India: Capacity Building for Commercial Bank Lending for Solar Energy Projects

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Completion Report Project Number: 44475-012 Technical Assistance Number: 7802 July 2015 India: Capacity Building for Commercial Bank

1 Completion Report Project Number: Technical Assistance Number: 7802 July 2015 India: Capacity Building for Commercial Bank Lending for Solar Energy Projects This document is being disclosed to the public in accordance with ADB s Public Communications Policy 2011.

2 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.

3 TA Number, Country, and Name: Amount Approved: $1,250, TA 7802-IND: Capacity Building for Commercial Bank Lending for Solar Energy Projects Revised Amount: No change Executing Agency{ies}: Asian Development Bank TA Approval Date: TA Signing Date: Source of Funding: Technical Assistance Special Fund Others (TASF-Others) Asian Clean Energy Fund (ACEF-Japan) Fielding of First Consultant{s}: Amount Undisbursed: $475, TASF-Others $713, ACEF-Japan Amount Utilized: $24, TASF-Others $36, ACEF-Japan TA Completion Date Original: 31 March 2014 Actual: 31 March April May June 2011 Account Closing Date Original: 31 March 2014 Actual: 30 June 2014 Description ADB has been working closely with the Government of India to accelerate the deployment of solar power generation in the country. ADB has provided technical assistance (TA) 1 to the Ministry of Renewable Energy (MNRE) since In January 2010, India launched the Jawaharlal Nehru National Solar Mission (NSM) with the objective of setting up 1,100 MW of grid-connected solar generating capacity by 2013 in phase 1 of the program, 5,000 MW set up by 2017, and 20,000 MW by The government s objective was to attract private sector investment for financing solar projects under the NSM program. The earlier TA had included specific assistance on drafting a bankable power purchase agreement and transparent eligibility guidelines and selection criteria for the private sector. Based on the details of the NSM program as defined by MNRE, the project team determined that the first phase projects would be relatively small (2 25 MW), and comprised mostly of solar photovoltaic projects. Based on cost estimates in 2011 (about $3,000 3,300 per kilowatt of installed capacity), the total cost of such projects was likely to be too low for direct ADB lending. The challenge became how to support the financing of multiple small solar projects, which would serve to demonstrate the viability of solar energy in the context of India s operating environment and climate. ADB discussed various financing structures and support mechanisms with Indian and foreign commercial banks. Based on their feedback, there was 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 local bank capacity regarding the technical and commercial risks of solar power projects. It became evident that although local commercial banks were generally receptive to financing solar power projects, they were unfamiliar with solar power technology and the risks that accompany such projects (e.g., development, construction, variability, performance, and operating risks). The Capacity Building TA for Commercial Bank Lending for Solar Energy Projects would develop the capacity of the commercial banks and other financing lending institutions to undertake a thorough technical due diligence for solar power projects under the NSM and other state solar policies. The purpose of the TA was to build the capacity of commercial banks and other financial institutions to undertake technical due diligence of solar projects based on international best practices leading to the accelerated deployment of solar power generation projects in the country through private sector investments. The outputs of the TA were to conduct bank technical due diligence process (alongside the lenders engineers), to conduct training sessions and on-the-job training for loan officers and senior management and to assess existing bank technical due diligence processes and make recommendations for improvements. Private developers would seek limited recourse project financing from commercial banks. The TA was aimed at increasing the confidence of the commercial banks to lend to these projects by providing technical expertise for due diligence and solar technology assessments that would enable the banks to better assess the risks associated with solar power projects. This would lead to more accurate risk assessments and bridge the gap between perceived and real risks, leading to more educated lending terms and 1 ADB Technical Assistance to India for Integrated Renewable Energy Development. Manila.

4 conditions for these projects. It was expected that the beneficiaries under this TA would be participating banks and financial institutions under ADB s Solar Power Generation Guarantee Facility 2. The TA was executed and implemented by PSOD in parallel with the Solar Power Generation Guarantee Facility. In parallel, the TA would also include 3 4 training workshops across various banks and financial institutions in India and solicit feedback from the participants. Expected Impact, Outcome, and Outputs The expected impact of the TA was successful implementation of phase 1 of the NSM and regular commercial limited recourse financing for solar power projects in India. The outcome of the TA was development of the capacity of commercial partner bank staff and management to undertake technical due diligence of solar projects and thereby enable them to provide long-term loans for these projects, which is critical to their viability, sustainability and replicability. The outputs were to conduct bank technical due diligence process (alongside the lenders engineers), to conduct training sessions and on-the-job training for loan officers and senior management and to assess existing bank technical due diligence processes and make recommendations for improvements. Delivery of Inputs and Conduct of Activities The TA was well-defined and the TA resources were adequate. SgurrEnergy was engaged as a consultant under an indefinite delivery contract (IDC) on 2 September The planned implementation arrangement was for ADB to engage international solar power engineering consultants to provide services directly to partner commercial banks for technical due diligence activities and to provide bankers training. It was planned to engage two firms to ensure availability during periods in which multiple banks may require time-sensitive inputs in order to close transactions. However, only SgurrEnery was engaged as a consulting firm on IDC. Under said IDC, SgurrEnergy signed for a maximum of 30 person-months for international consultants (36 person-months planned) and 36 person-months for national consultants (36 person-months planned). However, only 0.5 person-months of international consultant and 0.4 person-months of national consultant were utilized by the TA as part of the bankers training sessions held in SgurrEnergy performed satisfactorily for this assignment. However, as a result of the lack of interest by local commercial institutions and delays in deployment of the ADB s Solar Power Generation Guarantee Facility, local commercial banks did not avail of the services of SgurrEnergy for technical due diligence on solar projects In addition to engaging SgurrEnergy for assisting the local commercial banks in conducting technical due diligence on solar projects, resource persons from the National Renewable Energy Laboratory (NREL), Colorado, USA were also engaged to develop content and conduct the four solar power technical training programs for local commercial banks and other financial institutions in different locations in India. ADB, as the executing agency, performed satisfactorily, maintaining effective coordination among all parties during implementation through conference calls, s and several tripartite meetings. ADB provided $500,000 equivalent on a grant basis from its Technical Assistance Special Fund (TASF-other sources) with the balance of $750,000 financed on a grant basis by the Asian Clean Energy Fund under the Clean Energy Financing Partnership Facility and administered by ADB. Disbursements from the two sources were made on a pro-rata basis. It was expected that the beneficiaries under this TA would be participating banks and financial institutions under ADB s Solar Power Generation Guarantee Facility. However, the guarantee facility was reluctantly cancelled on 1 October 2013 due to limited response from the market resulting in a corresponding under-utilization of the services funded under the TA. Evaluation of Outputs and Achievement of Outcome The TA output envisioned four training programs for banks for technical due diligence of solar projects by December Four solar power technical training programs were conducted for commercial banks and solar developers on June 2011 (New Delhi), 7 8 May 2012 (Ahmedabad), May 2012 (Bangalore) and May 2012 (Kolkata). The training programs were divided into two parts. Part one was an executive overview for non-bankers on solar projects and part two was a technical training for commercial banks and financial institutions. The locations were identified in consultation with MNRE to target banks headquartered across India as well as those situated close to solar developments. The items discussed in the workshops included overview of photovoltaic (PV) and concentrated solar power technologies, understanding solar resource and climates across technologies, project development process and due diligence checklist, commissioning and performance testing, operations and maintenance and on- 2 ADB Report and Recommendation of the President to the Board of Directors: Proposed Guarantee Facility Solar Power Generation in India. Manila.

5 the-ground issues with PV projects in India. Over 200 participants in aggregate attended the workshops. Most of the participants were bank officials (60%) involved with technical and financial appraisal of the solar projects. This is 20% lower than the 150 commercial bank officials targeted to be trained for solar projects technical due diligence. Overall Assessment and Rating Although the TA is consistent with the government and ADB s strategies, the TA only delivered one of the two intended outputs. While the TA was successful in building due diligence capacity amongst local commercial banks through the training programs, the part of the TA which provided access to a reputed consultant for conducting technical due diligence on solar PV projects was not utilized. It was expected that the beneficiaries under this TA would be participating banks and financial institutions from the Solar Power Generation Guarantee Facility. However, the facility was cancelled in 2013 due to limited interest from local commercial banks. TA s sustainability is rated partly successful as due diligence capacity of local commercial banks were developed through the training programs. Overall, the TA is rated as partly successful. Major Lessons The second component of the TA (technical due diligence support) was linked to the Solar Power Generation Guarantee Facility. Only banks selected as partner commercial banks under the Solar Power Generation Guarantee Facility were eligible to avail of the technical due diligence support (i.e., NordBank LB of Singapore and L&T Infra Finance of India). Local commercial banks had certain concerns regarding the facility including disagreement on pricing of the guarantee facility. As a result many local banks were reluctant to sign up as partner commercial banks under the guarantee facility and were unable to avail of the technical due diligence support under the TA. Delinking the TA from the solar guarantee facility would have increased the utilization of the technical due diligence support component of the TA and provided for broader knowledge sharing across the banking community, irrespective of their need for credit support from ADB. Recommendations and Follow-Up Actions NA TA = technical assistance. Prepared by: Aniruddha Patil Designation and Division: Senior Investment Specialist, PSIF1

Validation Report. India: Surat Manor Tollway Project. Operations Evaluation Department

Validation Report. India: Surat Manor Tollway Project. Operations Evaluation Department Validation Report Reference Number: PCV: IND 2008 13 Project Number: 29250 Loan Number: 1747 July 2008 India: Surat Manor Tollway Project Operations Evaluation Department ABBREVIATIONS ADB Asian Development