The power of green

WHAT INDIA IS FACING an energy shortage is no longer news. Coal is no longer easily available, and thermal power projects are increasingly seen as major polluters. Nuclear power, touted as “clean” energy, has its share of detractors and, after Japan’s experience with the Fukushima reactors, countries are exploring viable alternatives to energy production. In India, the government launched the Jawaharlal Nehru National Solar Mission in 2010; the project’s ambitious target is to feed 20,000 MW of solar power into the grid by 2022. Several states are also studying the feasibility of wind power; the Tamil Nadu government, for instance, has shown interest in an offshore wind power project where the turbines will be put up at sea. There are also several micro-hydel power plants being set up in remote parts of the country that are completely off the conventional power grid.

On the regulatory front, India voluntarily drew up a national action plan to address climate change—probably the only one of its kind in the world.

But this is not enough. “China is getting huge government support,” says Ashok Das, CEO of Bangalore-based clean-tech advisory SunMoksha. “In contrast, the Indian government is slow to incentivise renewable energy businesses.”

India has a history of indigenous research on alternative energy. (Bharat Heavy Electronics had a research and development division for solar technologies in the ’80s.) Many of these ideas are stuck due to lack of funding or marketing knowhow. That’s where the private sector comes in with funding and advice to get these innovations out of the lab and into the market.

“The private sector’s role is crucial primarily for the migration of technologies from private sector developers in Europe and North America to India,” says Sagar Gubbi, managing partner for EcoForge Advisors.

India Inc. is also keen on entering the space, seeing clean energy as the next big thing. Apart from the demand for power, there are international forces that make clean power projects even more attractive. Under the terms of the Kyoto Protocol, countries can trade in carbon credits. This means a company in Europe or the U.S. can buy carbon credits from a renewable energy project in India to meet its mandated emission reduction targets. Last year, the World Bank-backed International Finance Corporation bought $15 million (Rs 8,341 lakh) worth of certified emission reductions from Hyderabad-based biomass energy producer Shalivahana Green Energy. The commitment period for signatories to the Kyoto Protocol ends this year, and a new framework will have to be drawn up in 2013.

The potential for green business is likely to get better. Smart money is pouring into these projects, as venture capital and private equity firms see a world of commercial possibilities. In the last one year, these investors have pumped in over $700 million into such projects, and, despite the present slowdown, are willing to fund more.

The problem is that the ideas and innovations coming out of India are rarely disruptive or path-breaking, and so do not attract the seriously big bucks. But there are still PE firms that are willing to fund projects that address basic needs of power or clean water. Clean-technology applications are often invisible to large cities, where conventional energy is a switch away. But those are the projects that will help the country meet its future emission norms, and those are the businesses that we look at in the following pages.

A new curve

As investors pour money into green Indian businesses, BSE’s GREENEX may be just the ready reckoner. By Anjali Kapoor

ACCORDING TO THE latest annual report by the UN Environment Programme, India’s investment in renewable energy in 2010 was $3.8 billion (Rs 21,017.8 crore). That’s 1.8% of the global investment. With investors focussing on energy-efficient firms, it was a matter of time before India got its first index on carbon efficiency—the BSE-GREENEX.

Aimed at attracting foreign institutional investors who pumped in Rs 93,725.5 crore in FY12, the index will serve as a ready reckoner for investors interested in green businesses. It comprises the top 20 companies from the BSE-100 Index, which have low carbon emissions, good market capitalisation, and turnover.

“Many foreign funds have a mandate to invest in sustainable businesses and the index can be licensed for the development of green financial products within categories such as mutual funds, exchange-traded funds, and structured products,” says Vivan Saran, business head, reports and indices, gTrade Carbon Ex Ratings Services, which has co-developed the index.

Global investors agree. Tushar Pradhan, chief investment officer, HSBC Global Asset Management, says, “We are signatories to the UN’s Principles for Responsible Investment, which state that environmental, social, and governance factors can affect returns. Hence, we consider these factors when making investment decisions.” While India still lacks social investment forums, Sunil Sinha, director, economy research, Crisil, a credit rating firm, says, “Industry bodies and the Ministry of Corporate Affairs are taking steps to drive home the importance through regulations.”