Investors to take advantage of fast growing green energy

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Mumbai: By the end of this fiscal global venture capital and private equity firms will invest up to $1 billion in fast growing energy sector. According to industry estimates, the sector has received around $200 million from fund houses over the past six months compared with $175 million in last year. Companies like, Moserbaer, London-based Swaraj Paul's Caparo Energy and state-owned companies are planning to raise funds for clean energy projects, reports Pradeep Pandey from The Economic Times. "A country like India, which has high energy demand, may see maximum investment owing to good growth prospects," said Mahendra Swarup, President of Indian Venture Capital Association. According to Kuljit Singh, Partner, transactions advisory services of Ernst & Young, "The sector has enormous potential for investment on the supply side and large-sized projects are still to take shape." The International Finance Corporation (IFC), a World Bank arm, recently committed $10 million in Azure Power India, a solar energy producer. IFC has been one of the most active investment firms this year, funding renewable energy projects of Bhilwara Energy, Auro Mira Energy and IDFC. Others like Climate Change Capital, IDFC private equity and FE Clean Energy have created separate funds for clean energy. Renewable energy projects and assets promise high returns on long-term predictable cash flows, as governments around the world sharpen their focus on green energy in the wake of rising global warming. Such investment typically brings in two-three times the returns over a six-to-seven-year horizon, said an industry official who did not want to be named. "Growth and long-term returns are guaranteed in sectors where developers need huge investments and energy is in prime demand," said Arun Natarajan, Managing Director & CEO of Venture Intelligence. The Indian government has proposed incentives of up to 12 per kilowatt hour for power plants, 10-year tax holidays, electricity tariff exemptions and other preferential tariffs. There are also subsidies for solar power systems and small hydro power projects. India is the fifth largest wind energy producer in the world, with installed capacity of nearly 10,500 mw and a target to scale up capacity to 14,000 mw by the end of 2011, according to the industry official quoted earlier. The government has targeted a 20,000-mw capacity by 2020 under the National Solar Mission. Investors may fund projects of 200-500 mw following regulatory reforms, said Singh of Ernst & Young. The new and renewable energy ministry is planning to bring out tax relief norms by September. Most PE investments in the energy sector are in the form of compulsorily convertible preference shares, which have to be converted into ordinary shares over a period of time, said Natarajan.