Indranil Sen Gupta, Research Analyst
Search of Alternative Energy
The day of Oil and Coal is going to come to an end. Don’t get shocked by hearing what I said. Coal and Oil is not going to get depleted neither not going to get evaporated from the earth. We know that when the crude price was floating around $147/barrel the world economic condition was under severe pressure .Prices of commodity became expensive and inflation stated picking up followed with application monetary restriction polices. Apart from oil price affects on commodity and cost living, coal imposed further pressure on the cost of production and operation of the industries globally. The industrial sector uses more energy globally than any other end-use sector, currently consuming about 50% of the world’s total delivered energy. Energy is consumed in the industrial sector by a diverse group of industries—including manufacturing, agriculture, mining, and construction—and for a wide range of activities, such as processing and assembly, space conditioning, and lighting.
The global economic recession that began in 2008 and continued into 2009 has had a profound impact on world energy demand in the near term. Total world marketed energy consumption contracted by 1.2 percent in 2008 and by an estimated 2.2% in 2009, as manufacturing and consumer demand for goods and services declined.
As more development and economic prosperity is going to happen in the world the dependence on coal and oil will increase. But one must bear in mind that coal and oil reserves are on the way of depletion and environmental protection and cut back on emission is the need of the decade. Every country globally is busy in formulating industrial policies to reduced emission and abide the standards of emission. All these clubbing together have made to quest for alternative energy segment. When we look around the world we find immense potentiality and growth of alternative energy. In this regard in this article we will bring you the facts related to alternative energy investments and growth opportunities across the globe.
US Alternative Energy-The survivor
The US Alternative energy particularly the one in Wind and Solar is scouting for policy changes to promote and unleash the growth of the sector. According to the latest report from the solar and wind energy associations of US the Treasury Grant Program has supported 1,179 solar projects with total investments of over $1.3 billion in 42 states and 211 wind projects with total investments of over $15 billion in 38 states. These sectors will act as survivors to the US economy from the climbing unemployment rate of 9.8%. This alone will create job opportunities for the reeling US economy to the tune of 43,000 jobs by the end of the year, along with it will enable 4,250 megawatts of renewable power projects to come online. According to AWEA’s research, there are over 15,000 jobs in the wind industry manufacturing pipeline alone. Very recently the Berkeley report has estimated that wind energy segment will bring 55000 new jobs in the coming days. The new capacity addition will reduce the burden of rising import bill of US due to the rising global crude prices. This programme further allows the owner of commercial solar or wind property to receive a 30% grant.
Overall employment has reached 85,000 in the American wind industry, as installed capacity has grown 40 % in each of the past two years. Wind now generates 20% of the electricity in Iowa. High winds pushed wind power to 25% of the electrical generation in Texas, according to AWEA.
Europe-Alternative ways of growth
Along with US, Europe is also finding new avenues to propel up the growth of the alternative renewable energy segment. Germany is focusing very strongly for the alternative energy segment. In Germany, solar cell prices fell and demands increased because the government decided to subsidize anyone who produces solar power. Now, solar power produces up to a tenth of Germany’s electricity on sunny days. The three leading manufacturers on the German market for wind turbines were Enercon, Vestas, and Repower Systems.
About 90,000 people in Germany were employed in the wind power sector. In 2009, Germany had a total of 21,164 wind turbines installed with an output of 25,777 MW (compared with 23,902 MW at the end of 2008.
This clearly point out the probable investment being focused and ROI being generated from this sector. Germany has made clear plans of its alternative investments till 2020. It will produce 18% of its overall energy requirements from renewable sources.
One of the mains reason for such a turnaround for Germany faster recession was the amendment of the Renewable Energy Sources Act (Erneuerbare- Energien- Gesetz, EEG). This came in to force in January 2009. It turns out to be the main stimulation for the German wind market and it especially will accelerate offshore development in Germany.
Its not only Germany but other European nations have joined in exploring the immense growth of alternative energy segment. Very recently the European Investment Bank (EIB) and Enel Green Power (EPG) have signed the first €440m installment of a €600m loan that will provide finance for the company’s three-year investment programme in Italy. Ten European countries, including Norway, have agreed to develop an offshore electricity grid via alternative energy at the North Sea, in a bold move that promoters say will give Europe the possibility of tapping into an even bigger source of energy. Sweden, Denmark, Germany, the Netherlands, Luxemburg, France, the United Kingdom, Ireland, Norway and Belgium will now work together according to a precise schedule, in order to coordinate investments that will be made for developing these interconnections. French bank BNP Paribas’s has raised €437 million ($581 million) for a renewable energy-focused fund that invests in European green power infrastructure. One can just imagine the growth and investment opportunities that take birth from the womb of alternative energy. In this decade alternative energy will save and help the US and Europe to come out from the burden of unemployment and fiscal deficit.
Future Alternative Energy of India
When we look into the Indian alternative energy sector we find mouth watering growth opportunities more than US and Europe. I would like to present only the opportunities of investments in Indian alternative energy and no analysis will be required to justify further to identify the growth over investments. India will nudge ahead of the UK into third place by 2020. $1.7 trillion would be invested globally into renewable resources like solar and wind, biomass and other low-carbon forms if business continued as usual.
• Engineering export promotion body, EEPC India have declared that India could witness fund inflows to the tune USD 5 billion over next three to five years in the renewable energy segment.
• US government agency Overseas Private Investment Corporation (OPIC) is planning to invest around $300 million in new private equity investment funds focused on renewable technologies in emerging markets.
• The investment in solar energy grew from $18 million in 2007 to $347 million in 2008. The investment in small hydro projects grew about four-fold to $543 million in 2008. The growth in biofuels fell by 80% from $251 million in 2007 to $49 million in 2008.
• This comes soon after OPIC invested $100 million in Global Environment Fund’s $300-million South Asia Clean Energy Fund.
• Manila-based Asian Development Bank (ADB) is stepping up its investment in the clean energy space by putting $40 million in two India-focused private equity funds investing in this sector.
• India now has the capacity to generate just over 11,000 megawatts of wind power, but, with the right investment, that could increase to almost 48,000 megawatts.
• the Suzlon wind farm in Dhule, India, which when completed in 2010 will be the world’s largest wind farm (already, its installed capacity is 650 MW, and its final capacity is slated to be 1000 MW) and the Acme Solar Thermal Power Plant in Haryana, India, which will be completed in 2019, and have an installed capacity of 1000 MW.
• Renewables (including hydro) already account for 34% of India’s current Installed Power Capacity (if nuclear power is included, then 37% of India’s current Installed Power Capacity is “clean”). India is currently ranked fifth in the world in terms of its wind power generation.
• A report launched this week by the United Nations Environment Program (UNEP) indicates very impressive trends for India’s renewable energy sector. According to the report, ‘Global Trends in Sustainable Energy Investment 2009’, India’s renewable energy investment grew by 12% in 2008. With an investment of $3.7 billion in just a single year, India’s renewable energy sector appears well on its way to meeting the ambitious target set by the Indian Government in the 11th Five Year Plan.
• Indian Solar Investment Signals Greater World Bank Support for Renewable Energy – The first commercial utility solar project in India by Azure Power received a $10 million investment from IFC, a World Bank affiliate as the international lending agency steps up its support of renewable energy in emerging economies.
· At the same time, small hydropower has the potential to generate about 15,000 megawatts of power and, what’s more, is often the best way of providing electricity to low-income households in remote areas.
As more rural development will happen more power and alternative energy demand will start picking up. Venture and capitalist and corporate finance have immense investment opportunities in Indian alternative energy segment. A quick look at the trends of investments in India.India’s Power Sector will Require Hundreds of Billions Over Next Decade – India could require about $250 billion investments over the next eight-nine years if it wants to grow at a moderate 7.5-8 % compound annual rate, according to a CII report. Private equity players such as IDFC have also come up with new models in 2009 by setting up IPPs themselves; Green Infra, a company that develops and operates power generation projects across wind, solar, hydro and bio-mass segments being a case in point. Independent Power Producers (IPPs) in this sector appears to provide attractive investment opportunity for private equity funds as a result of policy and regulatory developments such as generation-based tariffs, renewable energy tariffs and the national solar mission.
• PE investment in SMEs took a sharp dip by almost 68% and stagnated at US$ 580 million in 2009.
• Private equity investment in renewable energy sector picked up pace in the country from 2004, with Citigroup Venture Capital’s $22.5 million investment in Suzlon Energy being a noteworthy deal.
• Wind energy sector grew at 17% from $2.2 billion to $2.6 billion
• Investments in solar grew an impressive 1800% to $ 347 million over 2007,
• The total number of PE deals signed by SMEs in 2009 stood at 81, while in 2008, it was 187
• Overall, PE deals in India during 2009 numbered 287 amounting to $4.3 billion as against 502 amounting to $ 11.9 billion in 2008. The total value and volume of PE deals reduced by 50% and 40% respectively as compared to 2008.
• According to VCCEdge, the first seven months of 2010 have seen private equity deals valued at $5.1 billion, as compared to $4.3 billion in entire 2009.
• According to the report, from a private equity investment of $851 million in 2005, inflows into the renewable sector in India soared to $2,136 million in 2008.
• The below chart indicates the growth of the Private Equity and Venture Capitalist in Indian alternative energy segment.
Growth of PE/VC in India.
The India Infrastructure report focuses on infrastructure development in a low carbon economy and covers legal, regulatory, institutional and financial issues needed to facilitate low carbon technologies.
Hence private equity and corporate finance will find immense growth in alternative energy investments in India.