Commercial element to drive large clean energy opportunities in India

There is potentially a US$5-6bn opportunity for clean energy in India, according to Ashish Sethia, Bloomberg New Energy Finance, who spoke in a presentation to TiE clean energy entrepreneurs last month. Indian renewable energy markets are driven by policy. Despite policy slowdown in recent years, and an elections year, Sethia predicts that there is a large opportunity for clean energy which will be realised through equity, debt, VC and public markets. 

The discussion was facilitated by Mr. Pankaj Seghal, Managing Director of the SUN Group. “What you will see that large companies are increasing becoming power generators themselves,"said Seghal, "It’s really a commercial element that will drive the movement towards alternative energy here.”

Source: ‘Clean Energy Investments in India’ presentation by Ashish Sethia to the TiE Cleantech Group at India Habitat Center on 13 Feb’14. 

 “In terms of VC activity, there is less emphasis on looking for new technology, and more emphasis on large scale deployment of what has already been proven to work in India,” added Seghal. VCs and PE firms are also more inclined with to fund non-manufacturing segments of the wind and solar clean energy sectors.  Unlike coal, wind or bio-energies, solar enables modular installations, which has energized uptake at small scales.

Source: ‘Clean Energy Investments in India’ presentation by Ashish Sethia to the TiE Cleantech Group at India Habitat Center on 13 Feb’14. 

Globally, biofuels has seen a reduction in investment activity as the technology has not been as cheap as it was expected to be, Sethia explained. Further, he noted that carbon capture is seeing renewed interest from VC/PE firms. 

However, VC/PE activity is a low percentage of finance for clean energy initiatives in India. Almost 80% to 90% of investments in clean energy (by value) are driven by project finance in India. The main reason for this is that the market is reliant on regulatory policy to make large clean energy projects viable and the market has struggled to move away from a utility-driven model, where biggest customers of energy are state utilities. 

Earlier this week, according to the Business Standard, Suzlon Energy Chairman and MD, Tulsi Tanti said, "We are expecting 30% growth in the Indian wind energy market in 2014 due to GBI (generation based incentives)." 

Source: ‘Clean Energy Investments in India’ presentation by Ashish Sethia to the TiE Cleantech Group at India Habitat Center on 13 Feb’14. 

The government is looking to reinvigorate the wind market, following the removal of accelerated depreciation and generation-based incentives in 2012, which led to a market crash with wind installations drop from 2.5 to 1.7GW from 2012 to 2013 (Bloomberg, Feb 2014).  The GBI scheme was re-instated in April 2013, following the wind market crash. Currently, it will provide an incentive of 50 paise per kWh (kilowatt hour) of electricity generated by wind projects registered under the scheme. Tanti has now called for a reinstatement of accelerated depreciation for the wind sector.

An interesting observation on the market is that there is no evidence to support that small-scale wind has emerged in India, especially as a diesel supplement or to support uptake of micro/mini-grids.  Solutions in energy storage will help unlock the growth of small-scale wind. 

In terms of solar, Ashish Sethia estimated that solar PV market will grow in India from 2.2GW in 2013 to 6.4GW in 2015 during the presentation yesterday. This growth is driven by developments such as the launch of solar mission Phase II and increasing opportunities to aggregate demand and develop 3rd Party PPAs.  

Other recent developments in this space include an emerging opportunity for off-shore wind in India. Suzlon Energy sees offshore wind as a cheap way to generate 500-1000MW of energy to service coastal Indian cities, with minimal transmission losses.  In the sustainability finance space, Naina Lal Kidwai said the growth of green bonds in India could reach close to a billion dollars in the medium term.