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Financing Rooftop Solar Sector: Usage of Public Credit Guarantee

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  • Labanya Prakash Jena

Abstract

The Government of India had set a target of 40 GW of rooftop solar power installation by 2022. However, the progress on rooftop installation is lagging far behind, reaching only 7.9 GW as of June 2022. Lack of availability of capital—both debt and equity and high cost of capital are the key reasons for this uninspiring growth of the rooftop solar sector. Multilateral Development Banks (MDBs) such as the World Bank and Asian Development Bank have provided a credit line of USD 625 million to the rooftop solar sector through commercial banks to address the high cost of financing and limited capital availability. However, these lines of credit are far lower than the capital requirements of the sector. The article will show that securitization with an appropriate credit guarantee structure can help Indian rooftop solar developers access the capital market and reduce the cost of debt through expansion of the investor base, reduction in liquidity discount, and bankruptcy risk mitigation. This will allow the sector to better leverage public and MDBs’ capital to attract the much-needed commercial long-term debt capital at appropriate terms of credit to India’s rooftop solar sector.

Suggested Citation

  • Labanya Prakash Jena, 2022. "Financing Rooftop Solar Sector: Usage of Public Credit Guarantee," Emerging Economy Studies, International Management Institute, vol. 8(1), pages 26-32, May.
    • Handle: RePEc:sae:emecst:v:8:y:2022:i:1:p:26-32
    DOI: 10.1177/23949015231207931
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    References listed on IDEAS

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    1. Cowan, Kevin & Drexler, Alejandro & Yañez, Álvaro, 2015. "The effect of credit guarantees on credit availability and delinquency rates," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 98-110.
    2. Honohan, Patrick, 2010. "Partial credit guarantees: Principles and practice," Journal of Financial Stability, Elsevier, vol. 6(1), pages 1-9, April.
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