Context: The International Solar Alliance (ISA) is engaging in discussions with member-countries, such as India and European nations, regarding contributions to its payment guarantee fund and insurance fund.
Solar Payment Guarantee Fund:
- It aims to provide essential support to solar energy projects in the event of default, mitigating the risk of premature closures or bankruptcy.
- To benefit from this fund, projects will contribute a premium, ensuring their coverage. By doing so, the fund effectively alleviates concerns among lenders, making financing more accessible for projects that may have otherwise struggled to secure funding.
- The payment guarantee fund will offer only partial coverage. This intentional limitation is designed to discourage opportunistic behaviour and prevent the inclusion of subpar projects.
- By minimizing the possibility of default, the fund opens up opportunities for short-term investments in regions that have historically received limited investment.
- It allows investors to participate in solar projects without relying on the guarantee fund for recourse.
Solar Insurance Fund:
- It aims to alleviate the burden of insurance premiums for solar developers specifically during the pre-revenue phase or construction phase of the project.
- The goal is to enhance the bankability of solar projects by mitigating the impact of high insurance premiums.
- It would collaborate with reputable project insurance organizations, such as Multilateral Investment Guarantee Agency (MIGA), to provide insurance coverage.
- During the specified period, the fund would cover a portion or the entirety of the insurance premium, effectively reducing the financial strain on developers.
- To recover the covered insurance premium, projects could incorporate an additional tariff during the revenue phase, allowing them to recoup the costs incurred during the pre-revenue stage.
About International Solar Alliance (ISA):
- It is an action-oriented, member-driven, collaborative platform for increased deployment of solar energy technologies as a means for bringing energy access, ensuring energy security, and driving energy transition in its member countries.
- The ISA was conceived as a joint effort by India and France to mobilize efforts against climate change through deployment of solar energy solutions.
- It was conceptualized on the side-lines of the 21st Conference of Parties (COP21) to the United Nations Framework Convention on Climate Change (UNFCCC) held in Paris in 2015.
- Its headquarter is located at Gurugram.
- The ISA’s Framework Agreement was amended in 2020, making all member states of the United Nations eligible to join.
- The ISA is guided by its ‘Towards 1000’ strategy which aims to mobilise USD 1,000 billions of investments in solar energy solutions by 2030, while delivering energy access to 1,000 million people using clean energy solutions and resulting in installation of 1,000 GW of solar energy capacity. This would help mitigate global solar emissions to the tune of 1,000 million tonnes of CO2 every year.
- Activities under the programmes focuses on 4 priority areas – Analytics & Advocacy, Capacity Building, Programmatic Support, and readiness and enabling activities, that help create a favourable environment for solar energy investments to take root in the country.
