims to achieve grid parity (peak energy) by 2022 and parity with coal-fired thermal power by
2030. As more solar capacity is installed globally, production costs for panels and other
components will decrease as a result of economies of scale and manufacturers locating
production facilities close to demand in Asia. This cost trajectory will depend on the scale and
pace of global deployment, technology development, and transfer of knowledge. Once solar
power costs approach or reach grid parity, this will facilitate the deployment of smaller and more
distributed power generation stations that can serve more remote and nonurban locations where
Indias poor are concentrated.
10.
The objective of the NSM is to establish India as a global leader in solar energy by
creating the policy conditions for rapid diffusion of technology and investment across the
country. The NSM will adopt a three-phase approach, spanning the remaining period of the
Eleventh Five Year Plan, 200720127 and first year of the 12th plan (1,000-2,000 MW of utilityscale capacity by 2013) as phase 1; the remaining 4 years of the 12th plan as phase 2 (4,000
10,000 MW added by 2017); and the 13th plan as phase 3 (20,000 MW by 2022). The NSM will
evaluate progress against plan milestones to review capacity and targets for subsequent
phases based on emerging cost and technology trends, so as to protect the government from
heavy subsidy exposure in case anticipated cost reductions do not materialize as expected.
11.
NSM activities are currently embedded within the existing framework of the Electricity
Act, 2003, but solar-specific regulatory frameworks and contractual arrangements are being
established to facilitate its development. One of the key regulatory drivers for promoting solar
power is a renewable purchase obligation (RPO) in which a minimum amount of electricity must
be purchased from clean energy sources by power distribution companies (e.g., varies from
1.0% to 15.0% in Indian states at present). As required by the National Electricity Policy (2005),
the National Tariff Policy (2006) was amended by the cabinet in January 2011 to mandate that
the state electricity regulators specify a minimum amount of electricity generated by solar power
that must be purchased by power distribution companies. The solar power purchase obligation
for states will start at 0.25% no later than 2013 and increase up to 3.0% by 2022.

Grid parity refers to the cost of electricity on an Indian rupee per kilowatt hour basis, which is equivalent to the
current market price for short-term power.
Government of India, Planning Commission. 2008. Eleventh Five Year Plan, 200712. Delhi.

12.
The Central Electricity Regulatory Commission (CERC) has issued detailed guidelines
for determining feed-in tariffs for solar power, taking into account current cost and technology
trends. These will be revised on an annual basis for new projects being commissioned (although
presently fixed until the end of March 2012). This will be complemented by a renewable energy
certificate (REC) mechanism to allow utilities and solar power generation companies to buy and
sell certificates to meet their solar power purchase obligations. In January 2010, CERC
announced REC regulations that enable the interstate trading of such certificates to meet the
RPOs. This will drive utility-scale renewable power generation, but it is not yet consistently in
place across all statesrepresenting a risk for solar project developers. The NSM offtake
regime, with its blended tariff structure, is therefore critical in bridging the near-term
competitiveness of solar with other renewable technologies. Short-term adoption is critical in
achieving cost economies of scale and diffusing the technology in the long term. RPOs of 1%
15% of total power purchases have been established by 18 states based on renewable potential
in the state. When NTPC Vidyut Vyapar Nigam (NVVN) supplies bundled power to state utilities
at the rates determined in accordance with CERC regulations, those state utilities will be entitled
to use the solar part of the bundled power for meeting their RPOs under the Electricity Act,
2003. Further information on Indias National Solar Mission, power purchase schemes, and
regulatory framework are in Appendix 2.
C.

Alignment with ADB Strategy and Operations

1.

Consistency with Strategy 2020

13.
The facility is consistent with Strategy 2020, 8 which emphasizes ADB support for
environmentally sustainable development and private sector development. The facility will
expand ADBs promotion of, and investment in, sound environmental management while
capitalizing on its operational strength, such as infrastructure development and finance. The
strategy seeks to meet the regions growing energy demand by helping DMCs to develop
environmentally friendly technologies, specifically promoting energy efficiency and the use of
clean energy sources. One of the key actions is to mitigate climate change by moving DMCs
onto low-carbon growth paths by (i) improving energy efficiency, (ii) expanding the use of clean
energy sources, (iii) reducing fugitive greenhouse gas emissions, (iv) modernizing public
transport systems, and (v) arresting deforestation. In addition, one of Strategy 2020s goals is
that ADBs cofinanced lending will increase at a faster rate than ADBs stand-alone financing
operations, with a long-term objective of total annual direct cofinancing exceeding the value of
ADBs stand-alone financing. The facility would be consistent with this cofinancing goal.
2.

Consistency with the Country Strategy

14.
Approved by ADBs Board of Directors in June 2009, the India country partnership
strategy, 20092012 emphasizes continued and sustained infrastructure development (e.g.,
transport, energy, urban and water resource management). 9 ADBs energy program in India
aims to enhance the impact of the governments initiatives for demand- and supply-related
programs. The planned activities include (i) developing renewable and alternative energy
sources, and clean generation technology; (ii) reducing technical and commercial losses in
transmission and distribution networks and facilities; (iii) strengthening interregional
transmission capacity; (iv) bringing demand-side management and energy conservation into the
8

ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank, 20082020.
Manila.
ADB. 2009. Country Partnership Strategy: India, 20092012. Manila.

mainstream; and (v) promoting private sector participation, while ensuring environmental
sustainability, and supporting institutional strengthening to implement the reforms required by
the Electricity Act, 2003. Key thematic concerns include environmental sustainability, private
sector development, private sector operations, governance, and partnerships.
15.
The facility complements the current lending and TA program by ADBs South Asia
Department in support of solar power projects in India. There has been close cooperation
between ADBs Private Sector Operations Department and South Asia Department on the TA
program with the MNRE. In addition, ADB is preparing a $100 million loan in support of a
500 MW solar park being developed in the state of Gujarat. Additional TA is proposed for a
similar solar park in the state of Rajasthan for developing solar engineering centers of
excellence in local universities, funding of smart grid transmission management systems, and
vocational educational programs in support of the solar industry in India.
3.

Consistency with the Sector Strategy

16.
Under ADBs Energy Policy, ADBs investments will focus on energy efficiency and
renewable energy projects, as well as the expansion of energy access. Starting in 2013, ADB
will increase its target of clean energy investments to $2 billion a year from $1 billion, in a bid to
accelerate low-carbon growth and reduce greenhouse gas emissions in the region. 10 As part of
the policy implementation, ADB is emphasizing private sector participation as a tool to enhance
energy sector efficiency as a result of introducing increased competition and increased
investable resources. The objective is to create a framework that makes investing in the energy
sector a commercially viable proposition and ADB is committed to facilitate direct private sector
participation.
17.
The facility is also directly aligned with ADBs Asia Solar Energy Initiative (ASEI) to
(i) facilitate knowledge sharing and transfer for solar power; (ii) help develop, finance, and
commission 3,000 MW of solar power generation capacity in DMCs by May 2013; and (iii) pilot
test innovative financing mechanisms and risk mitigation measures specifically for solar power.
The ASEI seeks to stimulate solar power development in DMCs with the goal of (i) increasing
economies of scale to reduce costs and improve solar energys competitiveness within the grid;
(ii) exploiting select DMCs solar radiation resources to service their fast-growing electricity
demand and utilize their greater availability of land compared with most developed countries;
and (iii) promoting DMCs potential to become global and regional manufacturing hubs for solar
technology goods and equipment. ADBs solar initiatives in India have been extensively
coordinated with the energy community of practice.
III.
A.

THE FACILITY

Facility Description
1.

Facility Rationale and Design

18.
Commercial banks in India typically lend against fixed asset collateral or, if insufficient,
against corporate guarantees as opposed to the cash flow and debt service capacity of the
project (i.e., project financing). Banks rely heavily on relationships with existing borrowers to
grow their lending business. This practice makes it difficult for new companies or borrowers to
obtain financing on reasonable terms or without high collateralization. With solar projects being
10

ADB. 2009. Energy Policy. Manila.

relatively small and having some technical risks that cannot be easily mitigated at the present
time, banks remain wary of lending to solar projects and/or lending beyond their existing
corporate relationships.
19.
The facility will help close these gaps by sharing credit risks with commercial lenders.
Supported by parallel capacity development TA (para. 37), the facility has the twin objective of
(i) making limited recourse debt financing available on reasonable terms and conditions, and
(ii) extending the tenor of loans to solar projects to recoup the current high capital costs. ADB
would issue PCGs to international and local lenders to cover up to 50%11 of any nonpayment by
the borrowers. The PCGs would cover any default of scheduled repayments of principal and
accrued interest. This is not a first loss guarantee, which would be paid prior to any loss
sharing by the commercial banks; banks will incur losses alongside any ADB claims paid.
2.

Project Borrowers and Sponsors

20.
The projects to be supported under the facility are likely to be financed through special
purpose vehicle companies (SPVs), established by project sponsors to build, own, and operate
the assets as a stand-alone independent power producer incorporated in India. Based on the
indicative pipeline of projects (Appendix 3), the SPVs are sponsored by a mix of local and
foreign investors with either experience as power sector operators in India or joint venture
consortia of financial investors and companies with solar power experience outside of India. The
facility will only be eligible for lenders to those SPVs in which 50% or more of the shares are
owned by private sector companies and sponsored by investors with acceptable experience and
credit quality.
3.

Outcome and Outputs

21.
The outcome will be the demonstration of profitable and sustainable solar power
generation plants under the National Solar Mission and/or state solar power policies. These
projects will diversify the countrys energy mix, increase energy security, reduce reliance on
fossil fuels, lower imports and exposure to international energy prices and exchange rate
fluctuations, and decrease the emission of greenhouse gases as well as local pollutants. The
amount of carbon dioxide emissions reduced is one of the indicators for the outcome, in addition
to financial and operation indicators.
22.
The facility will support the development of utility-scale, grid-connected solar power
projects in India through long-term commercial financing. The facility will mobilize lending and
develop the capacity of commercial and partner banks to undertake technical due diligence on
solar projects and provide affordable longer-tenor loans, which are critical to their viability,
sustainability, and replicability. The design and monitoring framework is in Appendix 1.
B.

Development Impact

23.
Solar power is most appropriate for off-grid and distributed electricity generation
because of its modular scalability to meet small loads, ease of installation, and minimal
11

Sharing of the risks between ADB and the commercial bank ensures an equitable balance and prevents against
moral hazard. This level of risk sharing is calculated on a present value basis over the life of the loan, which
provides flexibility for guarantees to be structured in different ways (either a constant guarantee scheme or a backended scheme in which coverage is higher in the latter years of the loan) depending on the banks preference. The
net present value of the guaranteed outstanding principal and accrued interest shall not exceed 50% of the total
principal of the guaranteed loan.

operating and maintenance costs. As the cost of solar power equipment drops as a result of
economies of scale from indigenous production and development of local capacity, solar energy
will become more affordable, reliable, and accessible in the remote and underdeveloped areas
of India. In essence, demand from utility-scale grid-connected solar projects in the first phase
will lead to long-term cost reductions for solar power across India, including for off-grid
consumers who are often bypassed in terms of sharing the benefits of development.
24.
Significant capacity beyond a pilot scale needs to be developed and operated on a
commercial basis in the DMCs for solar power technology to scale up. It is expected that the
facility will directly leverage private sector investment for about 130 MW of projects, which would
result in 205 gigawatt-hours of electricity from solar energy added to the grid in India and
1.76 million tons of carbon dioxide abated during the first 10 years of operations. The facility
improves the financial viability of solar projects by extending the tenor of the loans without a
commensurate increase in lending margins. This will alleviate some pressure on project cash
flows to service debt and as a result, improves the returns on the private sector investors equity
to an acceptable level. This effect will generate more investment in this nascent sector. Higher
returns on equity on the first projects would, in turn, allow electricity regulators to lower the feedin tariff levels required in the future.
25.
In the medium term, commercial banks that finance projects alongside ADB will become
more comfortable with solar power and have direct access to performance and operational data
to understand the risks better. This will transform market risk perceptions and induce other
banks to lend to the sector without ADB support or (limited) recourse to the sponsor. This
hypothesis can be compared with the evolution of the wind power sector in India since 2000.
Banks initially had similar concerns on wind power resources and the unproven performance of
wind energy turbines in India. Now with over 14,000 MW of wind power installed in India, local
commercial banks are more comfortable with the risks, understand technical parameters better,
and offer long-term debt financing without recourse to parent companies. The same results can
be expected (e.g., longer tenors, lower margins) once there is a track record of solar operations.
The target of 4,000 MW of solar power in the second phase of the NSM (20132015) cannot be
met without similar developments in the project finance market. Performance indicators for the
medium-term impacts include the cumulative solar capacity in the country by 2015, the
percentage of solar projects financed on a non-recourse basis, and the project margins charged
as compared with other renewable energy projects.
26.
In line with the ASEI, one of the long-term objectives is to reduce the capital costs for
solar power in DMCs. This can be accomplished in India once the manufacturing of solar power
components is indigenized and reaches economies of scale. Significant demand from projects
for capital equipment, solar panels and modules, and experienced contractors is a prerequisite
to generate investment in local manufacturing. Based on a much lower cost of labor but strong
engineering and technology base, there is significant scope for manufacturing cost reductions in
India. Local manufacturing will reduce the price of solar components and increase the
competitiveness of solar power with other sources of energy production. Establishing a large
commercial market in DMCs will stimulate global competition in the sector, further lowering
prices and the cost of electricity production.
C.

Environment and Social Dimensions

27.
The facility is classified under category FI for environment, involuntary resettlement, and
indigenous peoples under ADBs Safeguard Policy Statement (2009). The partner banks will be
required to establish and adopt an appropriate environmental and social management system

(ESMS). Implementation of the ESMS will ensure that the projects meet ADBs safeguard
requirements on environment, involuntary resettlement, and indigenous peoples. The partner
banks will appoint suitably qualified officers to oversee environmental and social aspects of the
operations and the day-to-day implementation of the ESMS.
28.
For this type, size, and nature of project, no significant environmental impacts are
expected. The solar power developers are required to implement mitigating measures and good
construction management practice. The occupational health and safety performance of the
contractors and their workers will be closely monitored during construction. ADB will coordinate
with the partner banks to ensure that an ESMS satisfactory to ADB has been adopted prior to
ADB issuing a guarantee for the first project.
29.
Most solar projects are being sited on barren or unproductive government land in a
coordinated effort by state governments. Each 5 MW solar power plant will require about
12 hectares of land. No physical displacement is expected since lands can be flexibly acquired
to avoid impacts on existing villages and communities. The solar power plants will typically
utilize the existing distribution substations and will be connected to the state electricity grid. If
extensions of transmission lines are required, these are expected to be established along
existing public road rights-of-way. Potential impacts on indigenous peoples and/or scheduled
tribes will only be ascertained once specific sites for each solar power plant are identified.
However, since barren and unproductive lands will be used, the impacts on scheduled tribes, if
any, are unlikely to be significant.
30.
Other social dimensions (e.g., gender, labor issues) of each solar power project will be
analyzed as part of the environmental and social assessment to be undertaken by each SPV in
accordance with the Safeguard Policy Statement and the ESMS of partner banks. The summary
poverty reduction and social strategy is in Appendix 4 and a summary ESMS is in Appendix 5.
D.

Financing Plan

31.
With over 700 MW awarded to project sponsors in December 2010 through the National
Solar Mission and an additional 965 MW allocated by the state government of Gujarat
(Appendix 3), total investment costs over the next 3 years in the sector are about $4.5 billion
equivalent. Assuming a debtequity ratio of 70:30 as prescribed by the CERC tariff guidelines,
$3.2 billion equivalent of debt financing will be required. Even if only half those projects
materialize ($1.6 billion in debt), significant demand for financing from ADB and the facility is
likely. The facility has been conservatively sized at $150 million to support 1215 projects
between 2011 and 2014, which would represent a reasonable sample of first projects to be
financed. Should there be additional demand for guarantees prior to the end of the 3-year
availability period, ADB can propose extending the facility through additional financing.
32.
The estimated investment cost for projects to be supported under the facility is
$429 million equivalent and assumes (i) a project debtequity ratio of no greater than 70:30; and
(ii) a guaranteed percentage of 50% on the total debt of the projects. ADB PCGs would,
therefore, cover up to $300 million equivalent of commercial loans to projects from domestic and
international commercial bank lenders. The remainder of funding will come from equity and
subordinated debt (or like instruments).

E.

Implementation Arrangements

33.
The facility can issue PCGs over a 3-year period following Board approval. PCGs will be
limited to a maximum tenor of 15 years (18 years may be considered only in exceptional cases,
as determined by ADB in its sole discretion). Additional sub-facility limits on partner banks,
sponsors, and projects are specified below. Any exceptions or changes to these implementation
arrangements will require the prior approval of the Investment Committee.
1.

Selection and Approval of Partner Commercial Banks

34.
Local and/or foreign partner banks will be selected at ADBs sole discretion. Initially, no
more than five partner banks will be selected. Any additions to the number of proposed partner
banks will be submitted to the Investment Committee for endorsement (It is proposed that the
board of directors delegate approval authority for partner banks to the Investment Committee).
ADB will require that each prospective lender submit all documentation and information as
outlined in the due diligence checklist (Appendix 6). Prospective partner banks will be screened
and due diligence results presented to the Investment Committee for approval based on the
following factors: (i) credit standing (at least BBB equivalent credit rating by an international
rating agency or AA equivalent credit rating by a local rating agency); 12 (ii) experience and
capabilities in limited recourse lending in India and/or Asia; (iii) existing portfolio in the power
sector; (iv) willingness and ability to make financial commitments in renewable energy required
under the facility; (v) senior management commitment; (vi) staffing, management, and technical
capability to implement the facility; and (vii) operating policies, guidelines, and systems in loan
origination, credit assessment, and loan administration and enforcement. No more than 40% of
the entire facility can be consumed by PCGs issued to the same partner bank.
2.

Selection and Approval of Projects

35.
Projects will be identified and selected by partner banks based on customary due
diligence on project preparation, financial and commercial viability, adequate sponsor
credentials and creditworthiness, and overall project risk mitigation. Projects will then be
screened against eligibility criteria (Appendix 7), and banks will need to submit a due diligence
report to ADB that meets all the requirements, including the projects compliance with ADBs
policies on anticorruption, safeguards, integrity, and procurement. Projects must have signed a
long-term power purchase agreement either with the NVVN (under the National Solar Mission
framework) or in compliance with an approved state solar power policy. Individual state policies
will be reviewed on a case-by-case basis before PCGs are issued.13 The net present value of
the outstanding guaranteed principal and accrued guaranteed interest shall not exceed 50% of
the total principal of the guaranteed loan. Guarantees with the same sponsor or parent company
of the SPVs shall be limited to no more than five projects or an aggregate of 30 MW, whichever
limit is reached first. These limits will ensure a diversified portfolio across partner banks,
sponsors, and projects.

12

International credit ratings to be from Standard & Poors (S&P), Moodys, or Fitch Ratings; local credit ratings to be
from CRISIL (an S&P company), Investment Information and Credit Rating Agency (ICRA), or Credit Analysis and
Research Limited (CARE).
13
The project team has conducted due diligence on the solar power policy in Gujarat, the regulatory norms, the credit
standing of the offtaker, and the template form of power purchase agreement.

10

3.

Reporting and Monitoring

36.
Partner banks will be required to notify ADB promptly of any loan default. Banks will be
required to continuously monitor the performance of the project loans and submit annual reports
to ADB that include information on disbursements and repayments, construction progress,
project operating performance (as against baseline conditions), and quarterly and annual
financial statements, the latter having been audited in compliance with Indian national
standards. ADB will monitor the use of the PCG, portfolio quality, and compliance with ADB
eligibility requirements. ADB will regularly monitor the credit quality of partner banks (through
existing credit rating reports), and will conduct a review for any partner banks that are placed on
negative credit watch by major credit rating agencies or have their credit rating downgraded.
ADB will carry out an annual performance review of the facility to assess the average risk rating
of the portfolio and monitor the performance of the facility against indicators in the design and
monitoring framework (Appendix 1).
4.

Technical Assistance

37.
ADB is preparing separate parallel TA that will build capacity and provide technical
support to the partner banks during the due diligence of private sector solar power projects.
ADB will engage international engineering consultants to provide expertise and hands-on
support to partner banks as they conduct due diligence on individual projects. The consultants
will advise the partner banks in the areas of solar technology, insolation and irradiance studies,
solar panel manufacturers, and performance warranties. Consultants will also be engaged to
conduct periodic training for commercial banks and other stakeholders in several locations
across India during the implementation period of the facility. ADB is coordinating the first set of
training sessions with the National Renewable Energy Laboratory, part of the US Department of
Energy.
5.

Anticorruption Policy

38.
The partner banks will be advised of ADBs Anticorruption Policy (1998, as amended to
date) and Policy on Combating Money Laundering and the Financing of Terrorism (2003).
Consistent with ADBs commitment to good governance, accountability, and transparency, the
guarantee and/or loan documentation will require the project borrowers to institute, maintain,
and comply with internal procedures and controls following international best practice standards
for the purpose of preventing corruption or money laundering activities or the financing of
terrorism, and covenant with ADB to refrain from engaging in such activities. The legal
documentation will further allow ADB to investigate any violation or potential violation of these
undertakings.
F.

Projected Operational and Financial Performance

39.
While partner banks will be primarily responsible for carrying out due diligence on the
projects, ADB has carried out financial and economic analysis of a representative project to
assess its viability and sustainability under different funding and operating scenarios. These
results were used to structure the type and tenor of the guarantee. The financial internal rate of
return of projects under CERC tariffs would be 13.2% and the weighted average cost of capital
is projected to be 7.8%. The economic internal rate of return would be 20.5%, which is above
ADBs standard discount rate. The economic and financial analysis is in Supplementary
Appendix A.

11

G.

Guarantee Pricing

40.
The cost of financing14 is critical to the financial viability of solar power projects (and the
underlying feed-in tariff). Approximately 85% of the total costs (capital and operations) over the
projects economic life are financed up front. This is unlike financing for a thermal power project,
where only 30% of the total costs are financed up front (the remainder are fuel and recurrent
costs, which are financed annually through cash flow generated by operations). Without the
lending experience or installed capacity to prove performance, banks will assign high risk
ratings to these projects and commensurate lending margins. The PCGs effectively replace a
portion of the project risk, as assessed by the lender, with ADBs AAA credit rating. This risk
mitigation will help reduce loan margins required by the partner commercial banks. The PCGs
can incentivize banks to reduce the cost of debt, provided that the PCG fees do not consume
the savings created by the guarantees risk sharing structure. Guarantee pricing has been set in
line with market benchmarks, and will vary within a set band based on exposure size and tenor.
IV.
A.

THE PROPOSED ADB ASSISTANCE

The Assistance
1.

Instrument and Amount

41.
The facility will provide for ADB to issue PCGs in an aggregate amount of up to
$150 million of principal (or its equivalent in Indian rupees or other foreign currency acceptable
to ADB15) in favor of foreign and local commercial banks lending to solar power generation
projects in India that meet the minimum eligibility criteria (Appendix 7). Under the facility, ADB
will issue PCGs to guarantee scheduled payments of principal and interest under loans to be
provided by foreign or local commercial banks. The PCGs will be provided without government
counter-guarantee. The facility will partially cover payment default risk on loans made by
approved partner banks to private sector borrowers in India implementing solar power
generation projects as awarded under the National Solar Mission or an approved state
government solar power policy.
2.

Terms and Conditions

42.
A guarantee term sheet template has been presented to prospective partner banks and
a summary term sheet template is in Appendix 7. The guarantee agreement to be entered into
with respective partner banks will ensure that the net present value of the outstanding
guaranteed principal and accrued guaranteed interest shall not exceed 50% of the total principal
of the guaranteed loan. The facility will be available for 3 years from Board approval, with
project loans having a maximum tenor of up to 15 years (exceptional consideration of tenors of
up to 18 years subject to agreement by ADB). A guaranteed loan may be made in Indian rupees
or any foreign currency that is acceptable to the lender and ADB. The Investment Committee
determines up-front fees, standby fees, and guarantee fees.
3.

Compliance with Investment Limitations

43.
The proposed facility will be within the country, industry, group, and single project
exposure limits for nonsovereign investments.
14
15

Inclusive of up-front arrangement fees, commitment fees, margins over the cost of funds, and any guarantee fees.
Guarantees issued in currencies other than U.S. dollars will be adjusted on a quarterly basis to ensure the
proposed ceiling amount for the Facility limit shall not be breached.

12

B.

Justification for ADB Assistance

44.
While solar power technologies have been commercially proven in developed markets
such as Germany, Spain, and the United States, there was only 11 MW of installed capacity in
India as of December 2010 (mostly installed in 2010). 16 Lenders remain concerned about the
risks of solar technology performance, unproven indigenization of the technology to Indias
climatic conditions, and the nascent stage of regulatory development with respect to renewable
and specifically solar energy. ADBs participation as a guarantor will help mitigate risks and
leverage commercial funds into a new subsector in India. The facility leverages commercial
bank loans and builds capacity at the appropriate institutions that can apply such knowledge
and lessons to future lending in India.
45.

16
17

ADBs support for the facility is justified based on the following:

(i)

ADB assistance will play a crucial role in helping solar projects close affordable
long-term financing, which is a necessary condition for the viability of a solar
project. As a result of the recent banking crisis, liquidity remains limited, and local
banks can rarely provide clean (or uncovered) loans for more than 810 years
without recourse to project sponsors. Tenors required for solar power generation
projects are typically longer than other energy projects.17 ADBs PCG will share
project risks with banks (to reduce the cost of financing) and extend commercial
bank tenors to fund power generation plants that have high up-front investment
costs, but no recurrent fuel cost. Without the cover provided by ADBs PCG,
projects may obtain finance but they will do so with the inevitable condition of
having to seek refinancing after commissioning when operational performance
has been proven. This is a cost-inefficient process that can be mitigated more
appropriately through up-front risk-sharing arrangements.

(ii)

Sponsors or developers of solar power projects expect that ADBs participation in

the financing will trigger local and/or international bank participation, additional
equity investment, and further interest in the financing of solar projects. ADBs
PCG in particular encourages the commitment of local commercial banks, which
have little experience in solar energy.

(iii)

The facility will play a pioneering role in demonstrating the commercial viability of
grid-connected solar photovoltaic technology in India. The projects will be among
the first grid-connected power generation projects with a commercial component
under the NSM or state schemes. Once solar power performance under Indian
climatic conditions is proven, this will catalyze the deployment of larger-scale solar
projects (important to generate sufficient demand for local manufacturing and
economies of scale) and increase foreign private sector investment.

(iv)

The facility directly achieves the strategies outlined by ADBs energy community of
practice in the ASEI for mainstreaming solar projects through (i) supporting the

This figure incorporates recently commissioned solar projects according to project developers and investors.
In 2010, the ADB Board of Directors approved long-term loans for two solar power generation projects in Thailand.
ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Loan and
Administration of Grant for the Solar Power Project in Thailand. Manila (loan tenor of 18 years); ADB. 2010. Report
and Recommendation of the President to the Board of Directors: Proposed Loans and Technical Assistance for the
Bangchak Solar Power Project in Thailand. Manila (loan tenor of 15 years).

13

design of appropriate policy frameworks and institutional capacity development for

rapid diffusion of solar energy technology for power generation; (ii) creating
innovative financing mechanisms and risk mitigation measures to encourage solar
power generation; and (iii) facilitating the development of large capacity solar
projects that drive down solar generation costs toward grid parity.
(v)

C.

Direct ADB lending to solar projects may not always be practical, given the small
size and short development and implementation timetable. The central or state
government issues a solar power tariff order within the CERC guidelines and
invites investors to tender for allocations based on qualifications, ability to acquire
land and close financing. Investors must then deposit funds (scaled based on
project capacity) into a government account to secure their performance. They are
given a limited timeline (90180 days) to acquire land, sign the power purchase
agreement (PPA), and close financing. The investors performance funds would be
forfeited if the deadlines are breached. It has proven difficult on other projects for
ADB to complete its appraisal and process the transaction within this time frame.
The facility is designed to work with partner commercial banks on a streamlined
basis to meet financial close within the time lines.

Risks and Mitigation Measures

46.
The facility involves risks with respect to partner commercial banks and, as the
guarantees will be project-specific, to the projects themselves. While not an exhaustive list of
risks, the following key issues have been examined and mitigated as appropriate:
(i)

Technology risk. Photovoltaic solar panel technologies are still in the innovation
stage and are rapidly changing, and often owned by companies with limited track
record and weaker credit quality. Moreover, solar panel technologies have
varying track record in terms of efficiency and degradation rates. This risk is
mitigated to some extent by the eligibility criteria established for the selection of
equipment manufacturers based on their operating track record and installed
capacity. ADB consultants under the parallel TA will help validate these risks. In
addition, more stringent performance and cash flow stress scenarios will be
applied to the base case projections to ascertain debt servicing ability.

(ii)

Sponsor risk. The projects key risks, i.e., technology, limited track record of
equipment manufacturers, the nascent solar power sector in India, substantial
long-term exposures, and relatively high leverage (i.e., up to 70% of the project
costs), will be partially mitigated by the sponsors guarantee for completion of the
project. Given the critical role of the sponsors, certain eligibility criteria related to
the sponsors experience in the sector, the sponsors equity investment in the
project, and solvency and liquidity ratios have been included in the program.

(iii)

Offtaker risk. Projects will be exposed to nonpayment and/or non-dispatch risk

from the SEBs or defaults from NVVN. Through existing TA support, ADB has
been advising MNRE on drafting of the NVVN PPA, and based on continued
dialogue with banks and developers, the bankability of the PPA has been
improved as a result, including the security provisions and step-in rights for the
lenders. There is divergence in the credit profiles of the solar power offtakers for
the projects being considered under the proposed facility. The NSM projects
benefit from much lower offtaker risks as NVVN, has a reasonably strong credit

14

profile. On the other hand, state government supported solar power projects may
face higher offtaker risks given the weak credit profile of the state electricity
boards. The PPAs signed with GUVNL have a slightly different tariff structure,
which somewhat reduces the payment burden on distribution utilities and is
expected to reduce the risk of PPA renegotiation. In addition, the PPA includes
compensation payments equivalent to 3 years of revenue in the event of default
or termination, which may act as a deterrent but may not essentially mitigate the
underlying credit risks. In addition, the program aims to diversify exposures
across various offtakers by including exposure limits.
(iv)

Regulatory risk. The regulatory environment pertaining to solar power in India is

still evolving and may change over the course of the program and adversely
affect the viability of the projects. The central and state governments have shown
a significant commitment to promote electricity supply from renewable energy
sources (for energy supply diversification as well as climate change motivations)
by introducing the RPO requirement, the percentage of which increases every
year. The National Tariff Policy was amended in January 2011 to enact solarspecific RPOs as well, demonstrating the political will to support the National
Solar Mission. Some state regulators introduced solar RPO requirements even
before the policy was amended. Purchases from solar power are exempted from
market dispatch orders by state regulators (i.e., must run status). That said, it is
very likely that comparable solar technology would be more efficient and cheaper
in the medium-to-long-term. This would decrease the competitive standing of the
present pipeline of projects, which require higher tariffs to recover the higher
technology and investment costs. This would thus expose the underlying
projects and ADB to regulatory risks as offtakers may seek to renegotiate
contracts and tariffs. As the credit profile of most of the state offtakers is already
stressed from under-recovery of costs for conventional power, the incentivebased payments required to establish the viability of solar photovoltaic or solar
thermal power projects may add to their financial burden and over time, increase
the risks of nonpayment under contracted terms. This is mitigated by the strong
commitment of the Government of India to solar power projects with the
introduction of very robust regulatory framework.

(v)

Risk sharing with partner banks. The project borrowers will ultimately be
responsible for loan repayment. However, there is risk that they will be unable to
service the guaranteed loans. By carefully selecting each partner bank, ADB will
ensure that appropriate credit assessment and due diligence is carried out before
any guaranteed loan is advanced. The proposed facility may provide a backended guarantee structure, with ADB providing up to 100% cover to the partner
banks on the default risk of the underlying projects. For these projects, there are
concerns as it may trigger a sense of complacency in the due diligence, project
selection and exposure monitoring activities of the partner banks under the
comfort that ADB will eventually absorb all the credit losses in the latter years of
the loan tenor. This concern is aggravated by the partner banks limited
experience in financing solar power in India and the expectations that over time,
ADB will reduce its involvement in the project assessment process. To align the
interests of the partner banks with that of ADB and incentivize the partner banks
to exercise risk discipline in its approval and monitoring process, it was agreed
that ADBs 100% cover will be limited to the tail end of the loan and the

15

guarantee fee would be structured such that partner banks have an incentive to
consider continued financial support to the projects on a stand-alone basis.

D.

(vi)

Lack of technical expertise of partner banks in the evaluation of solar

power projects. The potential partner banks have limited technical expertise in
the evaluation of solar power projects. Although the parallel TA would help build
their internal capacity, these benefits may only be realized in the medium term,
while the build up of exposure under the facility may occur at a more rapid pace.
Some foreign banks operating in India may have some experience in the sector;
however, they may not have an in-depth knowledge of the sponsors and the
regulatory framework in the country. To mitigate this, operating arrangements
have been established such that ADB will be actively involved in the selection of
projects by each of the banks, and in the initial transactions, this involvement
would be more detailed until confidence is established with the partner banks
project selection abilities.

(vii)

Selection of partner banks. ADB will rely on the partner banks for the
selection, structuring, and monitoring of the projects. Although broad criteria has
been established for the selection of partner banks, there is a need for ADB to
conduct a more comprehensive assessment of the risk profile of local
commercial banks (i.e., those without an international credit rating). Although
ADB will not be exposed to any direct credit risk on the partner banks, any
distress in their financial condition would divert resources and may reduce their
oversight over the projects covered under the facility. This aspect is critical given
the long-dated maturity and the proposed back-ended guarantee scheme. This
risk will be mitigated by the detailed evaluation of the credit profile of potential
local partner commercial banks both at the initial selection stage and on an
annual basis.

Assurances

47.
Consistent with the Agreement Establishing the Asian Development Bank, the
Government of India will be requested to confirm that it has no objection to the proposed facility.
ADB will enter into suitable guarantee agreements and other required legal documents once the
proposed facility is approved by ADBs Board of Directors and the individual partner banks are
approved by ADBs Investment Committee. These agreements will be on terms and conditions
satisfactory to ADB.
V.

RECOMMENDATION

48.
I am satisfied that the proposed guarantee facility would comply with the Articles of
Agreement of the Asian Development Bank (ADB) and recommend that the Board approve the
guarantee facility for ADB to issue partial credit guarantees without government counterguarantee, in amounts, in aggregate, of up to $150,000,000 (or its equivalent in Indian rupees or
other foreign currency acceptable to ADB) from ADBs ordinary capital resources, in favor of
eligible foreign and local commercial banks lending to solar power generation projects in India,
with such terms and conditions as are substantially in accordance with those set forth in this
report, and as may be reported to the Board.

Haruhiko Kuroda

16

President
17 March 2011

Appendix 1

17

DESIGN AND MONITORING FRAMEWORK

Design Summary
Impact
Successful
implementation of
phase 1 of the NSM

Increased foreign
direct investment by
the private sector in
the solar energy
industry

Performance Targets
and/or Indicators

Data Sources and/or

Reporting Mechanisms

1,100 MW of solar
capacity
commissioned by
2011; 2,000 MW by
2013

Ministry of New and

Renewable Energy
statistics

8 commercial banks
undertaking
independent technical
due diligence of solar
projects by 2015
50% share of private
capital in solar industry
by 2015

Long-term reduction in
levelized cost of solar
energy in India

Distribution company
data and annual reports
Solar industrial
associations reports
Company annual reports
Central and state
electricity regulatory
commission orders and
reports

Regulated solar
photovoltaic (Rs17.9
per kWh) and
concentrating solar
power tariffs (Rs15.3
per kWh) decrease at
least 20% by 2015

Assumptions
and Risks
Assumptions
Stable and consistent
regulatory policies for the
renewable energy sector
Consistent policy decisions
by the government for the
National Solar Mission
Risks
Change of government,
which impacts renewable
energy policies
Supply of solar energy
exceeds RPO requirements
plus the demand for
renewable energy
certificates

Regulated ceiling for

solar photovoltaic
capital costs
decreases from
Rs169 million per MW
to Rs135 million per
MW by 2015
(20% reduction)
Outcome
Solar power
generating facilities
under India's National
Solar Mission and
state power schemes
installed and deliver
energy to the grid

205,000 MWh of solar

power per annum
delivered to the state
grids by 2015
Generation of at least
1.76 million tons of
CO2 emission
reduction in total
during the first
10 years of operation
Loan tenors for facility
supported projects are
extended from
810 years to

NVVN reports
Carbon market reports
Central and state
electricity regulatory
commission reports

Assumptions
Plants achieve capacity
utilization factors and
energy yields within the
estimates assumed by
financiers and investors
Offtakers honor the
payment and tariff
provisions in the PPAs and
there are no defaults by
SEBs (either directly or
through NVVN)
Risks
Solar-specific RPO orders
are not issued or delayed

18 Appendix 1

Design Summary

Performance Targets
and/or Indicators
1215 years

Data Sources and/or

Reporting Mechanisms

Assumptions
and Risks
by state regulatory
commissions
Sufficient solar RPO
penalty system is not
enacted
The grid management
systems are unable to
handle the variability of
energy production from
renewable sources.

Outputs
Supported financing of
solar projects

130 MW of solar
power generation
capacity
commissioned by
2015

Borrower annual reports

Guaranteed lender
annual monitoring reports
NVVN annual reports

1015 solar project

loans guaranteed by
2015
Solar project-related
technical due diligence
and capacity building
provided to partner
and local commercial
banks

Technical due
diligence for at least
15 solar power
projects for partner
and local banks by
2015
An ESMS is
established by each
partner bank.

Distribution utility
disclosures to state
electricity regulators
Capacity development
technical assistance
consultants reports

Interest and participation of

domestic commercial
lenders, international
financial institutions
Risks
ADBs partial credit
guarantee may be
insufficient to help lenders
overcome their risk
assessment to provide
required long-term financing

ESMS and other relevant

safeguard-related
document submissions
by partner banks

Partner bank annual

Debt and equity
Mobilization of
reports on environmental
mobilization of
affordable debt and
and social safeguards
$300 million from
equity from domestic
compliance
domestic and
and international
international sources
investors for
renewable energy
power plants
Activities with Milestones
1.1.
NSM phase 1 new project allocations made (completed)
1.2.
NSM phase 1 projects sign PPA (completed)
2.
3.

Assumptions
Project agreements are
adhered to by third parties.

First partner bank approved (March 2011)

Two additional partner banks approved (September 2011)

Inputs
ADB guarantees
Foreign and local bank
loans (70%)
Equity (30%)

Financial close for NSM phase 1 projects and projects under the state solar
policies (March 2011December 2011)
ADB = Asian Development Bank, CO2 = carbon dioxide, ESMS = environmental and social management system, KWh
= kilowatt hour, MW = megawatt, MWh = megawatt hour, NVVN = NTPC Vidyut Vyapar Nigam, NSM = national solar
mission, PPA = power purchase agreement, RPO = renewable purchase obligation, SEB = state electricity board.

Appendix 2

19

INDIAS NATIONAL SOLAR MISSION

A.

Background

1.
The current power generation capacity in India is insufficient to meet demand. According
to the Central Electricity Authority, the energy shortage in 20102011 is expected to be 10.6%
(93 terawatt-hours) and the corresponding peak load deficit is expected to be 12.1% (the
equivalent energy of 15 gigawatts). 1 For annual gross domestic product growth of 8%, it is
estimated that India will have to double its current installed capacity to over 300 gigawatts by
2017.2
2.
Fossil fuels dominate the power generation mix, with coal accounting for over 50% of the
power generation capacity in India. The total installed power generation capacity in India in
October 2010 was 167,278 megawatts (MW). Of this, 64.9% was fossil fuel fired power plants
(coal, gas, and diesel); 22.3% hydropower; 2.7% nuclear power; and 10% renewable energy.3
Indias energy sector contributes about 58% of the countrys greenhouse gas emissions.4 India
is implementing a National Action Plan on Climate Change that suggests that 15% of energy
could come from renewable sources by 2020.
3.
India has vast solar energy potential. About 5 billion megawatt-hours (MWh) per year of
energy exist over Indias land area, with most regions receiving 47 kilowatt-hours per square
meter (kWh/per m2) per day, averaging 4.5 kWh/m2/day nationally. This rate of insolation is
among the highest in the world, comparing favorably with Australia (4.7 kWh/m2/day) and ahead
of the Peoples Republic of China (3.4 kWh/m2/day) and Western Europe (2.9 kWh/m2/day).5
Effective unlocking of this potential will enable rapid capacity addition with relatively short lead
times (e.g., less than 1 year) and no additional greenhouse gas emissions. Unfortunately, the
total costs (capital and operating costs) for solar power generation are currently significantly
higher that thermal power stations, which are centralized and sized (e.g., 2,0004,000 MW) to
reap economies of scale.
4.
The Jawaharlal Nehru National Solar Mission (NSM), launched in January 2010, is an
initiative of the central and state governments to promote ecologically and economically
sustainable growth in solar power generation by creating an enabling policy and regulatory
framework. The NSM is one of eight national missions outlined in the National Action Plan on
Climate Change.6
B.

Objectives and Targets

5.
The objective of the NSM is to establish India as a global leader in solar energy by
creating the policy conditions for its diffusion across the country as quickly as possible. The
immediate aim of the mission is to focus on setting up an enabling environment for penetration
of solar technology in the country both at centralized (utility-scale, grid-connected) and
decentralized (off-grid, rural electricity supply) levels. The mission will adopt a three-phase
1
2
3
4
5

2011, Load Generation Balance Report 2010-11, Central Electricity Authority, Ministry of Power.
2009, Powering India: The Road to 2017, McKinsey & Company.
2010, Monthly Power Sector Report: October 2010, Central Electricity Authority, Ministry of Power.
2010, Agence France-Presse, Quoting a report from the Ministry of Environment, Government of India.
2009, Development Challenges for Large Scale on-grid Solar PV Implementations, Singapore, Conergy
(Referencing International Energy Agency Greenhouse Gas R&D Program, Gloucestershire, UK. 2003)
The other seven national missions cover enhanced energy efficiency, sustainable habitat, water, sustaining the
Himalayan ecosystem, green India, sustainable agriculture, and strategic knowledge for climate change.

20

Appendix 2

approach, spanning the remaining period of the Eleventh Five Year Plan, 200720127 and the
first year of the 12th plan (up to 2012-13) as phase 1, the remaining 4 years of the 12th plan
(20132017) as phase 2, and the 13th plan (20172022) as phase 3. The targets for the
deployment across application segments are in Table A2.1.
Table A2.1: National Solar Mission Targets
Application segment
Solar collectors
Off-grid solar applications
Utility grid power (including
rooftops)

Target for Phase 1

(20102013)
7 million m2

Target for Phase 2

(20132017)
15 million m2

Target for Phase 3

(20172022)
20 million m2

200 MW

1,000 MW

2,000 MW

1,0002,000 MW

4,00010,000 MW

20,000 MW

M = square meters, MW = megawatt,

Source: Ministry of New and Renewable Energy. Jawaharlal Nehru National Solar Mission: Towards Building Solar
India.

C.

Policy and Regulatory Framework

6.
To achieve the NSM objective, it is critical to create a policy and regulatory environment
that provides a predictable incentive structure that enables rapid and large-scale capital
investment in solar energy applications and encourages technological innovation and lowering
of costs. NSM activities are currently embedded within the existing framework of the Electricity
Act, 2003; National Electricity Policy, 2005; and the National Tariff Policy, 2006 (and as
amended in December 2010). However, in the long run, sector-specific legal and regulatory
frameworks will be established for the development of solar power.
1.

Electricity Act, 2003

7.
The Electricity Act, 2003 has been a major step toward liberalizing the power market in
India along the value chain, encouraging competition and attracting private investment. Under
the acts part VII section 61(h), the promotion of cogeneration and electricity generation from
renewable sources is identified as a consideration in the establishment of tariff regulations,
allowing the Central Electricity Regulatory Commission (CERC) to establish a preferential tariff
for renewable energy.8 Further, the open access provision allows licensed renewable energy
power generators access to transmission lines and distribution systems and only requires that
the generators pay a wheeling charge for the use of the transmission lines and a fee to the load
dispatch center.
2.

National Electricity Policy, 2005

8.
The National Electricity Policy, 2005, stipulates the need for increasing the share of
electricity from nonconventional sources and allows for the state electricity regulatory
commissions (SERCs) to establish a preferential tariff for electricity generated from renewable
sources to enable them to be cost-competitive.9 Section 5.12.3 of the policy encourages the
development of cogeneration facilities and allows for SERCs to promote arrangements between
7
8

Government of India, Planning Commission. 2008. Eleventh Five Year Plan, 200712. Delhi.
Ministry of Power. 2010. The Electricity Act, 2003.
http://www.powermin.nic.in/acts_notification/electricity_act2003/pdf/The%20Electricity%20Act_2003.pdf
Ministry of Power. 2010. The Gazette of India: Extraordinary Part I Section 1.
http://www.powermin.nic.in/whats_new/national_electricity_policy.htm

Appendix 2

21

co-generators and distribution companies interested in purchasing excess electricity through a

competitive bidding process.
3.

National Tariff Policy, 2006

9.
The National Tariff Policy announced in January 2006 mandates each SERC to specify
a renewable purchase obligation (RPO) with distribution companies in a time-bound manner.
These purchases are to be made through a competitive bidding process. The objective of this
policy is to enable renewable energy technologies to compete with conventional sources.
Section 6.4 of the National Tariff Policy calls for the relevant commission to establish
preferential tariffs with distribution companies for the purchase of electricity from nonconventional technologies.10 The National Tariff Policy mandates that each SERC specify RPOs
by distribution companies in a time-bound manner. Given the magnitude and importance of the
activities under the NSM, solar-specific amendments have been made to these RPOs. In
January 2011, the union cabinet approved the proposal from the Ministry of Power to amend the
National Tariff Policy to fix a percentage of energy purchase from solar power under the RPOs.
The solar power purchase obligation for the states will start at 0.25% (by 2013) and increase up
to 3% by 2022.
4.

Renewable Purchase Obligations

10.
As of December 2010, 18 states have established RPOs or have draft regulations under
consideration (Table A2.2) with RPO requirements ranging from 1% to 15% of total electricity
generation. Solar RPOs have also been specified in most cases, and it is expected that the
state level tariff orders will be modified to conform to the minimum solar power purchase
obligations specified by the Ministry of Power.
Table A2.2: State Renewable Purchase Obligations
State
Andhra Pradesh

Order date
6 Jul 10

RPO (per annum)

5%

Solar RPO (per annum)

0.25%

Bihar

2 Aug 10

1.5% (for FY2011, 2.5% for FY2012,

4.0% for FY2013)

0.25% (for FY2011, 0.5% for FY2012,

0.75% for FY2013)

Chhattisgarh

9 Nov 10

5% (for FY2011, 5.25% for FY2012,

5.5% for FY2013)

0.25% (for FY2011-FY2013)

Gujarat

17 Apr 10

5% (for FY2011, 6% for FY2012, 7%

for FY2013)

0.25% (0.5% in FY2012; 1% in

FY2013)

Haryana

8 Jul 10

1%

0.25% (for FY2011; 3% for FY2022)

Himachal
Pradesh

12 Mar 10

10.1% (annual increase of 1% until

FY2013)

0.1% (until FY2013)

Karnataka

11 Feb 08

10%

Kerala

23 Nov 10

3% (for FY2010, with annual

increase of 0.3% until a maximum
RPO of 10%)

Madhya Pradesh

7 Nov 08

10%

Maharashtra

3 Mar 10

6% (annual increase of 1% until

FY2014; 9% for FY2015 and

10

0.25%

0.25% (for FY2011FY2013; 0.5% for

FY2014FY2016)

Ministry of Power. 2010. Tariff Policy. http://www.powermin.nic.in/whats_new/pdf/Tariff_Policy.pdf.

22

Appendix 2

State

Order date

RPO (per annum)

FY2016)

Solar RPO (per annum)

Manipur

26 Apr 10

1% (for FY2011 and FY2012; 2% for

FY2013)

0.25%

Mizoram

26 Apr 10

5% (for FY2011; annual increase of

1% until FY2013)

0.25%

Orissa

16 Mar 10

5% (for FY2012; annual increase of

0.5% until FY2016)

0.5% (for FY2012; annual increase of

0.25% until FY2016)

Punjab

24 Nov 06

3% (for FY2011 with a view to

achieve 10% by FY2020)

Rajasthan

7 Mar 07

7.45% (for FY2010, 8.5%

FY2011, 9.5% for FY2012)

Tamil Nadu

28 Apr 10

14% (for FY2011)

Tripura

16 Sep 10

1% (for FY2011, 1% for FY2012, 2%

for FY2013)

0.1%

Draft

4% (for FY2011, 5% for FY2012, 6%

for FY2013)

0.25% (to increase to 1% by FY2013)

Uttarakhand

6 Jul 10

4% (for FY2011, 4.5% for FY2012,

5% for FY2013)

0.025% (for
FY2013)

West Bengal

10 Aug 10

2% (for FY2011, 3% for FY2012, 4%

for FY2013)

Uttar Pradesh

for

FY2012;

0.05%

for

FY = fiscal year, RPO = renewable purchase obligation.

Source: Indian Renewable Energy Development Agency Limited. Solar Energy: Compendium of Regulations & Tariff
Orders of CERC, SERC and Policies of State Governments, http://www.ireda.gov.in/Solar/DATA/
Tariff%20order/Title.pdf; various sources and state information.

5.

Tradable Renewable Energy Credits

11.
The availability of renewable energy sources differs across states. In some states (such
as Delhi), the potential for harnessing renewable energy compared with the demand for energy
is very small. In other states such as Tamil Nadu (wind), Rajasthan (solar) or Himachal Pradesh
(hydro), it is very high. This variability offers opportunities for interstate trading in the form of
renewable energy credits (RECs).
12.
In January 2010, CERC announced the terms and conditions for a tradable REC
program. Under this program, the renewable energy generators will have two options: (i) sell the
renewable energy at a preferential tariff fixed by the concerned Electricity Regulatory
Commission, or (ii) sell the electricity generated and the environmental attributes associated
with the generation, separately.11 On choosing the second option, the environmental attributes
can be exchanged in the form of a REC. The price of the electricity component would be
equivalent to the weighted average purchase cost to the distribution company, including shortterm power purchase but excluding renewable power purchase cost. CERC will issue the RECs
and the value of one REC will be equivalent to 1 MWh of electricity delivered to the grid from
renewable energy sources.

13.
The RECs can be traded only on power exchanges approved by CERC within the band
of a floor price and a ceiling price to be determined by CERC. The floor price is determined by
11

CERC. 2010. CERC Announces Renewable Energy Certificate (REC) RegulationA Step Forward for Green
Energy Promotion. Press Release (18 January).

Appendix 2

23

keeping in view the minimum requirements for ensuring the viability of the renewable energy
projects set up to meet the RPO targets. This viability requirement covers loan repayment and
interest charges, operation and maintenance expenses, and fuel expenses in the case of
biomass and cogeneration projects. The ceiling price is derived based on the highest difference
between the cost of generation for the renewable energy technologies and/or renewable energy
tariff and the average power purchase cost for the respective states. Based on the above
principles, CERC has specified the following floor and ceiling prices for the RECs (Table A2.3).
These prices shall remain valid up to FY2012.

Table A2.3: Floor and Forbearance Prices for Renewable Energy Certificates
(Rs/MWh)
Applicable Renewable Energy Certificate
Floor Price
Ceiling Price
Solar
12,000
17,000
Non-solar
1,500
3,900
MWh = megawatt-hour, Rs = Indian rupees.
Source: Central Electricity Regulatory Commission. 2010. Determination of Forbearance and Floor Price for the REC
Framework. Petition No. 99/2010 (Suo Motu). New Delhi (1 June).

6.

Power Purchase Agreements

14.
The NSM promotes a more affordable tariff through a power purchase agreement (PPA)
framework that bundles solar power with unallocated thermal power produced by the National
Thermal Power Corporation (NTPC). 12 NTPC will then sell the power to the state electricity
boards (SEBs) through NTPC Vidyut Vyapar Nigam (NVVN)NTPCs power trading subsidiary
(Figure A2.1). In February 2010, CERC announced a feed-in tariff for FY2011 of Rs17.9 per
kWh for photovoltaic and Rs15.3 per kWh for concentrated solar power, and declared that the
PPAs would have a validity of 25 years. When NVVN supplies bundled power to state utilities at
the rates determined in accordance with CERC regulations, those state utilities will be entitled to
use the solar part of the bundled power for meeting their RPOs under the Electricity Act, 2003.

12

NTPC is a regulated central power utility, majority owned by the Government of India. While 85% of the capacity of
its power plants is contracted through long-term PPAs, 15% is reserved by the Ministry of Power to be allocated
and sold by the NTPC to energy-deficient states on an annual basis. This is considered NTPCs unallocated
power.

24

Appendix 2

Figure A2.1: Power Sales and Power Purchase Agreement Architecture

SERCs

1,000 MW Thermal

NTPC

Solar
SPVs
Equity

Investors

1,000 MW Thermal
+
1,000 MW Solar

Single PPA

RPO Obligation

SEBs

NVVN

1,000 MW Solar
(e.g., multiple projects)
Multiple PPAs

Payment
Security
Mechanism

Debt

Lenders

NTPC = National Thermal Power Corporation, NVVN = NTPC Vidyut Vyapar Nigam, PPA = power purchase
agreement, RPO = renewable purchase obligation, SEB = state electricity board, SERC = state electricity regulatory
commission, SPV = special purpose vehicle.
Source: MNRE.

15.
In addition to NVVN, certain states such as Gujarat have developed a regulatory
framework for solar power. In Gujarat, the Gujarat Electricity Regulatory Commission devised a
solar power procurement tariff regime. Under this regime, Gujarat Urja Vikas Nigam Limited
(GUVNL) will enter into 25-year power purchase agreements with private developers for offtake
of solar power. The tariff will be fixed at Rs15 per kWh for the first 12 years and Rs5 per kWh for
the remaining 13 years. The GUVNL PPA includes several notable aspects, including
termination payments under certain events of default.
D.

Institutional Arrangements for Implementing the National Solar Mission

16.
It is envisaged that the NSM will be implemented by an autonomous Solar Energy
Authority embedded within the existing structure of the Ministry of New and Renewable Energy.
The authority secretariat will monitor technology developments, review and adjust incentives,
manage funding requirements, and execute pilot projects. The authority will report to the Prime
Ministers Council on Climate Change on the status of its program.
17.
The broad contours of the autonomous and enabled authority would comprise the
following:
(i)

A steering group, chaired by the minister for new and renewable energy and
composed of representatives from all relevant ministries and other stakeholders,
will be set up to oversee the overall implementation of the NSM.

Appendix 2

(ii)

(iii)

(iv)

25

An executive committee, chaired by the secretary of the Ministry of New and

Renewable Energy, will periodically review the progress of implementation of the
projects approved by the Mission Steering Group.
An empowered Solar Research Council headed by an eminent scientist will
advise the mission on all research and development, technology, and capacity
building related matters.
A director, with the rank of an additional secretary, will head the authority
secretariat and be responsible for day-to-day functioning as well as achieving the
goals laid out in a time-bound manner.

26

Appendix 3

PIPELINE OF SOLAR POWER GENERATION PROJECTS

Name of Project Company

Aatash Power Private Limited
Abellon Clean Energy Limited
AES Solar Energy Private Limited
AES Solar Energy Private Limited (US)
Alex Astral Power Private Limited
Alex Solar Private Limited
Alex Spectrum Radiation Private Limited
Alpha Green
Ambit Advisory Services Private Limited
Amrit Animation Private Limited
APCA Power
Aravali Infrapower Limited
Asahi Energy Pvt. Limited
Aston Field Solar (Rajasthan) Private Limited
Astonfield Solar (Gujarat), US
Avatar Solar Private Limited
Azure Power (Punjab) Private Limited
Azure Power (Rajasthan) Private Limited
Azure Power Limited (US)
Backbone Enterprises Limited
Bhaskar Green Power Private Limited
Camelot Enterprises Private Limited
CCCL Infrastructure Limited
Claris Lifesciences Limited
Clover Solar Private Limited
Coastal Projects Limited
Coastal Projects Private Limited
Comet Power Private Limited
Commonwealth Business Technologies (UK)
Corner Stone Energy Private Limited
DDE Renewable Energy Limited
Dreisatz GmbH (Germany)
El Technologies Private Limited
Electrical Manufacturing Company Limited
Electromech Maritech Private Limited
Emami Cement Limited
EMCO Limited
Entegra Limited
Enterprise Business Solutions (US)
Environmental Systems Private Limited
Essar Limited
Euro Solar Limited
Finehope Allied Energy Private Limited
Ganges Entertainment Private Limited
GHI Energy Private Limited
Gujarat Industries Power Corporation Limited
Global Wedge India Private Limited
GMR Gujarat Solar Power Private Limited
Gujarat Power Corporation Limited
Green Infra Solar Energy Limited
Greentech Power Private Limited

Size of
Project
(MW)
5
3
5
15
25
5
5
1
5
5
5
5
5
5
25
5
2
5
15
5
5
5
5
2
2
5
25
5
10
5
5
25
1
5
5
10
5
1
5
5
1
5
5
25
10
10
2
25
10
10
5

Project Type
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic

Project Site
Location
Gujarat
Gujarat
Rajasthan
Gujarat
Gujarat
Orissa
Rajasthan
Gujarat
Gujarat
Rajasthan
Gujarat
Gujarat
Gujarat
Rajasthan
Gujarat
Gujarat
Punjab
Rajasthan
Gujarat
Gujarat
Rajasthan
Maharashtra
Tamil Nadu
Gujarat
Maharashtra
Karnataka
Gujarat
Rajasthan
Gujarat
Gujarat
Rajasthan
Gujarat
Gujarat
Uttar Pradesh
Rajasthan
Gujarat
Gujarat
Rajasthan
Punjab
Gujarat
Gujarat
Gujarat
Rajasthan
Gujarat
Gujarat
Gujarat
Gujarat
Gujarat
Gujarat
Gujarat
Rajasthan

Appendix 3

Name of Project Company

GSPC Pipavav Power Company Limited
Gujarat Mineral Development Corporation Limited
Harsha Engineers
Hiraco India Private Limited
India Solar Ray Power Private Limited
Indian Oil Corporation Limited
Integrated Coal Mining Limited
Jaihind Projects
JSW Energy
Karnataka Power Corporation Limited
Kemrock Industries and Exports
Khaya Solar Projects Private Limited
Kiran Energy Solar Power Private Limited
Konark Gujarat PV Private Limited
Krishak Bharati Corporative Limited
Kunvarji Energy Systems Private Limited
Lanco Solar Private Limited
Maharashtra Seamless Limited
Maharashtra State Power Generation Company Limited
Mahindra Solar One Private Limited
MBH Power
Mi GmbH (Germany)
Millenium Synergy Limited
Monnet Ispat & Energy Limited
Mono Steel (India) Limited
Moser Baer Limited
Moser Baer Photo Voltaic Limited
Newton Solar Private Limited
NKG Infrastructure Limited
Northwest Energy Private Limited
OPG Energy Private Limited
Oswal Woollen Mills Limited
Peerless Consultancy Services Private Limited
PLG Power Limited
Precious Energy Limited (Moser Baer)
Precision Technik Private Limited
Punji Lloyd Infrastructure Limited
Rajesh Power Services Private Limited
Rasna Marketing Services Private Limited
Refex Refrigerants Limited
Responsive Sutip Limited
Rithwik Projects Private Limited
Roha Dyechem Private Limited.
S. G. Green Park Energy Private Limited
Saidham Overseas Private Limited
Saisudhir Energy Limited
Sand Land Real Estate Private Limited (First Solar)
Saumya Construction Private Limited
Solar Semiconductor Private Limited
Solitaire Energies Limited (Moser Baer)
Som Shiva (Impex) Limited
Steering Gear (India) Limited

Size of
Project
(MW)
5
10
1
20
10
5
9
5
5
5
10
5
20
5
5
5
35
5
4
5
1
25
10
25
10
15
5
5
10
5
5
5
5
40
15
5
5
1
1
5
25
5
25
5
5
5
25
2
20
15
1
5

Project Type
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic

27

Project Site
Location
Gujarat
Gujarat
Gujarat
Gujarat
Gujarat
Rajasthan
Gujarat
Gujarat
Gujarat
Karnataka
Gujarat
Rajasthan
Gujarat
Gujarat
Gujarat
Gujarat
Gujarat
Rajasthan
Maharashtra
Rajasthan
Gujarat
Gujarat
Gujarat
Gujarat
Gujarat
Gujarat
Rajasthan
Rajasthan
Gujarat
Rajasthan
Rajasthan
Rajasthan
Gujarat
Gujarat
Gujarat
Rajasthan
Rajasthan
Gujarat
Gujarat
Rajasthan
Gujarat
Andhra Pradesh
Gujarat
Gujarat
Rajasthan
Andhra Pradesh
Gujarat
Gujarat
Gujarat
Gujarat
Gujarat
Gujarat

28

Appendix 3

Name of Project Company

Sun Clean Renewable Power Private Limited
Sun Edison Energy India Private Limited
SunEdison Energy India Private Limited
Sunkon Energy Private Limited
Surana Telecom and Power Limited
Swiss Park Vanijya Private Limited
Talma Chemical Industries Private Limited
Tata Power Company Limited
Tathith Energies (USA)
Taxus Infrastructure & Power Projects Private Limited
Top Sun Energy Limited
Torrent Power Limited
Toss Financial Services Private Limited
Unity Power Limited (Videocon Group)
Universal Solar System
Vasavi Solar Power Private Limited
Videocon Industries Limited
Viraj Renewables Energy Private Limited
Waree Energies Limited
Welspun Solar AP Private Limited
Yantra eSolarindia Private Limited
Zeba Solar (Portugal)
Subtotal of Photovoltaic Projects
Abengoa Limited (Spain)
ACME Telepower Limited
ACME Telepower Limited
Adani Power Limited
Aurum Renewable Energy Private Limited
Cargo Motors
Corporate Ispat Alloys Limited
Dalmia Solar Power Limited
Electrotherm Limited
Entegra Limited
Godawari Power and Ispat Limited
Infrastructure Development Finance Corporation
KG Design Services Private Limited
KVK Energy Ventures Private Limited
Lanco Infratech Limited
Megha Engineering and Infrastructures Limited
NTPC Limited
Rajasthan Sun Technique Energy Private Limited
Sun Borne Energy Technologies Gujarat Limited
Welspun Urja Limited
Subtotal of Thermal Projects
USA = United States, UK = United Kingdom
Source: NVVN

Size of
Project
(MW)
25
25
5
10
5
5
25
25
5
5
5
25
2
5
2
5
5
5
20
5
5
10
1,134
40
10
45
40
20
25
50
10
40
10
50
10
10
100
100
50
50
100
50
40
850

Project Type
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic
Photovoltaic

Project Site
Location
Gujarat
Gujarat
Rajasthan
Gujarat
Gujarat
Rajasthan
Gujarat
Gujarat
Gujarat
Gujarat
Gujarat
Gujarat
Gujarat
Gujarat
Gujarat
Rajasthan
Maharashtra
Rajasthan
Gujarat
Andhra Pradesh
Gujarat
Gujarat

Thermal
Thermal
Thermal
Thermal
Thermal
Thermal
Thermal
Thermal
Thermal
Thermal
Thermal
Thermal
Thermal
Thermal
Thermal
Thermal
Thermal
Thermal
Thermal
Thermal

Gujarat
Rajasthan
Gujarat
Gujarat
Gujarat
Gujarat
Rajasthan
Rajasthan
Gujarat
Rajasthan
Rajasthan
Gujarat
Gujarat
Rajasthan
Rajasthan
Andhra Pradesh
Gujarat
Rajasthan
Gujarat
Gujarat

Appendix 4

29

SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

Country:

India

Project Title:

Solar Power Generation Guarantee Facility

Lending/Financing
Modality:

Financial Intermediary

Department/
Division:

Private Sector Operations Department

Infrastructure Finance Division 1

A.

I.
POVERTY ANALYSIS AND STRATEGY
Links to the National Poverty Reduction Strategy and Country Partnership Strategy

The India country partnership strategy, 20092012 of the Asian Development Bank (ADB) will continue to emphasize
infrastructure development (e.g., transport, energy, urban, and water resource management). ADBs energy program
in India aims to enhance the impact of the governments initiatives for demand- and supply-related programs. The
planned activities include (i) developing renewable and alternative energy sources, and clean generation technology;
(ii) reducing technical and commercial losses in transmission and distribution networks and facilities; (iii) strengthening
interregional transmission capacity; (iv) bringing demand-side management and energy conservation into the
mainstream; and (v) promoting private sector participation, while ensuring environmental sustainability, and supporting
institutional strengthening to implement the reforms required by the Electricity Act, 2003. The project is also directly
aligned with ADBs Asia Solar Energy Initiative (ASEI) to (i) facilitate knowledge sharing and transfer for solar power;
(ii) help develop, finance, and commission 3,000 megawatts (MW) of solar power generation capacity in developing
member countries (DMCs)by March 2013; and (iii) pilot test innovative financing mechanisms and risk mitigation
measures specifically for solar power. The ASEI seeks to stimulate solar power development in DMCs in Asia with the
goal of (i) increasing economies of scale to reduce costs and improve solar energys competitiveness within the grid;
(ii) exploit select DMCs solar radiation resources, service their fast growing electricity demand, and utilize their greater
availability of land compared with most developed countries; and, (iii) promote DMCs potential to become global and
regional manufacturing hubs for solar technology goods and equipment.
The guarantee facility will mobilize commercial financing to an estimated 150 MW of solar power, which will help
diversify the countrys energy mix. The facility will provide credit guarantees in favor of commercial banks that will
extend credit to multiple special purpose companies that intend to develop small-scale solar power generation
projects. The projects will increase the reliability and availability of electricity in areas where it is located. This will
increase economic growth through increased commercial and/or enterprise activities, and more opportunities can be
tapped from this development at state, local, and community level.
B.

Poverty Analysis

Targeting Classification: General Intervention

Key issues. The projects that will be covered under the guarantee facility will indirectly contribute to poverty reduction.
The projects will contribute to the countrys poverty reduction effort on three main fronts: (i) the operation of the
projects will add needed electricity to the grid for use by the state population and promote economic activities; as the
projects operate, they contribute to the state tax system, where tax revenue can be streamed to promote poverty
reduction activities; (ii) the projects will tap a renewable energy source, thereby displacing potential reliance on
imported fuel sources and will create outright savings and foreign exchange savings that could be utilized for other
productive purposes; and (iii) during its construction, operation, and maintenance phases, the project will provide job
opportunities to local communities and promote economic activities in the vicinity.
Design features. The guarantee facility will provide credit guarantees in favor of commercial banks that will extend credit
to independent power producer borrowers that intend to develop small-scale solar power generation projects. Projects
will include solar power generation facilities in India with an installed capacity of not less than 2 MW and not more than
25 MW that are connected to the relevant state electricity grid. Projects that will be guaranteed by the facility will have
a direct and material impact to poverty reduction efforts.

30

A.

Appendix 4

II.
Findings of Social Analysis

SOCIAL ANALYSIS AND STRATEGY

Land acquisition and involuntary resettlement. Most solar projects are being sited on barren or unproductive
government land in a coordinated effort by state governments. A 5 MW solar power plant will require about
12 hectares of land. No physical displacement is expected since lands can be flexibly acquired to avoid impacts on
existing villages and communities. Partner banks extending credit to special purpose vehicles (SPVs) for developing
solar power projects will be assisted in establishing their own environmental and social management systems
(ESMSs) to ensure that projects are screened for involuntary resettlement impacts and relevant plans are prepared in
accordance with national laws and ADBs Safeguard Policy Statement (2009). For some projects where land has been
acquired through expropriation or purchased through negotiations, the ESMS for each commercial bank or lender will
require a social compliance audit, including on-site assessment, to (i) identify past or present concerns related to
impacts on the involuntary resettlement, and tribal communities that may be considered indigenous peoples;
(ii) determine whether actions were in accordance with ADBs safeguard principles and requirements and to identify
and plan measures to address outstanding compliance issues.
Impact on indigenous peoples and/or scheduled tribes. Potential impacts to indigenous peoples and/or scheduled
tribes can only be ascertained once specific sites for projects are located. All mitigating measures that will address
direct and indirect impacts on indigenous peoples/scheduled tribes will be addressed following the ESMS.
Labor, gender, and other social issues. No significant issues pertaining to labor, gender, and other social issues are
expected. The construction phase of projects is relatively short compared with other power generation infrastructure.
Influx of population as a result of the project is unlikely. Social dimensions of each solar power project will be analyzed
as part of the environmental and social assessment to be undertaken by each SPV in accordance with the Safeguard
Policy Statement and agreed ESMS. The ESMS of each partner bank will contain requirements for SPVs to include
compliance with core labor standards in the bidding documents for civil works contracts.
Each partner bank will establish an ESMS following the ESMS arrangements and the Safeguard Policy Statement.
The ESMS satisfactory to ADB shall be adopted and established by each partner bank prior to ADB issuing a
guarantee for the first project.
B.
Consultation and Participation
1. Provide a summary of the consultation and participation (C&P) process during project preparation.
Consultations were conducted with other international financial institutions and other international and local
commercial banks that may be interested in becoming a partner bank. During project design, the levels of participation
will mainly include information sharing and consultation, and the requirements to undertake such activities will be
detailed in the ESMS. If social safeguard plans are required for a project, another meaningful consultation will be
undertaken to ensure that the contents of such plans, including grievance redress mechanism, are understood by the
affected persons or communities. State mandated public hearings for projects may be initiated by state agencies. It is
also envisaged that stakeholders engagement will be ongoing during the entire life of a project, which may become
part of a project companys corporate social responsibility program.
2. What level of C&P is envisaged during the project implementation and monitoring?
Information sharing

Consultation

Collaborative decision making

3. Was a C&P plan prepared for project implementation?

Yes

Empowerment

No

Details of the projects consultation and participation activities will be detailed in the environmental assessment reports
that will be prepared.
C.
Gender and Development
Gender Mainstreaming Category: Some gender benefits
1. Key issues. Solar power projects have the potential to engage or employ local women on tasks such as
installation of solar panels, operation, and maintenance. In general terms, the positive economic impact of the new
energy source will have a ripple effect on women who run small and medium-sized enterprises.
2. Key actions. Measures included in the design to promote gender equality and womens empowermentaccess
to and use of relevant services, resources, assets, or opportunities and participation in decision-making process:
Gender action plan

Other actions or measures

No action or measure

Gender considerations, particularly related to job opportunities, will be further clarified during consultation activities
and will be incorporated in the overall project design, as appropriate. Employee engagement (including contractors)
will include gender non-discrimination and equal opportunity for qualified locals. This item shall be defined in the
ESMS.

Appendix 4

III.
Issue
Involuntary resettlement

SOCIAL SAFEGUARD ISSUES AND OTHER SOCIAL RISKS

Significant/Limited/
Strategy to Address
Plan or Other Measures
No Impact
Issue
Included in Design
Limited. Barren and
If there are involuntary
Resettlement plan
unproductive government
impacts, a land acquisition
Resettlement
land will be utilized by the
and resettlement plan will
framework
projects.
be prepared following the
Environmental and
established ESMS.
social management
system arrangement
No action

Indigenous peoples

Limited. Projects may be

located in states where there
are indigenous peoples
and/or scheduled tribes.

If there are impacts on

indigenous peoples and/or
scheduled tribes, plans will
be prepared following the
established ESMS.

Labor

Limited. During project

construction, operation, and
maintenance, job
opportunities may be
available to locals, subject to
required qualifications.

Information will be
included during
consultation activities. The
ESMS of each partner
bank will include
requirements for SPVs to
include compliance with
core labor standards in the
bidding documents for civil
works contracts.
None

Employment
opportunities
Labor retrenchment
Core labor standards

Affordability

Other Risks and/or

Vulnerabilities
HIV/AIDS

31

No impact. The electricity

from the projects will be
evacuated in existing state
grid and pricing will be
governed by established
regulatory systems.
None

None

Indigenous peoples
plan
Indigenous peoples
planning framework
Environmental and
social management
system arrangement
No action
Plan
Other action
No action

Action
No action

Plan
Other action
No action

Human trafficking
Others (conflict, political
instability, etc.)
IV.
MONITORING AND EVALUATION
Are social indicators included in the design and monitoring framework to facilitate monitoring of gender and social
development activities and/or social impacts during project implementation?
Yes
No
Reports on the implementation of environmental and social mitigation measuresincluding those relevant to social
safeguards, gender, labor, and other social development activitieswill be included as part of the guaranteed lenders
annual environmental and social performance reports, which will include project environmental and social monitoring
reports.

32

Appendix 5

SUMMARY ENVIRONMENTAL AND SOCIAL MANAGEMENT SYSTEM

A.

Introduction

1.
This section includes an overall description of the guarantee facility and the nature of
business operations or business activities of its existing and likely future portfolio. It also
discusses the nature of the projects that may be financed by the partner banks using Asian
Development Banks funds.1
B.

Environmental and Social Management Policy and Applicable Requirements

1.

Policy

2.
The environmental and social management policy of [name of partner bank] was
approved by the Board of Directors (or signed by ........... [the President], or indicate other
position/designation) on . [date/month/year] and states that:
3.

The objectives of the environmental and social management system are:

(i)
To avoid, and when avoidance is not possible, to minimize and mitigate adverse
impacts of projects on the environment and affected people; and
(ii)
To maximize opportunities for environmental and social benefits.

4.
[Name of partner bank] continually endeavors to ensure and enhance effective
environmental and social management practices in all its activities, products, and services with
a special focus on the following:
(i)
Ensuring that applicable environmental and social safeguard requirements, as
defined below are met for all projects;2
(ii)
Financing projects only when they are expected to be designed, constructed,
operated, and maintained in a manner consistent with applicable environmental
and social safeguard requirements, as defined below;
(iii)
Integrating environmental and social risk into its internal risk management
analysis;
(iv)
Ensuring appropriate consultation and transparency in its project companys
activities;
(v)
Working together with project companies to put into practice applicable
environmental and social safeguard requirements; and
(vi)
Promoting projects with environmental and social benefits.
5.

This policy will be communicated to all staff and operational employees of the company.
2.

6.

1
2

Applicable Environmental and Social Safeguard Requirements

[Name of partner bank] will ensure that:

(i)
All projects using ADB funds are screened against the prohibited investment
activities list of the ADB Safeguard Policy Statement (2009);

This is a template which will be modified with each partner bank under the facility.
The term projects is used in this document to mean business activities financed in part and in full by [name of
bank/lender] using ADB funds.

Appendix 5

(ii)

(iii)

C.

33

All projects using ADB funds with potential significant environmental and/or social
impacts are reviewed and evaluated against safeguard requirements 13 of the
ADB Safeguard Policy Statement; and
All projects are reviewed and evaluated against the national laws, regulations,
and standards on environment, health, safety, involuntary resettlement and land
acquisition, indigenous peoples, and physical cultural resources.

Environmental and Social Management Procedures

1.

Screening and Categorization

7.
At an initial stage of identifying a project, the environmental and social safeguard
manager3 (or other designated staff) of the partner bank will apply ADBs prohibited investment
activities list. If the project involves a prohibited activity, the special purpose vehicle company
(SPV) will be informed that the project will not be considered. Otherwise, the environmental and
social safeguard manager (or other designated staff) will indicate the applicable environmental
and social safeguard requirements for the project.
8.
At the project identification stage, the environmental and social safeguard manager (or
other designated officer) will work with the SPV 4 to make a rapid assessment of the likely
environmental and involuntary resettlement impacts and effects on indigenous peoples. The
environmental assessment checklist and social safeguard screening checklist are designed to
guide the deal team of the partner bank in the rapid assessment of impacts. The checklists are
used to determine the significance of potential environmental and/or social impacts associated
with the project.
9.
Once the checklists and the verification work are completed by the deal team of [name
of partner bank], the project will be classified as one of the following categories: category A (with
potential significant environmental and/or social impacts), category B (with less significant
environmental and/or social impacts), or category C (with minimal or no impacts).
10.
The deal team of [name of partner bank] will take care to assure that the SPV is fully
aware of the applicable requirements as summarized in Table A5 that the project is expected to
comply with. For projects with potential significant environmental and/or social impacts, the deal
team will advise the SPV that (i) safeguard requirements 13 of the ADB Safeguard Policy
Statement will apply, including preparation of an environmental impact assessment report and
an environmental management plan, a resettlement plan, and/or an indigenous peoples plan;
and (ii) the SPV shall submit these reports to [name of partner bank] for review. [Name of
bank/lender] will also submit these reports to ADB for review.

The environmental and social safeguard manager (or other designated staff) can be a full-time officer or a
consultant of [name of guaranteed lender].
The SPVs will be sponsored by consortia of reputable and creditworthy Indian power developers and solar power
system integrators, which have established track records in developing and/or commissioning solar power
generation facilities.

34

Appendix 5

Table A5: Safeguard Requirements

Category
(Risk Rating)
Category A (with
potential significant
impacts)

Environmental
Safeguards
Comply with
(i) safeguard
requirement 1 of the
ADB Safeguard Policy
Statement, including
environmental impact
assessment preparation
and submission; and
(ii) national laws

Involuntary
Resettlement
Safeguards
Comply with
(i) safeguard
requirement 2 of the
ADB Safeguard Policy
Statement, including
resettlement plan
preparation and
submission; and
(ii) national laws

Indigenous People
Safeguards
Comply with
(i) safeguard
requirement 3 of the
ADB Safeguard Policy
Statement, including
indigenous peoples plan
preparation and
submission; and
(ii) national laws

Category B (with less

significant impacts)

Comply with national

laws and ADBs PIAL

Comply with national

laws and ADBs PIAL

Comply with national

laws and ADBs PIAL

Category C (with
minimal or no impacts)

Comply with national

laws and ADBs PIAL

Comply with national

laws and ADBs PIAL

Comply with national

laws and ADBs PIAL

ADB = Asian Development Bank, PIAL = prohibited investment activities list.

Source: ADB. 2009. Safeguard Policy Statement.

2.

Environmental and Social Assessment, Planning, and Management

11.
Environmental and social assessment. The SPV to identify potential direct and
indirect environmental and social impacts on and risks to physical, biological, socioeconomic
(including land acquisition, involuntary resettlement, and indigenous peoples impacts), and
physical cultural resources; and determine their significance and scope, in consultation with
stakeholders, including affected people and local community stakeholders. The assessment
process will be based on current information, including an accurate project description, and
appropriate environmental and social baseline data. The environmental and social assessment
will consider all potential impacts and risks of the project on physical (location); biological
(including habitat concerns); socioeconomic (including involuntary resettlement and indigenous
peoples impacts as well as occupational and community health and safety issues related to
installation and decommissioning, waste disposal, and recycling of solar photovoltaic
equipment); vulnerable groups and gender issues; and impacts on livelihoods through
environmental media and physical cultural resources in an integrated way.
12.
Labor and gender and development issues will be addressed by the SPV during the
design of projects using ADB funds. Specifically, the SPV will (i) include gender analysis as part
of the environmental and social impact assessment, (ii) conduct meaningful consultations that
include women, and tailored to the needs of disadvantaged and vulnerable groups; (iii) ensure
that the SPVs contracts with civil works contractors, subcontractors, and other providers of
goods and services include provisions to employ local labor whenever possible and ensure
compliance with core labor standards where it is not inconsistent with national laws.
13.
Environmental and social safeguards planning and management. The SPV will
prepare an environmental management plan, resettlement plan, and/or indigenous peoples plan
that address the potential environmental and social impacts and risks identified by the
environmental and social assessment.

Appendix 5

35

14.
When conducting the environmental and social assessment and preparing the plans, the
SPVs will conduct meaningful consultations with affected people. Each SPV will establish a
grievance mechanism, which will be described in the safeguard plans.
3.

Due Diligence of Partner Banks

15.
The environmental and social safeguard manager (or other designated staff) of the deal
team of [name of partner bank] will undertake environmental and social due diligence.
Depending on the complexity of the project, due diligence can be a desk review (for category C
projects), based on a site visit (for category B projects), or a full-scale review conducted by
qualified staff in charge of environmental and social safeguards, or by consultant(s) (for
category A projects). The SPV must provide all requested information to the deal team, and
should be able to demonstrate responsiveness with regard to the applicable environmental and
social safeguard requirements. A due diligence report will be prepared for category A and B
projects and the results of the due diligence will be reflected in the report to the approving
committee of [name of partner bank], which will take into account these issues in approving the
project.
16.
For a project using ADB funds and likely to be classified category A for any of its
environment, involuntary resettlement, or indigenous peoples impacts, [name of partner bank]
will refer the project to ADB and provide a copy of the due diligence report to ADB, and submit
the draft environmental impact assessment report, resettlement plan, and/or indigenous peoples
plan to ADB for review and clearance before the project is approved by [name of partner bank].
17.
For partially existing and/or constructed and operational projects and for which land
acquisition is ongoing or has been completed by the local government or purchased through
negotiated settlements, the partner bank will require the SPV to conduct an environmental and
social compliance audit, including on-site assessment, to identify past or present concerns
related to environmental, land acquisition, and involuntary resettlement and indigenous peoples
impacts. Where noncompliance is identified, the audit report and the corrective action plan will
be prepared by the SPV and submitted to the partner bank prior to approval of the project. The
environment and social compliance audit report, including corrective action plan, if any, will be
made available to the public through the ADB website in accordance with ADB information
disclosure requirements.
18.
All project loan agreements will contain appropriate environmental and social covenants
requiring the project to be in compliance in all material respects with the applicable
environmental and social safeguard requirements as defined herein.
4.

Compliance Monitoring and Reporting

19.
After a category A or B project is approved, the environmental and social safeguard
manager (or other designated staff) (i) communicates with the project and confirms from time to
time that the SPV is undertaking the obligations of compliance with all applicable environmental
and social safeguard requirements; and (ii) [name of partner bank] will promptly report to ADB
any actual or potential breach of the compliance requirements after becoming aware of it. For a
category A project, the environmental and social safeguard manager (or other designated staff)
will visit the site to monitor the implementation of environmental management plan, resettlement
plan, and/or indigenous peoples plan.

36

Appendix 5

20.
Environmental and social performance will be evaluated on an annual basis. The
benchmark for performance will be the ongoing compliance against the applicable
environmental and social safeguard requirements. [Name of partner bank] will ensure that the
SPV prepares and submits an annual environmental and social monitoring report, and will
review and assess the SPVs performance on environmental and social safeguard issues as
well as gender, labor, and other social development activities.
21.
The partner bank will prepare and submit to ADB an annual environmental and social
performance report on the status of implementation of the ESMS. If the report or ADBs reviews
conclude that the ESMS is not functioning, the partner bank will submit and agreed with ADB to
implement a corrective action plan. The report will also summarize the results of the annual
environmental and social performance of category A and B projects based on reports prepared
by the SPV.
D.

Organizational Responsibilities, Resources, and Capacity

1.

Organization and Responsibilities

22.
The environmental and social safeguard manager (or other designated staff) reports to
the [chief executive officer] of [name of partner bank]. The manager has oversight for
environmental and social issues, ensures the resources are made available for environmental
and social management, and should sign and submit the annual environmental and social
performance report to ADB. The manager should ensure that the ADB is notified if and when the
responsible staff has been changed or replaced with new staff.
2.

Resources and Capabilities

23.
The environmental and social safeguard manager (or other designated staff) should
work with the management of [name of partner bank] to ensure that adequate resources have
been committed to allow for the effective implementation of this ESMS policy and procedures.
The manager will need to be technically qualified to be able to carry out the screening and due
diligence or able to review the work carried out by consultant(s). The manager should attend
ADB-sponsored or approved environmental and social safeguard training related to compliance
and monitoring activities. [Name of partner bank] should also maintain a pool of qualified
environmental and social consultants who can be called upon to assist in conducting
environmental and social reviews as appropriate.

Appendix 6

37

PARTNER BANK DUE DILIGENCE CHECKLIST

Item
Organizational

Information to Review
Organization chart of the bank
List of all stockholders owning more than 3% of issued share capital,
including details of any stockholders who may be related, and the type
of ownership (corporate, individual proprietorship; and whether private
or state-owned)
Overall growth strategy

Financial

Audited financial statements and annual report for the last 3 full fiscal
years and any interim financial statements
Review of prudential regulations (capital adequacy, nonperforming
loans, single-borrower and related-party borrower limits)

Loan portfolio

Loan portfolio, by sector or business line

Loan portfolio, by retail or wholesale

Risk management

Risk governance structure or chart of the bank

Credit policy and procedures
Credit approval process
Risk rating guidelines
Loan monitoring guidelines and process
Overview of management information systems and reporting
Operational risk

Environment and social

Adequacy of partner banks environmental and social management

system
Capacity and commitment for environmental and social management of
projects

Portfolio management and

provisioning

Loan classification, nonperforming loans, and provisioning

Human resources

List of senior management and short curricula vitae

List of key personnel associated with project finance and solar power
sector, and short curricula vitae
Overview of credit training provided

Program-specific

Strategy for the solar power sector and targets

Portfolio limits for the solar power sector
Any risk rating guidelines, credit policy, and procedure modifications
specific to the solar power sector

Source: ADB staff.

38

Appendix 7

SUMMARY GUARANTEE TERM SHEET AND PROJECT ELIGIBILITY CRITERIA

A. Guarantee Facility
Purpose:

For the guarantor to issue partial credit guarantees (PCGs) in

the aggregate equivalent amount of up to $150 million 1 to
guaranteed lenders making guaranteed loans to part finance
eligible solar power projects

Guarantor:

Asian Development Bank (ADB)

Guaranteed lender:

Any commercial financial institution acceptable to the

sponsor(s), borrower(s), and the guarantor

Project sponsor:

Any eligible solar power project developer acceptable to the

guaranteed lender(s) and guarantor

Borrower:

Any legal entity established and operating under the laws of

India that is controlled and owned by project sponsors and
responsible for the construction, commissioning, and
operation of an eligible solar power project and for the
repayment of the guaranteed loan

Eligible solar power

projects:

Solar power electricity generation facilities in India that shall:

(i) be built and operated by independent power producers
that are at least 50% privately controlled and owned; and
(ii) have signed a long-term power purchase agreement
(PPA) under the Jawaharlal Nehru National Solar Mission
(NSM) or under a separate declared state solar policy
(e.g., Gujarat); and
(iii) meet the ADB guarantee facility eligibility criteria (unless
otherwise agreed in advance by ADB).

B. Guaranteed Loans
Loans:

Loans guaranteed by the guarantor under the guarantee

facility made by the guaranteed lenders to respective
borrowers for the financing of eligible solar power projects.

Tenor:

Up to 15 years (door-to-door) from the date of the loan

agreement and an amortization schedule that provides for an
average loan life of no more than 10 years.

Currency:

A guaranteed loan may be denominated in Indian rupees

(Rs), euro (), US dollars ($), or any other currency
acceptable to the borrower, guaranteed lender, and
guarantor.

Principal:

The principal amount of any guaranteed loan may vary but

must be compliant with maximum debtequity ratio for the
project.

$150 million includes guaranteed principal only. Guaranteed interest to be added.

Appendix 7

Covenants,
undertakings,
representations and
warranties, events of
default, conditions
precedent:

39

As per the lenders and guarantor requirements, including a

change of ownership clause and a certification by the
borrower regarding the use of loan proceeds under the
guaranteed loans. Guaranteed loans must be compliant with
ADBs Safeguard Policy Statement (2009) and all other
relevant ADB policies.

C. Partial Credit Guarantee

Form of contract of
guarantee:

Guarantee against nonpayment of principal and interest by

the borrower

Guarantee term

The term equal to the tenor of the guaranteed loan. In case of

a back-ended PCG: from the later of (i) 8 years from date of
signing of the PCG or (ii) if at such point in time, a default has
occurred, the moment such defaults have been cured; until
maturity of the guaranteed loan.

Guaranteed amount:

The guaranteed percentage of all or any portion of one or

more scheduled principal and interest payments that are not
paid for the duration of the waiting period

Guarantee percentage:

Up to 50% on a net present value basis2 over the duration of

the guaranteed loan, but the actual percentage in any given
year to be agreed between the guaranteed lender(s) and the
guarantor, subject to due diligence acceptable to the
guarantor on each eligible solar power project. 100% cover
shall only be permitted after year 9 of the loan tenor.

Demand payment

At the option of the guarantor, either in accordance with the

scheduled payments or on an accelerated basis, in each
case following a demand determination period of up to
30 days after the filing of a demand by the guaranteed
lender(s). Demands can be made during the waiting period.

Subrogation, transfer,
and assignment of
rights:

As a condition to payment of a demand, while the guarantor

may require the guaranteed lender(s) to transfer and assign
all rights related to the portion of the guaranteed loan for
which payment has been made, the guarantor will at all times
automatically subrogate to such guaranteed lenders rights.

Guarantee fees:

Up-front fees, standby fees, and annual guarantee fees are

determined on a case-by-case basis subject to further
internal ADB approvals and in accordance with ADB policies.

D. ADB Eligibility Criteria under the Guarantee Facility

1.
To be eligible for support under the guarantee facility, the eligible solar power generation
project should be a new (greenfield) solar power generation of not less than 2 megawatts (MW)
2

The net present value of the guaranteed outstanding principal and accrued interest shall not exceed 50% of the total
principal of the guaranteed loan.

40

Appendix 7

and not more than 15 MW3 and meet the following minimum criteria. All projects designed for an
installed capacity of greater than 16 MW but less than or equal to 25 MW will generally follow
the same criteria but will be subject to final review by ADB on a case-to-case basis.
2.
Exceptions to these criteria may be proposed by any guaranteed lender but require prior
review and consent by ADB:
(i)

(ii)

(iii)

(iv)

Construction of a new (greenfield) solar power generation plant in India that will
be connected to the relevant state electricity grid at a voltage greater than
11 kilovolts. Projects will utilize either solar photovoltaic (crystalline or thin-film) or
concentrated solar thermal technology that has been installed and operational of
equivalent capacity of greater for at least 12 months prior to the guarantee
application date.
The borrower has received a letter of intent from NTPC Vidyut Vyapar Nigam
(NVVN) under the National Solar Mission or has signed a power purchase
agreement with the relevant state government under a separate state Solar
Power Policy. Copies of the signed PPA should be submitted with all other
project documentation.
The projects feasibility study, detailed project report and/or business plan have
been prepared and include the following aspects among others:
(a)
technical design containing the proposed solar technology, including
equipment specifications for all major equipment;
(b)
information that demonstrates the proposed technology has been in
commercial operation for at least 12 months in at least one verifiable site
of equivalent capacity or greater prior to the guarantee application date;
(c)
solar irradiation data analysis for the proposed project site;
(d)
commercial, economic, and financial viability (based on P50, P75, and
P90 levels of irradiation resources);
(e)
operation and maintenance plans and availability of spare parts;
(f)
reasonable access to the nearest transmission connection and/or
substation has been described and cost estimated;
(g)
detailed description of the proposed site, water requirement for
construction and operations, and a description of the land acquisition
process;
(h)
environmental and social assessment of impacts and management plans,
and report on planned and completed consultation and participation
activities; and
(i)
comprehensive risk analysis.
Independent due diligence on the project has been carried out by the guaranteed
lender(s) (applicant), which addresses the following;
(a)
Assessment of the creditworthiness of the proposed sponsors. The
minimum equity required for financing of the project should not exceed
20% of the sponsors net worth. Based on the last 3 years consolidated
audited financial results, sponsors average EBITDA to interest of at least
two times and average long-term debt to EBITDA of no more than three
times.
(b)
Sponsor criteria of minimum 3 years experience in nonconventional
energy sector or conventional power generation sector.

Maximum power output on an alternating current basis.

Appendix 7

(c)
(d)

(e)

(f)

(g)
(h)
(i)
(v)

(vi)

4
5

41

Technical and engineering review of the feasibility study and/or detailed

project report.
Commercial review of relevant engineering, procurement, and
construction; turnkey supply and/or erect contracts; supplier warranties
and performance guarantees (including degradation of output wattage of
not more than 10% after 10 years and 25% after 20 years), etc.
Assessment of the credit profile and track record of manufacturer and/or
suppliers and terms of warranty coverage. Major equipment
manufacturers (e.g., panel manufacturers) must have been in operation
for a minimum of 3 years prior to guarantee application date and have a
minimum of 50 MW aggregate net capacity installed worldwide.
Review of the borrowers financial viability and financial model, including
sensitivity analysis, to ensure that cash flow projections forecast that the
debt can be serviced in downside scenarios.
Disbursement, procurement, and implementation plans, including
monitoring and reporting.
Integrity or know your client assessment of prospective sponsors of the
project.
Design of a security package acceptable to ADB.

Funds from the guaranteed loan must be applied to eligible project costs and
expenditures to equipment and services provided by firms in ADBs member
countries.4
Loan terms and conditions by the guaranteed lenders that establish:
(a)
Maximum loan tenors of 15 years (average life of no more than 10 years)
where NVVN is the offtaker and 12 years (average life of no more than
8 years) where GUVNL is the offtaker.
(b)
Dedicated 6-month debt service reserve account in favor of the lenders.
(c)
Either equal principal amortization payments or a tailored principal
amortization schedule in which the average life of the loan does not
exceed 10 years.
(d)
Financial covenants that require the maintenance of adequate debt
service coverage (e.g.,1.2x as an event of default), leverage ratios (70:30
at each drawdown request and at each interest payment date), and
acceptable test conditions for dividend payouts (including a debt service
coverage ratio of 1.3x for the past four quarterly payment dates or two
semiannual payment dates);5
(e)
Share retention by sponsors of at least 51% for a minimum of 2 years
after commercial operations and financial performance have been proven;
consent required for the sale of shares below 51% thereafter.
(f)
A completion undertaking by the project sponsors in favor of the lenders
until commercial operations has been declared by the lenders engineer.
(g)
An event of default being:
i.
the insolvency and/or winding up of the solar panel manufacturer
which supplied the project (unless alternative arrangements for
replacement of performance warranty); and

The list of ADB members can be found at http://www.adb.org/About/membership.asp.

Other similar financial covenant structures may also be considered with prior approval of ADB. Borrowers may also
benefit from guarantee from affiliate or parent companies in the event indicative financial covenants cannot be met.

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Appendix 7

ii.

(h)
(i)

(j)

breach of financial covenants for three consecutive semiannual or

quarterly periods.
Depending on market availability of derivative products, hedging of the
interest, and foreign exchange risk (if applicable).
Conditions precedent to first disbursement, including:
i.
all material consents, licenses, and permits obtained in relation to
the construction phase of the project;
ii.
all regulatory loan approvals, as relevant;
iii.
acceptable opinions from external legal counsel and report of
lenders engineer;
iv.
confirmation of the establishment of a debt service reserve
account;
v.
payment of all required lenders and guarantors fees; and
vi.
evidence of appropriate insurance in place.
Other customary affirmative and negative covenants as agreed with ADB.