C&I segment emerges as lucrative for energy companies and investors

This report has been updated

Hyderabad-based Fourth Partner Energy (4PE) was started by three friends in 2010 with Rs 3 crore angel funding. The name mirrored their business idea — the fourth partner is the customer for whom 4PE would develop tailor-made green energy solutions. A major chunk of their customer base turned out to be the energy-guzzling commercial and industrial (C&I) sectors — retailers, carmakers, pharma companies, and manufacturing units.

4PE started out as a “distributed green energy supplier” at a time when solar power was just catching on in India with grid connected projects making headlines with their large size and record low tariffs. Vivek Subramanian, co-founder of 4PE, told this writer in 2014: “We are convinced the distributed power segment will see explosive growth over the next few years.”

Last month, 4PE raised $275 million, or roughly Rs 2,000 crore, from three marquees — World Bank’s International Finance Corporation (IFC), Asian Development Bank (ADB), and Germany-headquartered DEG — making it one of the priciest equity deals in the Indian renewable energy (RE) sector.

Announcing the deal in Delhi recently, Subramaniam said they have a portfolio of 1.5 gigawatt (Gw) and are aiming to build a 3.5 Gw capacity by 2026-27. “The investment strategy and variety of funding instruments that these large fund houses have to offer will bolster our growth plans. We would be collaborating with these investors on innovative financing tools, invest in more energy technologies and enter new geographical territories,” he said.

Greening the fossil fuel guzzlers
 

The C&I segment is growing as a lucrative segment for energy companies and investors alike. The growing shift of fossil fuel-dependent industries towards green sources is for meeting their ESG (environmental, social, and governance) targets, controlling their emissions to comply with trade regulations (for example UK’s Carbon Border Adjustment Mechanism), and bringing down their energy costs.

Leading names in the energy sector Tata Power, JSW Energy, ReNew, Hero Future Energies, and Sterlite Power have announced plans for a dedicated C&I business vertical. Sterlite has even launched a separate company, Serentica Renewables, to cater for the C&I segment with green energy solutions.

“Over the last decade, the C&I energy landscape in India has undergone significant transformation. Starting in 2014, many states began implementing net metering regulations, which enabled C&I customers to adopt rooftop solar, fulfilling 10-20 per cent of their energy requirements from renewable sources. By 2018, the Open Access route for renewable energy had gained momentum, allowing C&I customers to source 50-60 per cent of their energy needs from renewable sources. This trend has picked up even more traction post-pandemic,” said Jay Kumar Waghela, CEO, Distributed Solar Business, 4PE.

A key regulatory change has been the introduction of Green Open Access by the government. In 2022, the Union Ministry of Power announced that consumers using 100 kW or more can get electricity from sources outside their local power company’s area. A year later, it stated that multiple locations within a defined area could combine their electricity needs to access green energy. This means C&I consumers can combine their energy needs from different locations and buy green energy from a single source.

Waghela said there is also a rise in the number of companies committing to RE100 targets, which has also driven demand for even higher renewable energy replacement, leading to the recent adoption of wind-solar-hybrid plants under Open Access.

“Many businesses in India are looking into Virtual Power Purchase Agreements (VPPAs), Carbon Credits, and International Renewable Energy Certificates (IRECs), inspired by their success in developed countries. This shows that India's commercial and industrial sector is increasingly committed to sustainability and has access to more advanced renewable energy solutions,” he added.

HFE, which was one of the early entrants in the solar IPP (Independent Power Producer) business, has now expanded its presence in the C&I as well. The company started with a captive wind plant for C&I customers in Tamil Nadu and expanded its portfolio to include both ground-mount and rooftop solar projects.

“HFE has a sizeable operational portfolio of behind-the-meter projects across 15 states of the country, serving marquee clients like Delhi Metro, Kochi Metro, BHEL, and Western Railways. We have also executed several behind-the-meter projects under a capex model for C&I customers,” said Srivatsan Iyer, Global CEO, HFE. 

Making the money green

A few years ago, decentralised energy solutions mainly included solar rooftops or solar mini grids. Recently, new solutions have emerged that combine various green energy sources and storage for continuous green power. According to JMK Research and Analytics, from 2020 to 2023, the share of Open Access business models in C&I renewable investments rose from 20 per cent to 80 per cent, with total investment reaching $1.7 billion.

“Over the years, several financiers have emerged, underlining the maturity of C&I RE sector financing. Every solar project or portfolio is usually financed through a combination of equity and debt,” the report released in June this year said. According to JMK, the C&I renewable sector in India is estimated to attract investments worth $9-11 billion by 2025. This includes investments in solar, wind, and hybrid RE projects specifically catering for the C&I segment.

Leading green financiers are shifting their focus towards the C&I segment. IFC, for instance, has a dedicated branch for investment in this area. “IFC has designed a targeted C&I strategy for India, focusing on market opportunities, identifying key players, and defining optimal engagement through financial and advisory tools. Our investments in 4PE — both debt and equity — are a direct result of this strategic approach. This financing reflects our commitment to fostering growth and innovation within India's RE sector, with a particular focus on the needs of C&I clients,” said Jason B Pellmar, regional industry manager (Infrastructure), India, Bhutan & Maldives, IFC.

Pellmar underlined that despite C&I consumers representing 51 per cent of India’s energy use, only 6 per cent comes from renewables, which IFC is aiming to change. “IFC’s investment aims to boost market competitiveness by promoting innovative distributed generation (DG) solutions for the C&I segment. The emerging DG segment holds the potential to add at least 67 Gw of capacity, propelling India’s renewable energy growth,” he said.

Apart from 4PE, IFC has committed $105 million in debt financing to Brookfield Asset Management for a 550 MWp (megawatt peak) solar park in Rajasthan. The partnership uses an innovative hybrid offtake structure, where most of the power is sold to C&I consumers through long-term corporate power purchase agreements while the remainder is sold to the merchant market via the exchange.

“IFC remains committed to supporting rapid deployment of cost-effective, clean electricity solutions for commercial and industrial clients. This includes demonstrating the commercial viability of innovative business models that enable the scaling up of renewable energy through Open Access, Distributed Generation, and inter-state power exchanges,” Pellmar said.

Access to green financing is also becoming a USP for companies in the C&I segment, which is becoming crowded. Waghela said since it is a capital-intensive business to operate, the backing of and access to a robust network of green financiers is extremely important.

Developing in-house expertise on asset management, RE financing and new technology, in order to better service the corporate client, has been a game-changer for 4PE, said Waghela.

But it would require investment from agencies such as IFC to boost capital in the segment, which is looking at growth as green targets become more stringent for businesses across sectors.

Pellmar said India needs massive private financing and innovation from the private sector to achieve its climate goals and deliver on green transition. “Leveraging our expertise in blended finance, risk mitigation, and impact investing, we are enhancing and scaling up tools to attract private finance in crucial areas aligned with the national green growth priorities,” he said.