According to reports, billions of dollars worth of investment in clean technology and green energy are eyeing India, where the market for low-carbon technology is expected to expand to $135 billion by 2020, according to industry experts, making the country one of the most lucrative destination for companies in the domain.
Renewable energy has already lured stars such as Sachin Tendulkar and Aishwarya Rai and large companies such as Reliance Power and Lanco, and the flow of venture capital has increased in the sector.
In addition, foreign companies involved in solar power and wind energy, as well as global funds that scout for opportunities around the globe are increasingly eyeing India for a slice of the lucrative market.
The market is promising as the government strives to tame energy-guzzling factories that spew toxic fumes, and old vehicles that contaminate the air with emissions. Analysts say that the market would expand even faster after the country’s economic growth bounces back from the current global slowdown.
“We are really bullish on India in the long run, because the private sector is focused to grow. Like in US, political system is paralysed in Indian at the moment that could lead to economic stagnation but we see opportunity in clean energy and environment and natural resource management businesses,” said Jeffrey Leonard, founder and chief executive of Global Environment Fund (GEF).
Leonard has been making at least two trips to India every year, looking for investment opportunities, and set up a local team. The private equity investment firm he set up in 1990 invests in energy and environment sectors and has $1 billion of asset under management spread across the world. India, among other emerging economies, would be a key growth area for GEF.
Analysts say that growth opportunities in the renewable energy space are rapidly shifting from the developed world to Southeast and South Asia, where investors are lured by generous incentives offered by governments.
“European countries like Spain are cutting down on subsidies to renewable energy and overall business environment is dull there.
So investors from these countries are looking at destination like India to drive their growth,” said Hemal Zobalia, Partner, KPMG India.
Spain, which was the most soughtafter country for renewable energy business until five years ago, has lost favour as the government has suspended sops for new renewable energy units.
Incentives were also rolled back in Portugal, while other countries such as Italy and Ireland scaled down the incentives. In sharp contrast, developing economies continue with their incentives for renewable power projects.
India launched incentives for renewable energy in the 1990s, which led to a significant capacity addition, particularly in the wind energy space, where it is among the global leaders. Local and international project developers and investors thrived on the incentives and upped their investment in the country.
The government has also introduced generation-based incentives for wind and solar power in 2007, in an attempt to weed out non-serious players and increase participation of independent power players. The next big step by the government was introducing the National Solar Mission in 2010.
“Government’s initiatives for renewable energy has encouraged companies like ours to enter renewable energy businesses. Next generation entrepreneurs are looking at renewable energy to give back to the environment. That these businesses are also giving our shareholders’ return helps,” said Vikalp Mundra, promoter and director of M and B Switchgears which has diversified into solar power.
His company recently started trading renewable energy certificates on Power Exchange of India.
Renewable energy certificates allows renewable energy producers that do not receive a preferential tariff to sell certificates to distribution companies and large captive consumers to meet their renewable energy obligation targets.
Sector experts believe that the sector would also get a boost when power distribution companies start working towards achieving Renewable Purchase Obligations, which requires them to procure a certain percentage of power from renewable energy units.
Deloitte’s report ‘Private Equity fuelling India’s growth’ says, “The government’s endeavor to increase investment in core infrastructure is also expected to receive private equity’s support in the areas of infrastructure, healthcare, education and renewable energy.”