Can ADB rescue India's JNNSM with Loan Guarantees and Equity Investment

India’s ambitious JNNSM Phase 1 has been running into a number of hurdles despite confidence expressed by the government.The problems with both Solar PV and Solar Thermal Project Bidding have been written about extensively in this blog . Here is a recap of the problems

Solar PV

a) Debt Financing of Solar Projects b) Irrational Bidding c)Small Plant Sizes of 5 MW d) Unhealthy Competition ,other problems have cropped up.Note India was trying to avoid the fate of the Czech and Spanish example of renewable energy subsidy boom and subsequent bust  by auctioning the projects to lower bidders.However this has resulted in a new set of problems seen with this type of bidding which has been seen in China.

Solar Thermal

The Solar Project Bidding was expected to be extremely competitive and it turned out to be exactly that with discounts of  more than 30% being offered to the base price of RS 15.31 for Solar Thermal generated Electricity.Note Rs 15.31 was determined to be a decent price on which a Solar Thermal Plant Developer could get decent returns just a year ago.This means that a 30% Discount would lead to zero or very low returns for the Solar Thermal Winners

The Indian government has announced 37 winners for the JNNSM totalling around 630 MW with 479 MW awarded to Solar Thermal and rest to Solar PV.Note I am not a fan of Solar Thermal Technology but things are what they are and a large chunk of the Solar Energy subsidies is going to the CSP Technology.Note most of the Solar PV winners are unknown entities and it remains highly doubtful of their implementation abilities given their irrationally low pricing.

Asian Development Bank (ADB) may rescue the JNNSM process which seems to be headed for certain problems.The Bank is committing to provide loan guarantees for under 30 MW projects to Indian Banks and upto 25% equity investment into >30 MW projects.Note debt financing is a major issue which was talked about by the biggest Indian utilities for not participating.Note ADB has already committed to setting up 500 MW Renewable Energy Capacity in India in JV with NTPC.This will further increase ADB’s exposure to Solar Energy in India.It remains to be seen if ADB give equity and debt to many of these projects which don’t seem to be feasible at these prices.Will ADB willing to take losses in these ventures and provide loans to many of these unknown firms with no track record.

Can ADB rescue India’s JNNSM with Loan Guarantees and Equity Investment

The Asian Development Bank plans to back $425 million worth of investments in India’s solar power plants to help the projects secure financing.The ADB is willing to cover as much as $150 million of any payment defaults from the projects resulting from problems including technological failures, financial difficulties or insufficient solar irradiation that could affect their output, Gupta said. It will offer guarantees for loans made over the next three years, she said.

The Manila-based lender came up with the credit-guarantee mechanism to encourage private banks to lend to solar projects whose sizes are capped at 5 megawatts by government rules and are too small for the ADB to lend to itself, Gupta said. The ADB is willing to invest directly to take as much as a 25 percent stake in solar projects of more than 30 megawatts of capacity, she said.