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World Bank signs US$98 million Loan Agreement with Indian Government for setting up solar parks

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.” 

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