World Bank signs US$98 million Loan Agreement with Indian Government for setting up solar parks
Photo credit: World Bank
On November 20, the Government of India and the World Bank signed a US$98 million Loan Agreement and US$2 million Grant Agreement to help India increase its power generation capacity through cleaner, renewable energy sources by setting up solar parks.
India’s power system has 331 GW of installed capacity, which is among the largest in the world. But it is still inadequate, as per capita electricity consumption is less than one-third of the global average. An estimated 300 million people are not connected to the national electrical grid. The need for reliable power is growing with a rapidly growing economy.
The Shared Infrastructure for Solar Parks Project aims to increase solar generation capacity through the establishment of large-scale solar parks in the country. It will finance the Indian Renewable Energy Development Agency Limited (IREDA), to provide sub-loans to select states to invest in various solar parks, mostly under the Ministry of New and Renewable Energy’s (MNRE) Solar Park Scheme.
The first two solar parks to be supported under the project are in the Rewa and Mandsaur districts of Madhya Pradesh, with targeted installed capacities of 750 MW and 250 MW, respectively. In addition, potential solar parks could be supported under this project in the states of Odisha, Chhattisgarh, and Haryana.
IREDA will utilise the funding under this project to develop the common infrastructure such as power pooling substations, intra-park transmission infrastructure and provide access to roads, water supply and drainage, among others.
While some states intend to provide a full range of infrastructure services to the selected private or public sector developers, others plan to provide only pooling stations to facilitate internal evacuation. This, in turn, is expected to facilitate solar power investment by the selected developers in support of the Government of India’s efforts to increase the share of electricity that comes from renewable energy.
This project is part of a series of engagements requested by the Government of India from the World Bank in the solar power sector. The International Finance Corporation (IFC), a member of the World Bank Group, is actively supporting some of these selected solar parks in Madhya Pradesh and now in Odisha.
To achieve India’s solar energy targets by 2022, another focus area would be in capacity-building at IREDA and the project implementing agencies of those states where the solar parks are to be located. Under the project, support will be provided in the areas of human resource and business planning, project monitoring, procurement and contract management, environmental and social safeguards and financial management, among others.
The US$75 million loan from the International Bank for Reconstruction and Development (IBRD), has a 5-year grace period, and a maturity of 19 years. The US$23 million loan from the Clean Technology Fund (CTF) has a 10-year grace period, and a maturity of 40 years. The US$2 million is an interest-free CTF grant.
The Agreement for the project was signed by Mr. Sameer Kumar Khare, Joint Secretary, Department of Economic Affairs, Ministry of Finance, on behalf of the Government of India; Mr. K S Popli, Chairman and Managing Director, on behalf of IREDA; and Mr. Hisham Abdo, Acting Country Director, World Bank India, on behalf of the World Bank.
“The Government of India is committed to set-up an enabling environment for solar technology penetration in the country. This Project will help establish large-scale solar parks and support the government’s plan to install 100 gigawatts (GW) of solar power out of a total renewable-energy target of 175 GW by 2022,” said Mr. Khare.
“India’s goal of scaling up the provision of clean energy will require a vibrant market for solar investments. The challenge for this project is to go beyond investments; it is to deepen the solar market,” commented Mr. Abdo.
"IFC is pleased to participate in India’s ambitious solar power agenda to address the country's energy needs. To achieve this, large-scale solar projects have to be bankable. By assisting the government in the Rewa solar project, IFC has demonstrated that robust project design, innovative de-risking and contract structuring can help attract global investors to the project. With important outcomes of open access, large-scale and grid parity, the Rewa solar project paves the way for many more large-scale solar projects in the country," said Mr. Jun Zhang, IFC India Country Head.
Surbhi Goyal, Senior Energy Specialist and World Bank’s Task Team Leader for the project, said, “Through this engagement, it is expected that the investments will boost market confidence, enable demonstration of economies of scale in large-scale grid-connected solar generation, contribute towards pushing down equipment and transaction costs, increase efficiency while reducing unit costs of solar power, and catalyse further support from other investor groups to help India achieve its ambitious target of installing 100 GW of solar power capacity by 2022.”