The Asian Development Bank (ADB) has approved a $250 million policy-based loan to strengthen India’s power sector by improving financial sustainability and facilitating the shift to renewable energy.
“ADB has been working with the Government of India to help ramp up its transition to clean and renewable energy and facilitate policy actions to ensure a sustainable, inclusive, and climate-friendly power supply,” said ADB Principal Energy Specialist Len George. “This policy-based loan will help reduce barriers to scale up commercial financing for clean energy and contribute to India’s fulfillment of its climate change mitigation commitments.”
Under policy-based lending (PBL), ADB transfers loan amounts to the government’s general budget instead of paying for explicit project costs. This helps countries that may be facing a financing gap in their annual budget, and may need additional funds to pay for general development expenditures.
PBL is disbursed only when the borrower completes policy reforms or actions that have been agreed with ADB. Examples include reforms to create a more business friendly investment climate, or those that improve governance and performance of state-owned enterprises. This creates a platform and incentive for governments to carry out improvements with a sector- or economy-wide impacts.
The Power Sector Reform Program is the first of a two-part program to strengthen the development of markets for power trade and related ancillary services. This will facilitate the integration of intermittent renewable energy given India’s target of 50% of its power generation capacity from non-fossil fuel sources by 2030. These policy actions will, among others, help accelerate the deployment of solar and other renewable energy technologies, promote the use of renewables in the agriculture sector, and optimize dispatch of power plants to reduce emissions.
The loan will also enable measures to improve the financial performance, corporate governance, and service quality of electricity distribution companies (DISCOM) and create a conducive environment for private sector investment. It will aid in the implementation of an incentive-based results-oriented approach to improving DISCOM performance on parameters including losses, cost recovery, metering and timely payment of dues in order to access government budget support.
This program builds on ADB’s engagements in emerging areas such as green hydrogen that will be important to facilitate energy transition. ADB will provide financial grants of $1.5 million from its Technical Assistance Special Fund and the Climate Change Fund for capacity development and the implementation of policy reforms. The program has been prepared in coordination with other development partners, in particular German development cooperation through KfW.
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