Energy futurePrivate equity firms focus on India's clean technology sector

Several private equity (PE) groups are creating funds exclusively for investing in clean technology in India, adding momentum to a sector in which no funds currently exist.

These groups include the Nevada-based Arvco Capital Research, Washington, D.C.-based Global Environment Fund, Hyderabad-based New Ventures India, New Delhi-based Sun Group, and Mumbai-based Yes Bank. These are in addition to the increasing number of PE funds investing the same segment from their general funds. LiveMint.com Rana Rosen reports that the capital pool is estimated at $500 million, not including the general funds — which is almost equal to the sum of all disclosed investments in Indian clean technology from 2001 until now. The funds could close in the next nine months to three years and would be deployed over the next one to seven years.

The funds of both New Ventures India and Yes Bank are planning to invest in earlier-stage companies, but other funds have not yet decided on their game plan. Most of the previous investments in the Indian clean technology sector were in mid- to later-stage companies, a situation similar to that in the United States. Rosen writes that PE groups are trying to determine how to structure the funds to get attractive enough returns. Fund managers do not seem to agree on whether a clean technology fund in India could get returns as high as other PE funds, especially as several fund managers consider India to rank low on government support for clean technology development.

San Francisco-based clean technology research and consulting firm Clean Edge estimates that the global market for solar, wind, biofuels, and fuel cells alone will be $226 billion by 2016, based on the 39 percent growth this group saw from 2005 to 2006.