IFC opens wallet to renewable energy PE funds

The International Finance Corporation (IFC) is looking to invest about $150 million to renewable energy-focused private equity funds and may authorise further commitments in the near future, according to senior energy investment professionals at the Washington, DC-based development institution.

“Because of the emphasis we’re placing on renewables, we undertook an exercise to map the emerging market private equity fund space to identify promising private equity funds that target the clean energy, cleantech and carbon finance space,” said Dana Younger, senior renewables adviser at the IFC’s Infrastructure Department.

In October 2008, the review culminated in an authorisation for the IFC to commit up to $300 million to such funds though its private equity and infrastructure investment divisions. “We’ve now got about half of that capital committed or in advanced due diligence and we expect to be able to move the rest of it pretty quickly over the next, say 12 to 14 months or so,” Younger said.

IFC’s renewable energy-related private equity commitments to date include €15 million in Aloe Private Equity’s Aloe Environment Fund II for China and India-focused investments, $15 million in Tsing Capital’s China Environment Fund III, $20 million in Consensus Business Group’s Evolution One fund in South Africa, $25 million in Olympus Capital’s Asia Environmental Partners and $20 million in GEF Management Corporation’s South Asia Clean Energy Fund. Five other funds are under advanced due diligence now, Younger said.

The IFC could also allocate more money for private equity fund commitments in renewable energy in the coming months, Younger said. That’s because IFC management has set a target of investing $3 billion in the renewable sector over its next three fiscal years beginning this July.

Younger said he expects investments in private equity funds to be an “important part” of meeting this target. “We’d expect to be able to go back and request additional funding authority for additional investments,” he added.

The vast majority of the $3 billion, though, is likely to be carried out through direct investments in the renewable energy projects and businesses. In the last year, the IFC dedicated $1.5 billion toward renewables, of which about half came in the fiscal year ending June 2009. The figure prompted the IFC to label 2009 its “year of renewable” for its power sector.

Investments included wind farms in Bulgaria, Chile and Turkey, a solar photovoltaic cell manufacturer in China and a geothermal energy project in the Philippines, among others. More recently, the IFC invested $10 million in Azure Power, an Indian a solar power producer.

Darius Lilaoonwala, the IFC’s senior manager for power, said he expects 2010 to see a similar level of direct investment, thanks in part to a favorable regulatory trend toward renewable energy in developing countries.

“Today, we see a lot more countries active in providing the incentives to get renewable investments going,” Lilaoonwala said.

“It is heartening to see how quickly this is beginning to change,” Younger added.