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Clean tech market: green shoots and headwinds

According to reports, when Chitra Rajan became tired of working in the IT industry nine years ago, she bought a coffee estate and turned it into an organic farm to keep her busy. Soon she realized that the pulp from coffee processing—piled up outside estates in the neighbourhood—could be used to make biogas.

The process is called bio-methanation, where organic wastes are broken down using bacteria-rich enzymes to produce methane—a combustible gas that can be used for cooking.

Rajan installed a bio-methanation plant in her Bangalore home and used the biogas in her own kitchen. Surprised by the efficiency of the gas, Rajan’s friends suggested that she start commercializing the product that could both help get rid of kitchen waste and be used as an efficient substitute for liquid petroleum gas, which is 10 times more expensive than biogas.

With four plants in the country, one in Mumbai, and Pudukottai and two in Tiruchy (Tamil Nadu), Rajan is now the founder and CEO of Radix Lifespaces Pvt. Ltd, a company she built in 2011 with her husband, Madhukar Govindarajulu, who has over two decades’ experience in renewable energy.

Though the plant does not consume electricity and is relatively easy to maintain, it does take someone with expertise to administer the enzymes and the meter that connects the gas line to the kitchens. This was a challenge Rajan had to overcome.

Experts say that to function efficiently, clean tech start-ups need large spaces, high capital investment, long gestation periods and knowledge of the subject.

“Everybody started getting such plants to get the government subsidies that are given for installing them, but it never works because you are handling live organisms and need to feed it at a particular rate; water content has to be in check so the pH level (a measure of acidity or basicity of a water-based solution) is maintained. It is not rocket science, but their core competencies were elsewhere and I had trained people to handle this. So to overcome this, I told them, ‘I will put the plant at my cost and run it for you on a daily basis. You buy the gas that you use’,” says Rajan.

The commercial bio-methanation plant that Rajan installs costs between Rs.20,000 and Rs.10 crore, depending on size. Radix is completely bootstrapped now, making over 30% in margins, but will be looking for external funding to back its expansion into other Indian cities.

What is the market for clean tech in India?

“There are essentially two bifurcations in the clean tech sector—one is the renewable energy market and the other is the energy efficiency market —about how you reduce consumption. The most in terms of consumer demand is towards the energy efficiency side and the major boost in the renewable space is only because of subsidies. So it is not driven as much by customers as it is driven by subsidies,” says Anuj Kulkarni, co-founder and CEO of Prajwalbharat Pvt. Ltd, a Nashik-based start-up that installs and maintains energy efficient streetlight in rural areas with money that comes from advertising on streetlight poles.

Prajwalbharat, which was built in August 2012, has seen a positive response to its hybrid of advertising and streetlights, having penetrated 18 districts across Maharashtra, Andhra Pradesh and Karnataka.

Experts say that there are many entrepreneurs trying to break into the market, but not all of them are for innovations that India has not seen before. Most of them are just me-too ideas that need to be around to increase market penetration.

One such entrepreneur is Sourabh Bansal, co-founder of Magicrete, a Surat-based start-up that makes autoclaved aerated concrete (AAC) blocks using industrial waste like fly ash, which is otherwise a hazard to areas surrounding it. These AAC blocks, 10 times the size of clay bricks, have been in production for more than 90 years, but their demand over the last couple of decades has increased due to their low cost, light weight (almost 70% less than clay bricks) and sound insulation properties.

Today, Magicrete is the largest seller of AAC blocks in the country, backed by Motilal Oswal, a private investor who put in over Rs.35 crore into the business this year.

Sometimes clean tech entrepreneurs find investors in the country, but not always.

When Raman Shrivastava ventured out of the incubator in Vellore Institute of Technology, he did not know that finding money was going to be difficult in this sector. He came to Bangalore with meagre capital and started Aforia Pvt. Ltd, an early stage start-up that focuses on building cost-effective battery operated cars costing Rs.4-5 lakh on road.

“One of my co-founders’ father is a jeweller in Tamil Nadu. He said that his gold jewellery has no long-term future, ‘so invest this money into something that is futuristic, but we need at least Rs.20 lakh to build our first prototype and there are no Indian investors interested in this’,” says Shrivastava.

Now Shrivastava’s idea has been selected for the US’ Draper University acceleration programme of January 2014. He says that he is hopeful about the pitching session that will be presented to investors like Timothy C. Draper, who has invested in companies like Hotmail, Skype, and Tesla Motors.

“I am more positive about pitching in front of investors in America because I know they have invested in companies that build low-cost electric cars—something that makes me hopeful,” says Shrivastava.

Investors have differing views on this sector.

“It is not that we are not keen on funding in this space; it is just that we haven’t come across any investable business opportunity that is not a ‘me too’ idea. I don’t want to invest in a solar lamps business, but I would be interested in investing in a business that is unique, even if it is solar bulbs,” says Anil Joshi, president, Mumbai Angels, an angel investment forum. “Also, it is a long-gestation sector, which means investors sometimes get restless for action.”

Apart from the numerous government schemes that support entrepreneurs with ideas in this space, there are special funds and organizations that focus on backing companies that aim to make India greener—the only consolation for these dreamy-eyed entrepreneurs.

The Indian Institute of Management at Ahmedabad has a specialized Rs.100 crore fund called Infuse Ventures that backs start-ups in sustainable energy.

Another interesting venture is Mumbai-based Artha Energy Resources, launched by Anirudh A. Damani, managing partner, at the firm. The advisory firm finds and puts money into projects in the power generation industry because Damani says that there are too many roadblocks before an investor actually makes an investment in a company and the deal goes through.

“We are almost like an investment bank for renewable energy projects. So there is always hope,” says Damani.

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