The Asian Development Bank (ADB) will invest $750 million for power transmission systems that will help India efficiently transfer electricity to regions where the need is greatest, spurring growth and poverty reduction.

The ADB Board of Directors has approved loan financing for the national grid improvement project which will allow the bulk transfer of electricity (3,000 MW) from independent power producers in the western state of Chhattisgarh, to areas of high demand in the north, including the national capital territory of Delhi. It will be done through the establishment of a 1,300-km interregional transmission link using 800-kV high voltage direct current (HVDC) technology, a key driver of smart grid development. The funds will be made available to the Indian government-owned transmission utility, POWERGRID.

"Strengthening the interregional HVDC transmission network will promote open access to power supply, increase investment in both generation and distribution, help integrate the electricity market and encourage power trading and competitive electricity prices," said Kaoru Ogino, Senior Energy Specialist in ADB's South Asia Department.

India's demand for electricity, fuelled by its strong growth, has sharply exceeded supply in recent years, with a peak power deficit of over 12% in 2010. The generating capacity has been increasing over the years in India but expansion of the transmission network has not kept pace. Some states have the capacity to generate more power than they need, and creating interregional transmission corridors will allow them to move surplus electricity to areas short of supply.

To develop the national grid, POWERGRID plans to invest about $22 billion to more than double the size of its transmission network between now and 2017, thus expanding its funding base from the present sources of domestic bonds and government-guaranteed loans to new foreign commercial borrowing.

To optimize transnational power supply and promote country-wide power transfer in an efficient manner, the Government aims to integrate regional power grid network systems, which comprise five interconnected electrical regions including northern, north-eastern, eastern, western, and southern. Each electrical region attempts to connect and synchronize power systems of neighboring states within the region, but interregional power transfer capacity has still been limited. Since natural energy resources are unevenly distributed and concentrated in certain locations, surplus power from some regions can be transferred to other regions in power deficit only when creating transmission super highways among the regions. While the existing interregional transmission capacity stands at 22,400 MW, the Government targets to increase this capacity to 27,950 MW by 2012, growing to 57,000 MW by 2015, and 75,000 MW by 2017 under the 12th Five Year Plan. Such interregional transmission strengthening will create a backbone to sustain open power supply and investment in both generation and distribution.

ADB is providing both sovereign and non-sovereign loans, bundled together in a single package to help leverage interest from foreign commercial lenders and reduce POWERGRID's reliance on sovereign funding to more market-based capital raising. The non-sovereign loan of up to 15 years will be POWERGRID's first large-scale foreign commercial term borrowing without government credit support.

ADB's funding consists of a $500 million sovereign-guaranteed loan and a $250 million non-sovereign corporate loan. This novel financial structure will provide an anchor transaction in the total project cost of $2.25 billion and serve as a catalyst for further engagement from commercial financiers in POWERGRID's transactions. The project is due for completion in 2017.