Encourage private equity flow to renewable energy space to overcome financial crunch – PHD Chamber and E&Y study

An enabling situation has to be created in the renewable energy sector to attract private equity funds to overcome the severe financial crunch being faced by the segment. Investment patterns have to be accordingly structured in the renewable space with flexibility built into in project financing, measurement of Plant Load Factor (PLF) etc to attract more investment and induce entry of greater number of players, according to a joint study conducted by PHD Chamber and Ernst & Young (E&Y).

The study, which comprehensively captures the scope, range and investment requirements in clean energy in India focuses on four segments of renewable energy generation viz solar, wind, biomass and waste. Significantly, the study will form the discussion paper for the forthcoming Conference on Clean Energy & Energy Efficiency being organized by the PHD Chamber under the Energy India series on 22nd November 2007 in New Delhi.

Promotion of renewable space presupposes a steady cash flow and incentivization, that can overcome the higher risks, capital costs and longer gestation period involved, making it less attractive for players to step in. “Promoters of renewable energy projects could be diverse – textile manufacturers, construction magnates and people who have a social conscience. Therefore, while financing such projects, banks pay more attention to aspects like profitability and sustainability of existing business of promoters along with track record and not on the financials of the renewable energy project alone,” says Mr. Sanjay Bhatia, President, PHD Chamber, while releasing the study to the media.

Pitching for the financial security of the investors in short, medium and long term, the PHD Chamber-E&Y study says that there should be arrangement for addressing prompt payment for the surplus power fed to the grid. While conventional energy sources are able to find solutions to these problems through direct power purchase agreements (PPAs) with industries and other large consumers, this solution is not viable in case of renewable energy. Also, connectivity to the grid may pose a problem on account of remoteness of the renewable energy projects. In some States, issues relating to renewable portfolio standards and grid connectivity issues and corresponding obligations are largely not addressed.

Calling for pragmatic reforms in the renewable energy segment, the study underlines the need for accelerating generation from this segment to ward off the increased emission and penalty thereto on carbon emission. It calls for a flexible regulatory framework at the state-level that encourages rural electrification relying on local resources of renewable energy.

The Conference will have added focus on energy efficiency. Mr. Vilas Muttemwar, Minister for New & Renewable Energy, Government of India would inaugurate the Conference which would be attended by senior policy makers from both Central and State governments, industry representatives, technology suppliers, consultants, financiers, equipment manufacturers and others.