adb solar power guarantee facility
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Background on the Opportunity
Government of Indias National Solar Mission (NSM) will soon allocate toprivate sector developers a total of 1,100 MW of solar PV and solarthermal capacity, to be commissioned by FY2012
NVVN, NTPCs power trading arm, will be the single buyer of all solarpower under the NSM, blend this with uncontracted thermal power and
sell it to the state electricity boards / discoms Draft PPAs and Eligibility Criteria have been proposed by MNRE; projects
for migration into NSM have very recently signed PPAs
NSM allocations in December 2010; 6 months to close financing aftersigning PPAs (July 2011)
In addition, several states in India are directly contracting with solar powerdevelopers under their own Solar Projects (e.g., Gujarat has givenallocations / signed PPAs in 2 phases for 960 MW outside the NSM)
These programs will initially generate a large number of small solarprojects in the range of 2-15 MW (project costs of $650 million)
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ADBs Participation and Role
ADB has been providing technical assistance to MNRE on the NSM, thePPA structure and eligibility criteria
ADB has launched its Asian Solar Energy Initiative whereby it will finance3,000 MW by mid 2013 in developing Asia India, Thailand and China arethe near term opportunities
The first wave of solar projects in India are likely too small for direct fundingby ADB (average size of 5 MW)
ADB wants to build technical due diligence capacity in commercial banks forlending to solar projects in Asia
ADB is proposing a risk sharing scheme through partial credit guarantees
(PCGs) to commercial banks to support such projects
Addresses lenders concerns both on credit risks and long tenors requiredfor viability of solar power projects
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Partial Credit Guarantee (PCG)
Covers lenders against any non payment by the project on theguaranteed portion of scheduled principal and interest payments
Can be denominated in USD or INR
Beneficiaries: both local and international banks
Replace half of lenders project risk (e.g., B-BB) with ADB credit risk(AAA); extend loan tenors >12 years
Addresses lenders capital constraints, single borrower limit, sector and
country limit
Allows ADB to leverage support for projects too small for typical projectfinancing
ADB Board approval expected 19 April 2011; first partner bankendorsed by investment committee (NORD/LB, Singapore branch)
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Parallel Technical Assistance
ADB will provide technical support to partner commercial banks tocomplete technical DD of these projects seeking guarantees
Scope of work to include: Review of insolation data, site risks
Commercial assessment of proposed solar technology Assessment of PV panel manufacturer and experience
analysis of performance warranties, etc.
Sensitivity analysis of energy yields and revenue variability
Grant of $1.25 million administered directly by ADB guarantee team,partly funded by the Government of Japan
International solar engineers to be on board by May 2011
Program will also include regular solar training programs in India forcommercial bankers (next scheduled for June in New Delhi)
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Proposed Mechanics (for due diligence)
ADB will rely primarily on commercial banks due diligence on sponsors,
financial viability, EPC contracts, O&M arrangements.
Minimum eligibility criteria for sponsors credit-worthiness and experience,and commercially proven solar PV or thermal technology
Sponsors must provide cost overrun undertaking; have sufficientperformance warranties from credible PV manufacturers and latent defectscover from contractors
Borrower must have signed PPA with NVVN (NSM scheme) or acceptablePPA with selected states e.g., Gujarat (ADB to review others case-by-case)
Covered Lenders must screen projects according to ADBs Safeguard
Policies, comply with corporate governance and anti-corruption policies(some ADB help on environmental and social elements)
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ADB Guarantee Limits
The guarantee can cover principal and accrued interest up to a maximumaggregate liability (MAL) amount
The present value of the debt service obligations guaranteed by ADBcannot exceed 50% of the projects debt (e.g., 50/50 risk sharing with the
commercial bank) This allows the structuring guarantees to meet different banks needs,
higher levels of guarantee cover in latter years of the loan tenor (seeexamples)
Door-to-door tenors of guaranteed loans will be limited to 15 years for NSM
projects, 12 years for GUVNL projects Other limits no more than 5 guarantees per sponsor group; a single
partner bank cannot consume more than 40% of the facility; limits on directSEB exposure
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Option 2: Straight Cover50% PCG Cover for all years
SBL /SolvencyExempt
YR 9 YR 12
PROJECT RISK
Principal+
Interest
YR 1
50%
On-risk Guarantee Fee
YR 3 YR 6 YR 15
Commercial LoanTenor: 15 yearsCOD: 1 year1st P&I Repayment : 6 months after COD
ADB PCG Cover
Years 1-15: 50%
ADBPCG
CommitmentFee
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Timeline (for making a demand)
Waiting Period
Day [45]
Determination Period
Day 75Demand Payment
Day 90 Day 120
Payment Period
Demand Service Period
Borrower Defaults
Due DateDay 0
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Domestic lenders Single borrower limit constraints Power sector exposure Constraints on long-term lending Pressure for lending to priority sectors (not solar)
International lenders Keen to fund renewable / GHG mitigation in countries like India Capital constraints Tenor/risk constraints (e.g., SEB offtake) Country limit constraints for India
Guarantees facilitate raising of INR and USD debt at longertenors than otherwise would have been available
Improved debt service capacity (especially in critical early years) Improves equity IRR (in light of challenging environment on capital costs) Reduce refinancing risk Sharing of technical risks on solar power technology
Lender / sponsor considerations
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ADB Contacts for Solar Guarantee Program
Don PurkaPrivate Sector Operations [email protected]+63-2-632-6882
Bart RaemaekersOffice of Cofinancing [email protected]+63-2-632-6918
Sujata Gupta
ADB Resident Mission in [email protected]+91-11-2410-7200
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]