Making Investments While the Sun Shines
As the country suffers through another blistering summer, it only makes sense that this abundant resource is put to some use.
Venture capitalists have raised $24.5 billion since 2009 to invest in clean technology or renewable energy in India, and would like to invest more than a fifth of that capital in solar-energy projects, according to researchers VCCEdge and Preqin.
Their investment is based on the thesis that India will need more energy than it now generates if it is serious about maintaining its economic growth rate of 9%.
The nation’s existing fossil-fuel-based power plants cannot keep up with current demand as evidenced by the frequency of power cuts across the country. And, proven coal reserves are expected to last only up to 50 years more. Against this backdrop, the 300 sunny days that the country gets in a year looks like a huge resource boon. Estimates say this free source can be used to generate five trillion megawatts of energy, a huge surplus considering India’s annual consumption is about 848 million megawatts.
While this opportunity to be part of a new and rising industry has attracted droves of investors—domestic and foreign—attractive targets are in short supply. Funds such as Blackstone, TPG Growth and Reliance Venture Asset Management Pvt. Ltd. have all paid high premiums on portfolios that involve long developmental pipelines and few operating assets.
The solar sector has seen only eight transactions amounting to $100 million in the last three years—a fraction of the money that has been raised to invest in this sector.
Shivani Bhasin Sachdeva, chief executive of private equity fund India Alternatives, says solar-power-based power generation needs greater economic support than say, wind-based and small-hydropower projects, as the latter sources are on the verge of reaching grid parity—the point at which an alternative means of generating electricity is economically on a par with a conventional technology such as coal-based-generation.
The Indian government is doing its bit. In 2009, the Central Electricity Regulatory Commission—which promotes efficiency and competition in bulk electricity generation and transmission— launched the ambitious Solar India Initiative to be deployed over 19 years. Its three-phase plan works toward generating 20 gigawatts of solar energy within 12 years.
“When the solar policy was announced 15 months ago, there was a kind of gold rush into the sector,” said Alan Rosling, founder and chairman of Kiran Energy Solar Power Pvt. Ltd.
His company received $30 million this year from New Silk Route Advisors Pvt. Ltd, Bessemer Venture Partners India and Argonaut Ventures LLC and is engaged in developing solar projects.
Initially, new entrants thought it would be easy to reap quick returns but the first round of bidding, led by the government, for the purchase and sale of power under the National Solar Mission (dubbed the Vidyut Vyapar Nigam scheme) “was a very good way of shaking out players who were not serious,” Mr. Rosling said.
Indeed 418 applicants competed for 30 government contracts for the purchase of solar power from private industry, said Sanjay Chakrabarti, leader of the national clean technology practice at Ernst and Young. This indicated a high level of interest in a relatively underdeveloped sector that had few experienced players, he said.
Government-backed incentives, mandatory use of locally manufactured equipment and solar purchase obligations for utility companies have helped the Indian solar sector emerge as a safe bet as investors are assured of long-term annuity returns, said Yogesh Mathur, chief financial officer at Moser Baer Group.
The maker of compact discs and electronic devices decided to take the plunge into solar power and is, today, the country’s second largest maker of solar cells and the fifth largest maker of solar modules—panels that convert sunlight into electricity.
Despite government support, execution of these plans is plagued by delays. For investors, the buzz fades somewhat when they realize that initial returns are less than expected due to gestation periods of up to 25 years, and a complexity of implementation that’s greater than expected. But there are benefits too.
“Projects in clean tech (including solar energy) are often subsidized via government grants, which reduces the capital expenditure burden for private investors,” she said. “Further, investors can choose… across a spectrum of clean technologies, which diversifies their risk.”
That’s why there’s more money likely to come in with another 29 India-focused funds looking to raise $6.79 billion for investing in companies that produce energy using renewable sources or engaged in activities that have a minimal or beneficial impact on the environment.
Where they will put all this money isn’t clear but in a few years, India is on track to “emerge as one of the biggest solar energy markets globally,” said Moser Baer’s Mathur.
Posted on May 28, 2011, in NEWS and tagged Central Electricity Regulatory Commission, Government of India, India, Jawaharlal Nehru National Solar Mission, New Delhi, Preqin, Solar power, TPG Growth. Bookmark the permalink. 4 Comments.