PEs stay away from renewable energy sector

The new government at the Centre is widely expected to encourage the renewable energy sector. However, private equity (PE) investors are hesitant to put in money into the sector owing to various issues such as uncertainties around policies and tariff.

According to data from VCCEdge, the renewable energy sector - which includes the wind, solar and biomass power segments - has seen an investment of $109 million in six deals during January and May this year. Nithin Kaimal, director (private equity) at IDFC Alternatives, pointed out that there are uncertainties associated with the sector about the mechanism used to arrive at tariff, the period for which the tariff is set for, and what happens next.

"If one of these things goes wrong, the internal rate of return (IRR) will go for a toss and that is a risk equity investors want to avoid," he said during a panel discussion at RENERGY 2014 recently held in Chennai. The Ministry of New and Renewable Energy (MNRE) has set a target of 30,000 MW during the 12th Plan period (2012-17). According to the ministry, financing is the single biggest challenge for the industry.

Tarun Kapur, joint secretary in MNRE, said while the 12th Plan projects Rs 3 lakh crore to be invested in the renewable energy sector, a significant part of it is yet to be invested.

"Till we get to a stage where there are clear policies and visibility of cash flow, I don't see the investments going up," he added.

Mohan Kumar, senior director, IDFC, which has significant exposure to the renewable energy projects, said: "Certainty of cash flow is the king." He added the key challenge is to meet the expectations during the long-term. For equity funds, it is a horizon of seven to 10 years.

According to Amber Maheshwari, investment manager at Infuse Ventures, renewable energy firms will attract more investments if there are some schemes or initiatives to help the firms to grow in the early stage, which in turn will help the companies grow and attract investors.

POOR SHOW

According to VCCEdge data, the renewable energy sector saw an investment of $109 million in six deals during January-May this year. The major investments include $85 million by Asian Development Bank (ADB) and DEG (a German development finance institution) during February and $24 million by GE Energy Financial Services in Welspun Renewables Energy. In contrast, PE investments during the same period of 2013 was $379.72 million - about 70 per cent more than this year's figure.

This is because last year, there were some large deals including a $151-million one by GIC Special Investments Pte Ltd in Greenko Mauritius Ltd. Another significant investment was a $90-million deal by various investors such as International Finance Corporation, FE Clean Energy Group, DEG, Proparco SA, ADB and Kotak India Growth Fund II.

However, the previous years - 2012 and 2011 - were recorded with lower investment from PE players. For instance, during the January-May period of 2012, some $70.33 million was invested in eight deals. During the same period in 2011, the figure was $33.73 million for six deals.