Global investors backing India's drive to be solar energy giant
Power demand in India is set to surge as Asia's third-largest economy grows and more people move into the cities.
India estimates peak electricity demand will more than quadruple in the next two decades to 690 gigawatts (GW), which would require rapid growth in generation and transmission capacity.
Prime Minister Narendra Modi is targeting $100bn (€91bn) in investment in the next five years. That potential, helped by cheaper solar material costs and government efforts to curb pollution, is drawing global investors. They include Canada's top pension fund managers - Canada Pension Plan Investment Board (CPPIB), Caisse de dépôt et placement du Québec (CDPQ), and Ontario Teacher's Pension Plan (OTPP).
Investors' focus is primarily on solar power generation, funding large-scale solar parks. CDPQ, which has $119bn(€109bn) in net assets, says it plans to invest in India's solar sector with Azure Power, a New York-listed firm. "We plan to do more with them. Our approach is really to pick the right partner and then build a platform that can be sustained over several years," said Anita George, CDPQ's South Asia head, adding she wouldn't rule out investing in other solar ventures.
Other international investors have already entered India's renewable energy sector, such as Dutch fund manager APG, Canada's Brookfield Asset Management, the private equity arms of Goldman Sachs, JPMorgan and Morgan Stanley, and European utilities EDF, Engie and Enel.
"We expect to be able to announce another investment in the Indian renewable energy sector in the coming months," said Hans-Martin Aerts, APG's Asia Pacific infrastructure head. Alok Verma, an executive director at Kotak Investment Banking, which has advised firms on renewable deals, said he expects at least 5 GW of solar power to be added from next year, most of it supported by overseas funds. Solar-power generation capacity in India has more than tripled in less than three years to over 12 GW, helped by lower module prices and borrowing costs, and a government drive - but that is still only around 4pc of total power capacity of about 315 GW. China - the world's biggest solar producer - more than doubled its capacity last year, to 77.42 GW.
Suyi Kim, Asia Pacific head at CPPIB, Canada's largest pension manager, said solar appears more appealing in India than wind power. "In India, my impression is that solar seems to be more attractive. But it's case by case," she said.
While deal sizes have been relatively small, some companies such as Japan's SoftBank, along with partners, have pledged to invest $20bn in Indian solar power generation projects.
"Getting returns on investments ... and getting paid by distribution companies are the major risks," said Sumant Sinha, CEO at ReNew Power, a renewable energy firm backed by Goldman.
Intermittency - power is only produced under bright sunlight - is another issue.
"Based on current market conditions and policies, I see a path to 65-70 GW (solar capacity) by 2022, but not more," said Mercom CEO Raj Prabhu.
That's still some way short of the government pledge for 100 GW by 2022.
"To reach 100 GW by 2022, distribution company finances need to improve drastically, power demand has to increase quickly, and transmission infrastructure needs to keep up," Prabhu said. (Reuters)