The power sector has witnessed a significant influx of multilateral finance deals aimed at developing the power infrastructure. Prominent international organisations and banks such as the World Bank, the Asian Development Bank (ADB), the International Finance Corporation (IFC), and Germany’s KfW have played pivotal roles in these initiatives. Key trends observed in these deals include a significant portion of financing directed towards expanding renewable energy capacity, including solar and wind projects, green hydrogen production and battery energy storage systems. This aligns with the efforts to transition to cleaner energy sources and reduce carbon emissions.
Power Line presents a round-up of the major multilateral finance deals concluded recently, highlighting focus areas and their potential impact on the power sector…
In July 2024, ADB and the ENGIE Group signed a long-term local currency loan agreement to construct and operate a 400 MW solar photovoltaic power plant in Surendranagar, Gujarat. ADB was the mandated lead arranger for the entire loan totalling Rs 14.6 billion, with ADB and the Asian Infrastructure Investment Bank both providing Rs 7.3 billion. The solar panels will be constructed using locally produced bifacial photovoltaic power modules. The plant will generate an average of 805 GWh annually over the next 25 years, avoiding nearly 662,441 tonnes of carbon dioxide emissions per year. Moreover, ADB committed $2.6 billion in sovereign lending to India in 2023 for projects that aim to strengthen urban development, support industrial corridor development, promote power sector reforms, build India’s climate resilience, support horticulture and enhance connectivity.
During the same month, ADB approved $240.5 million in loans to finance rooftop solar systems in India that will help the government expand energy access using renewable energy. The financing will support Tranches II and III of the multi-tranche financing facility solar rooftop investment programme approved by ADB in 2016. This programme was restructured in 2023 to focus on deploying residential solar rooftop systems. The financing will be made available to the State Bank of India and the National Bank for Agriculture and Rural Development (NABARD) to provide loans to developers and end-users throughout India to install rooftop solar systems. ADB will provide SBI $90.5 million from its Clean Technology Fund (CTF), while NABARD will receive $150 million comprising $80 million from ADB’s ordinary capital resources and $70 million from the CTF.
Earlier, in June 2024, the World Bank sanctioned $1.5 billion in funding to support India’s initiatives in advancing low-carbon energy development. As part of the second programmatic development policy operation for low-carbon energy, this initiative seeks to promote a strong market for green hydrogen, enhance renewable energy capacity and encourage investments in low-carbon energy solutions. The second phase of the low-carbon energy programmatic development policy operation marks another instalment in a series, each valued at $1.5 billion. This funding will aid in implementing reforms aimed at improving green hydrogen production and electrolysers. It also encourages the integration of renewable energy by offering incentives for battery energy storage and revising the Indian electricity grid code to improve the integration of renewable energy sources.
During the same month, IFC committed to invest $105 million to partially finance a 550 MW solar power project. To be located in Bikaner, Rajasthan, the project is currently being developed by Brookfield Asset Management. The funding will involve long-term non-convertible debentures allocated to special purpose vehicles, which will be responsible for executing the project. The project will be integrated with the inter-state transmission system of India’s green energy corridor. Brookfield will supply solar power to commercial and industrial consumers at competitive rates through long-term power purchase agreements and also participate in merchant markets through power exchanges. Through collaboration with Brookfield, IFC seeks to promote the widespread adoption of clean energy by proving the feasibility of large-scale renewable energy generation and its distribution to corporate and industrial clients throughout India via the inter-state transmission network.
During the same month, ADB approved a $148.5 million loan to help strengthen, modernise and climate-proof distribution systems to enhance the reliability, quality and resilience of electricity supply in Sikkim. The project will enhance Sikkim’s power distribution system by upgrading it with approximately 770 km of climate-resilient medium voltage underground and/or covered conductors. Additionally, it will replace 580 km of ageing and low-capacity bare conductors with new ones to increase distribution network capacity. It will upgrade 26 existing power substations including the installation of a supervisory control and data acquisition system, install 15,000 units of public street lighting in remote areas and conduct electricity conservation and safety awareness programmes in 28 villages.
In December 2023, REC Limited signed a Euro 200 million loan agreement with Germany’s KfW to enhance the distribution segment. This agreement marks REC’s sixth line of credit under the Indo-German Development Cooperation and demonstrates the corporation’s commitment to enhance the distribution infrastructure of discoms, in line with the Revamped Distribution Sector Scheme (RDSS). The development signifies a stride in REC’s ongoing commitment to overhauling the distribution sector within the country. As the designated agency for implementing the RDSS, REC plays a pivotal role in facilitating the government’s initiative.
During the same month, ReNew Energy Global Plc signed an MoU with ADB for a funding of $5.3 billion. The MoU outlines potential investments in renewable energy projects, manufacturing, carbon offset initiatives and green hydrogen. The collaboration aims to jointly support the transition to sustainable energy. The agreement also encompasses cooperation on climate change mitigation and adaptation projects. Further, the MoU is expected to attract interest from international investors for financing long-term debt in significant renewable energy infrastructure projects. Furthermore, it contributes to ADB’s goal of reaching $100 billion in funding for green energy projects by 2030.
Furthermore, in December 2023, ADB approved a $200 million loan to strengthen power supply in Uttarakhand, with the goal of improving quality, efficiency and reliability. The project is a significant step towards Uttarakhand’s objective of ensuring uninterrupted power and transitioning to clean energy. The initiative primarily focuses on the modernisation of power infrastructure in Dehradun city, incorporating an advanced, climate-resilient underground cable system covering 537 km, along with 354 ring main units and 99 compact substations. Additionally, the project will enhance the current power system by installing upstream substations and their associated power lines that will help meet increasing electricity demand, reduce network congestion and improve power distribution reliability in urban and suburban areas.
Earlier, in November 2023, the World Bank signed a $200 million project with the Government of India and the Himachal Pradesh government, which will facilitate power sector reforms in Himachal Pradesh and increase the renewable energy share in the state’s electricity generation. This will contribute to the state’s overall aim of adding 10,000 MW of additional renewable energy capacity to make the state’s power supply greener. The World Bank’s Himachal Pradesh Power Sector Development Programme will help the state enhance the utilisation of its existing renewable energy resources, including hydropower and help diversify its renewable energy resources further.
During the same month, ADB approved a $250 million loan to enhance India’s power sector sustainability and promote renewable energy. This loan supports climate change targets and facilitates clean energy finance. The reform programme focuses on power trade markets and aims for 50 per cent non-fossil fuel power by 2030, promoting clean energy in agriculture, solar adoption and emission reduction. The loan will improve the financial viability, governance and services of power distribution companies, fostering private investments. It supports a strategy to enhance discom performance in losses, cost recovery, metering and payments. Additionally, ADB will fund capacity building and policy reforms with $1.5 million in grants. This initiative, developed with partners such as Germany’s KfW, extends ADB’s efforts in green hydrogen and sustainable energy.
Conclusion
The multilateral finance deals in the power sector primarily focus on renewable energy projects, climate resilience and power sector reforms. Several projects aim to modernise and climate-proof power infrastructure, enhancing the reliability, efficiency and resilience of power distribution systems. Investments in underground cable systems, climate-resilient conductors and advanced power substations are notable examples.
Multilateral financing supports policy-based loans and reforms aimed at improving the financial viability and governance of power distribution companies. These initiatives help create a conducive environment for private sector investments and ensure the sustainable growth of the power sector. Investments also focus on strengthening urban development, industrial corridor development and enhancing connectivity, contributing to the overall economic growth and development of the regions involved. In addition to financial investments, multilateral organisations provide technical assistance and capacity-building grants to support the implementation of policy reforms and the adoption of innovative technologies in the power sector.