Isra-Mart srl:Small green energy firms emerge hot buyout targets

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MUMBAI: Private power producing companies are lining up to buy small renewable assets as a widening power supply deficit and growing concerns of pollution prompt firms to acquire clean technology units. According to private equity and advisory firms, investments in small hydro projects have picked up as such projects are built on small rivers and have no issues related to resettlement of villages. Axis PE, which has invested in clean technology firms, says the total private equity transactions in small hydro projects is around Rs 1,000 crore.

The small hydro power industry is preferred by investors due to a smaller gestation period. Usually, such power projects are completed in 2-3 years, while bigger projects have 8-12 years. A plant that generates up to 25 mw is classified as small hydro project and is eligible for classified tariff rates. Investment in each such plant is about Rs 175 crore, but can go up.

Developers are given special incentives from the government along with lucrative tariffs under power purchase agreement from states. Such projects have a tariff provision of Rs 2.6 to Rs 3.7 per unit, depending on the provisions for various states in the country.

According to Axis PE managing director Alok Gupta: “The ongoing operational cost is low. We have invested in Shalivahana Green Energy and are evaluating other opportunities as well. We will continue to strengthen this platform through addition of various projects,” said Mr Gupta.

In the past 12 months, M&A activity in India has reached $1.1 billion in 14 deals. The latest big ticket transaction in the small hydro space is the acquisition of Karnataka-based Hemavathy Power & Light by AIM-listed Greenko Plc , for about $33 million. The transaction was a leveraged buyout by Greenko involving a mixture of new debt and equity. The asset is a 24 mw operational run of the river hydro project located on the Hemavathy river in Karnataka.

Small hydro power projects account for 16.7% of the total renewable capacity in India. The total installed capacity is 2,430 mw, and the country has the potential to build about 15,000 mw of such projects, according to the ministry of new and renewable energy. Listed on the Alternative Investment Markets of the London Stock Exchange, Greenko is a major player in the renewable energy sector in India and has targeted to scale its capacity to 1,000 mw from 160 mw by 2015.

According to Venture Intelligence, PE investment in energy so far this year has been $834 million in 12 deals. Other investors are IFC, TPG Growth, Global Environment Fund, IL&FS Private Equity and FE Clean Energy. “Investors see more visibility on cash flow aspects and industry is witnessing lot of consolidation in the country,” said Sandeep Upadhyay, vice-president, infrastructure solutions at Centrum Capital .