Eversource Capital's new $1-billion fund receives commitment from US DFC

Eversource Capital's second fund has received an equity commitment from United States International Development Finance Corp (DFC), said CEO Dhanpal Jhaveri, as it prepares to launch a $1-billion second fund in 2025. 

DFC, which mainly offers debt investments, is expected to channel equity funding into Eversource Capital for the new fund, Jhaveri said in an interview with Mint. Eversource is a private equity firm that focuses on renewable energy infrastructure.  It's a joint venture between the Indian private equity firm Everstone Capital and the UK-based Lightsource BP. 

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In November, DFC made a debt investment of $50 million in Northern Arc’s inaugural Climate Fund, underscoring its interest in India’s renewable energy infrastructure. In September, DFC’s deputy chief executive officer Nisha Biswal highlighted the institution’s partnership with India during a visit to the country.

Eversource raised $741 million for its maiden fund in 2022 from investors including National Investment & Infrastructure Fund and British International Investment.

Focus on energy storage

With the new fund, it is zeroing-in on energy storage as the next major opportunity, Jhaveri told Mint. It will look to back businesses that tackle a pressing challenge in the sector – grid instability caused by the growing share of solar and wind power, he added.

“Today, about 10% of the grid is renewables. By 2030, this will be about 25%. By 2050, my sense is that 50-70% of the grid will be renewable. The moment the grid becomes renewable, volatility increases," he said. This is because unlike conventional energy sources, renewables are variable – as sunlight and wind are intermittent – and this poses challenges to grid stability.

Jhaveri said storage would be crucial, the demand for battery capacity potentially reaching tens or even hundreds of gigawatt hours in the next few decades. “This by itself represents hundreds of billions of dollars of potential investment," he added.

The fund aims to support companies involved in static battery storage, mobile batteries for electric vehicles, and backup power solutions for commercial buildings and industries, particularly in tier 2 and tier 3 cities where there is frequent load-shedding.

Also read: Renewable energy is starting to shrink the power bills of cement, metal firms

Electrification of mass transportation and commercial mobility, and industrial decarbonisation are also turning out to be big investment trends for the new fund, Jhaveri said. 

In May, Jhaveri said while India would remain the focus, Eversource also planned to diversify to countries such as Indonesia, the Philippines, Vietnam and Bangladesh, Bloomberg reported.

Eversource’s new fund is expected to receive most of its backing from international investors. Jhaveri said the Indian investment pool tends to focus on short-term, liquid assets such as venture capital and pre-IPO investments.

He told Mint that funds like Eversource need "purpose capital" and "patient capital," which are more suited for sustainable, long-term investments in sectors such as renewable energy and climate change. He said such capital was still relatively scarce in India.

In its latest budget, the Indian government underscored its focus on renewable energy.

On the Adani indictment

Separately, Jhaveri said the latest Adani controversy had put the spotlight on the weakest link in the renewable energy supply chain – between the Solar Energy Corporation of India (SECI) and state electricity distribution companies.

Alo read: Why SECI struggles to find buyers for its renewable energy tenders

“The developer has no role to play here. If you look at the process, the developer plays no part at all. It is SECI that is required to sign a PSA (purchase and sale agreement) because the developer signs a PPA (power purchase agreement) with SECI, making SECI the counterparty," said Jhaveri.

Jhaveri added that private developers have to assume greenfield risk and take on leverage to build renewable energy projects, for which the government and SECI have introduced significant credit enhancement. "This has mobilised access to private debt and equity and lubricated the sector’s ability to build. Otherwise, it would have been like the five-year plans, in which the sector was largely monopolised by public sector utilities, leaving little room for the private sector," he said.