India needs to spur commercial banks to lend more to clean-energy projects to meet a goal of raising solar-power capacity sixfold by 2017, the World Bank said.
The absence of such project finance is a hurdle to raising the $11.7 billion of investment needed for the mission to add 10 gigawatts of solar, according to a bank report.
“It is inconceivable for the Jawaharlal Nehru National Solar Mission to scale up to the levels envisaged under subsequent phases without the active participation of scheduled commercial banks,” the lender said in the Dec. 12 report.
India’s 2,080 megawatts of installed capacity was mostly funded by export credit agencies and lenders such as the Asian Development Bank and the World Bank’s International Finance Corp. The country, a growth market for equipment suppliers such as First Solar Inc. and Canadian Solar Inc., last year tripled annual installations to 956 megawatts of photovoltaic capacity.
The total was less than a third of what China built, led by funding from state-owned banks, data compiled by Bloomberg show.
Indian banks are wary over the technology and the ability of state distribution utilities to pay for solar power. They’ve quoted lending rates that are 150 to 300 basis points more than the average cost for conventional power, the World Bank said.
The funding needs of the industry “are likely to increase as the program is expected to expand exponentially,” it said. “Large amounts of private investments need to be mobilized.”
The government could offer credit guarantees, credit lines to banks at a concession to cut interest rates, and subordinated public finance to extend the tenure of loans, the lender said.