ADB Solar Power Guarantee Facility

8/6/2019 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]

ADB Solar Power Guarantee Facility

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