However, the quality of these deals leaves much to be desired, say investors.
According to the scheme, the ministry will subsidize up to Rs12 of the cost per unit of solar power generated, which has led to an increase in the number of proposed projects. Venture firm Sequoia Capital India, which raised a $400 million (Rs1,972 crore) earlystage fund last year followed by a $700 million growth fund this year, has seen at least half-a-dozen photovoltaic solar generation projects, but is yet to find one it wants to fund.
Were seeing a lot of (compa nies seeking) project financing, but they are not scalable models, says V.T. Bharadwaj, vicepresident, Sequoia Capital India.
While more entrepreneurs are entering the space hoping to benefit from the subsidy, most of them plan to set up individual plants using limited real estate.
So venture capitalists, who typically look for business models that can be scaled rapidly in a big way, are trying to look beyond these projects.
So far, investments in solar power have been in the form of large deals rather than earlystage venture capital. One of the largest clean-tech investments last year was a $100 million round of funding that Moserbaer Photovoltaic Ltd raised from the CDC Group, GIC Special Investments and IDFC Private Equity.
But some venture capitalists hope the subsidies will lower the tariff and help create more capital efficient models. There is a good solar policy in place, driven by concessional tariff. I feel there will be a lot of investments into solar in the next five years, says Sanjeev Aggarwal, managing director, Helion Venture Partners. The firm, which man ages committed capital of $350 million, has invested in an undisclosed solar energy start-up.
The company plans to generate solar power that can be plugged directly into the grid, but by sourcing solar panels from others instead of manufacturing it in-house.
Within solar, there are different models beyond solo projects that investors think could work.
If there is one organization with a distributed management model (handling) a set-up of 100-200 companies setting up a 1MW plant each, that is scalable and well finance it. If it is one company setting up a 10MW plant, then no, said Karthik Ranganathan, head of investment, Baring India, at a recently held clean-tech seminar. The success of this kind of cookiecutter model depends heavily on the execution capability of the management team and less on technological innovation, say investors.
Clean technology, in general, and solar, in particular, are relatively new areas of interest for venture capitalists in India, unlike US firms that have invested billions of dollars in it over the last five years. In 2007, venture capitalists invested $288.2 mil lion in clean energy in India, compared with $3.64 billion in the US and $1.34 billion in Europe, according to a report by the Cleantech Group. In the quarter ended September 2008, Indian companies represented 0.2% of the total $2.6 billion investments across North America, Europe, China and India.
That clean-tech has been on the radar of many Indian firms in recent times is partly the result of broadened focus beyond technology and tech-enabled services sectors into large do mestic market opportunities such as energy, education and retail.
Such venture investments, however, have largely been in areas other than solar such as ewaste management company Attero Recycling Pvt. Ltd, funded by DFJ India and NEA IndoUS Ventures, automotive energy efficiency company Sedemac Mechatronics Pvt. Ltd and organic farming company Suminter India Pvt. Ltd funded by Nexus India Capital. Im looking more at water and ener gy efficiency companies, says Mohanjit Jolly, managing director, DFJ India.
The momentum that cleantech investing had begun to gain in India, however, could be checked by an ongoing economic downturn. Investing overall will slow down, (so) clean-tech will probably get affected, says Sandeep Singhal, managing director, Nexus India Capital. It remains to be seen if the governments incentives manage to pull in capital for the sector in these uncertain times.
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