PE investment in wind, solar up 47% in 2017

The renewable energy sector in India has witnessed a spike in private equity (PE) flows in 2017, despite facing challenges like plunging tariffs and policy modifications. 

PE flows into wind and solar power jumped 47 per cent to $920 million — involving nine deals — during January 1-September 25 this year, compared to $630 million across 10 deals during the corresponding period last year, according to Venture Intelligence data. This is the second-best year in terms of PE flows into the sector after 2015, when it attracted $979 million across 14 deals. 

Some of the major deals reported in 2017 include Macquarie’s $250-million investment in Hindustan Powerprojects, $200 million by IDFC Alternatives in First Solar, $2500 million by JERA in ReNew Wind Power, $108 million by Warburg Pincus in CleanMax Enviro Energy, and $100 million by Abraaj Group in Engie Abraaj joint venture (JV). A senior representative of a fund, which invests in renewable energy, said investors were attracted by high growth prospects and supportive policy framework. The main challenge, he said, was payment delays by power distribution firms, which were even seeking to renegotiate or cancel projects. 

 

Then, per unit price in solar was also dropping, he added. Since 2010, prices dropped 70 per cent to Rs 2.42 per kilowatt-hour (kWh). “Investors are worried that irrational pricing is leading to many projects being abandoned or financially distressed,” he said. Investors’ focus is primarily on solar power generation and funding large-scale solar parks.

As far as wind energy is concerned, experts say the wind sector was at an inflection point. As the underlying sector economics remain strong, this platform is well poised to add capacity on the ground and create value for both shareholders thanks to the improving wind technology yields. The sector also gave some returns for the investor.

For example, last month, Sembcorp Industries Ltd agreed to buy out private equity firm IDFC Alternatives from its Indian renewable energy unit. Reports quoting IDFC Alternatives partner Girish Nadkarni said this was the largest exit for the PE firm since inception. 
 

Nadkarni was quoted as saying that the firm had pulled out Rs 2,500 crore by selling its stake in the renewable energy company. This is a return of 3.2 times its initial investment. 

The firm made an internal rate of return (IRR) of 19 per cent on this investment, he said. That’s near the lower end of the 20-30 per cent IRR that PE firms typically chase in emerging market economies.