The Asian Development Bank (ADB) has pledged a $20 million grant to spur private sector investment in utility-scale solar power in Nepal.

The funding should ensure installation of at least 25 MW of solar power by 2018 but, more importantly, will

provide a business model that can be replicated and scaled up elsewhere in the energy-strapped South Asian country.

The grant will be used to finance the difference between the private sector’s cost of producing utility-scale solar power and the minimum

price that the Nepal Electricity Authority (NEA) is willing to pay for the power. This is the first time that Nepal has ever used so-called ‘viability gap’ funding.

“Providing some financial security to the private sector should draw more private investment into this critical sector in Nepal and, in doing so, reduce pressure on government finances,” said Aiming Zhou, Senior Energy Specialist at ADB’s South Asia Regional Department.

“And once the private sector better understands the Nepal solar sector, I would expect them to seek investment opportunities elsewhere in Nepal or indeed the region.”

Nepal has been suffering chronic power shortages, with peak demand of 1,444 MW far outpacing the installed capacity of 885 MW. Only 65 percent of the country’s households have access to electricity.

Hydropower has, so far, been a mainstay of the country’s clean energy supply; but solar power is an ideal complement, particularly during the low-water season. Until now, however, private sector investment has largely been in micro- and mini-grid solar power, with utility-scale plants of 4 MW or more attracting little private sector attention.

Now, companies will be able to bid to develop solar systems through an international competitive bidding process, with power purchase agreements awarded on the basis of the best offtake prices. The funding under the grant will be payable on the first day of operation of the solar system, up to end June, 2022. Bidding is expected to start in the first quarter of 2017 and last around six to 12 months, the ADB said.

The $20 million grant is being financed by the Scaling Up Renewable Energy in Low Income Countries Programme (SREP) of the Climate Investment Funds (CIF) administered by the ADB. It will form part of the $440.50 million South Asia Sub-Regional Economic Cooperation Power System Expansion Project, which kicked off in January 2015.