The Asian Development Bank (ADB) will extend $150 million in credit guarantees to scale up the solar power sector in India.

It is pointed out that the solar energy potential in India is among the best in the world with around 300 sunny days a year.

However, because of high upfront costs of solar plants and the lack of affordable long-term finance from banks, there has not been much of an enthusiasm among the investors to tap the potential.

The ADB guarantees will be available to local and foreign commercial banks that finance private sector solar power plants and will cover 50 per cent of the payment default risk on the loans given to project developers. This is expected to help the Indian Government's efforts to diversify the energy mix away from a heavy dependence on fossil fuels.

The guarantees on loans of up to 15 years, which will support projects of up to 25 MW, will be attractive to both the banks and the developers, says an ADB release.

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