Multilateral funding agencies may earmark at least 15% of loans for solar projects
Multilateral funding bodies may jointly announce at the first assembly of the International Solar Alliance (ISA) that they are earmarking at least 15% of their lending corpus for solar energy projects for the next five years, according to Upendra Tripathy, interim director general of ISA.
The move will help reduce solar power tariffs globally.
The first ISA assembly is scheduled for 9 December in New Delhi, and will be attended by several heads of states including French President Emmanuel Macron.
India has taken a lead role in setting up the ISA—an alliance of 121 sunshine countries situated between the Tropics of Cancer and Capricorn.
“On 9th of December, we are also inviting the Asian Development Bank (ADB), African Development Bank, European Investment Bank, New Development Bank (NDB), Asian Infrastructure Investment Bank (AIIB), Inter American Development Bank, and with the help of World Bank, we are trying to have joint declaration with all these banks,” said Tripathy.
The World Bank last year signed an agreement with the ISA to mobilize $1 trillion in investments by 2030.
In addition, the ISA—which brings together countries with abundant sunshine—is also working on a plan to create a $300 billion risk mitigation fund as part of the strategy to create a sustainable financing architecture for solar projects globally. This will be discussed during the Global RE-Invest 2017 India-ISA Partnership summit.
The fund will be used to insure solar power projects against risks such as default in payment from electricity procurers, foreign exchange fluctuation and regime change. This, in turn, will help attract investors to the space.
There will be 10 global centres in countries such as India, Japan, China, France, the US, Brazil, Ivory Coast, Australia, the UK and United Arab Emirates, with a corpus of $30 billion each.
“This type of insurance mechanism will help bring down the cost, interest rate and will increase the project period for funding,” said Tripathy. Any such mechanism will help further reduce domestic solar tariffs, which recorded an all time low of Rs2.44 per unit in May.
Such an insurance fund will also help prevent creation of stressed assets in the Indian solar sector, as has been the case with sectors like steel and power, which has resulted in around Rs10 trillion of bad loans. Tripathy said that the scheme would help prevent non-performing assets in the solar sector and attract investments at a lower cost.
European Investment Bank operates a similar fund for the infrastructure sector.
“It is not a donation or a contribution but it is an investment, because it is an insurance scheme,” Tripathy said.
Queries sent to the World Bank, ADB, African Development Bank, EIB, New Development Bank and Inter American Development Bank remained unanswered.
An AIIB spokesperson said in an email that the bank’s “commitment to promoting renewable energy, including solar, is unwavering. Guided by its energy sector strategy AIIB will invest in projects that support its clients to meet their commitments under the Paris Agreement.”
“At this time, we are not part of any ISA declaration,” the AIIB spokesperson added.
Queries emailed to the spokespersons of India’s ministry of external affairs and new and renewable energy on Monday remained unanswered. ISA is the first treaty-based international government organization that is headquartered in India, with the framework agreement signed by 36 countries.
ISA was launched at the UN Climate Change Conference in Paris in November 2015 and has been ratified by France, Fiji, India, Mauritius, Nauru and Tuvalu.