Fund flow to renewable energy down to a trickle

Total investment into the segment fell 35% in first 6 months of 2013 which is significant considering that 2012 reported 144% growth

Are private equity (PE) funds shying away from India’s renewable energy sector? According to Venture Intelligence Data, total investment into the segment fell 35% in the first six months of 2013, compared with the same period last year. 

 

This year’s drop is significant, considering that 2012 reported a growth of 144%. However, industry sources say this is a temporary phenomenon. According to them, things will normalise soon thanks to the potential and demand for electricity in India.

 

PEs invested $304 million across five deals into the renewable energy segment during the January-June 2013 period, compared to $462 million across 12 deals in the corresponding period last year. In 2011, this $189.64 million and 10 deals.

Two major investments reported this year were GIC's $151-million investment in Greenko Group in March and Goldman Sachs’ $135 million in ReNew Wind Power in June.

The fall in investment was led by the wind energy segment, which attracted only $142.5 million through two deals, compared to $354.1 million in six deals in 2012 and $150.5 million across four deals in 2011. In solar, PE funds infused $29.13 million through three deals in 2012, but not a single investment was made in 2013.

However, PEs’ interest in companies that generate power through multiple sources have increased. So far this year, $152.5 million has been infused into such companies, compared to $49 million a year ago. Similarly, in hydel, not a single deal was reported in 2011 and 2012; but there was one deal worth $8.6 million in 2013, according to Venture Intelligence data.

“Overall, PE investments generically is low due to global economic slowdown, so the slowdown of investment is not unique to this sector,” says Karthikeyan Ranganathan, partner and head of investments in infrastructure and alternate energy at Baring Private Equity Partners (India) Ltd, which has invested in Chennai-based Auro Mira Energy, which has interest in wind, small-hydel and biomass projects.

Agrees Avinash Gupta, leader (financial advisory) and senior director, Deloitte India. “Overall, it may not be a good year not only for this sector, but for PE flow into the country. People will write the cheque once things get better.”

Ramesh Kymal, chairman of Indian Wind Turbine Manufacturers Association (IWTMA) says that companies have invested about Rs 600 crore in Tamil Nadu, which accounts 40% of India’s wind farms, this year, compared to Rs 1,500 crore a year ago.

This situation is not limited to Tamil Nadu, but across the country. According to IDFC's Annual Report 2012-13, while the 11th Plan period saw renewable energy-based plants adding 16.74 GW, renewable energy capacity addition in FY13 was only 1.35 GW.

Some states have even asked wind power plants to close operations in favour of cheaper, traditional power options, the report says. It adds that state utility companies have asked for a portion of renewable energy certificate (REC) revenue from developers and increased transmission charges on wind power plants, which further discouraged wind power generation. REC is a tradable certificate that represents 1,000 units of power generated from renewable sources and sold to the grid.

However, players are optimistic about the prospects of the sector. The managing director of a large company, which has interests in wind and solar, says he is bullish about the sector.

“Investments in renewable energy will only increase. There are, however, operational issues across wind, solar and hydro and they need to be addressed. Also, there are funds that have a dedicated investment strategy for renewable energy and they will invest,” says a fund manager.

The industry is hopeful of a revival. According to Gupta and Ranganathan, fresh investment flow into the sector will depend on the stability of the rupee, regulation and the government, among other factors.