India emerges as key investment area for clean energy funds

India emerges as key investment area for clean energy funds

Mumbai: Middle-market private equity firm Olympus Capital Holdings Asia is betting big on the clean technology space in India, a market with seemingly insatiable energy demand.

Long, who is based in Hong Kong and travels to India at least once a month, is betting that because countries such as India face greater environmental challenge, they offer attractive investment opportunities in the clean-tech space, including waste management, water treatment, energy efficiency and renewable energy such as wind, solar, biomass and hydel power. Clean-tech?firms also derive benefits from government incentives.

Like Olympus, several other specialist or pure-play clean-tech funds are also targeting the potentially vast and lucrative opportunity in the Indian alternative energy space as India struggles with a chronic power deficit and environmental worries.

Climate Change Capital Ltd, a UK-based investment group that manages funds with $1.5 billion of commitments, according to its website, wants to put money in carbon-embedded assets and buy carbon credits in projects. Investor interest is increasing in clean development projects that have the potential to generate carbon credits, or the value assigned to a cut in greenhouse gas emissions by a company or a project. The range of investments will vary depending upon the value of “embedded carbon" in the projects.

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Another firm eyeing the low-carbon economy is FE Clean Energy Group Inc., a private equity firm focusing on investment in energy efficiency services. The firm has invested in a hydel power project in Karnataka that will provide electricity to industrial gas supplier Praxair India Ltd and in energy services firm Elpro Energy Dimensions Pvt. Ltd.

The International Finance Corporation (IFC), an arm of the World Bank, committed an investment in Azure Power India Pvt. Ltd, a provider of solar energy. IFC invested $25 million in Bhilwara Energy Ltd and up to $10 million in Auro Mira Energy Co. Pvt. Ltd, a renewable energy-focused firm.

While all the specialized clean energy funds aiming to invest in clean energy solutions are global offshoots, they are targeting India as their key area for investment. “India will see maximum allocations owing to its high growth," says Nakul Zaveri, senior investment officer, Climate Change Capital. Also, as Chaitanya Kale, partner, Ernst and Young, says, “This space is hugely policy driven and some of the incentives by the government are encouraging for investors and companies pursuing this as new lines of businesses."

In its annual budget, the Union government said it plans to levy a tax on the use of coal and use the money to start a national clean?energy fund to back renewable energy projects. Besides, there are wind energy incentives, including a provision for 80% accelerated depreciation in the first year, a 10-year tax holiday, an income-tax waiver on power sold to utilities and favourable tariffs.

India offers several subsidies for solar power systems, such as solar lanterns and home lighting systems,  and generation-based incentives  of up to Rs12 per kilowatt-hour for power plants. For small hydropower projects, there are concessions on customs duty, a 10-year tax holiday and other state-level incentives, including sales and electricity tax exemptions and preferential tariffs. Even general domestic private equity funds have been drawn to clean energy.

For instance, BTS Investment Advisors Ltd is planning to raise a new fund focused on clean energy. It will look at proven business models in wind energy, biomass, hydropower, energy efficiency, etc., and is targeting a corpus of $100-125 million.

Aloe Private Equity is looking to make two deals per year and invest between $5 million and $25 million in areas such as waste management, water and recycling, according to co-founder Vivek Tandon, who is betting on environmental concerns becoming a mainstream trend. “All investments will need to take into account the impact a company has on the environment. The trend of investing in environmentally aware and sound businesses will become mainstream," says Tandon.

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