India's renewable power sector surges

Private equity firms invested $301m in India’s renewable energy sector last year, a ten-fold increase from 2006. The numbers are expected to keep climbing.

The renewable energy sector in India has seen rapid growth over the past three years in terms of investment from private equity firms. This growth is expected to continue climbing to hit a $2 billion, five-year investment total by 2012, according to a study by Ernst & Young.

Last year, private equity firms invested $301 million in the sector, a dramtic increase from the $30 million invested in 2006. India's large gap in the demand and supply of power, the depletion of fossil fuels and energy security have been the key drivers resulting in sustained investments in the renewable energy sector, the study noted.

Wind power: gaining ground in India

From January 2005 to 21 July 2009, private equity firms invested $527 million in renewable energy companies. This makes up 24 percent of the $2.16 billion invested in the sector by all investors. In the same period, of the 37 investments made in India's renewable energy sector, 20 investments representing 54 percent were made by private equity firms. Investments in wind power companies made up 79 percent of all deals in the sector.

“The recent years have seen the emergence of several funds with clean themes, venture capital-backed development companies being set up to aggregate assets in India, [and the] growth of carbon financing,” Kuljit Singh, partner and transactions advisory leader for infrastructure, real estate and government at Ernst & Young, said in a statement.

This year, activity in the sector has slowed down due to the global financial and credit crisis, the study noted, adding however, that activity is expected to pick up in the near future.

Some of the 2008 deals done by private equity firms include IDFC Private Equity’s INR 4 billion ($83.5 million; €59 million) investment in foundry company SE Forge to help establish a parts-making operation for the wind energy industry. The same firm also teamed with investors including Nomura Holdings, Morgan Stanley and Credit Suisse on an INE 4.1 billion investment in Moser Baer PhotoVoltaic, a manufacturer of photovoltaic cells and modules. Olympus Capital Holdings Asia, Bessemer Venture Partners and Shriram EPC made a $55 million investment in Orient Green Power, a renewable energy generation company.

The study also suggests that investments in renewable energy are likely to continue as a result of the government’s capacity expansion and investment plans in the sector. The government has proposed the additional generation of 15,000 megawatts of renewable energy in its eleventh five year plan (2007-2012). The total investments in renewable energy are expected to be about $2 billion in this period, according to the study.