Growing Opportunities to Invest in the Clean Energy Sector

A single tender from NTPC for 5% co-firing is worth $400mn and this is expected to be followed by even the private power producers. Similarly biofuel pellets have been replacing LPG and Diesel with huge cost savings and thus as a much wider acceptance among applications.

 

Moreover, the raw material for this type of fuel is wastage or agriculture residue and thus has minimal usage or cost. Cost savings and consistent supply of raw material, the usage patterns of companies has now become long lasting, thus making the biomass a sustainable investment option for the VCs. Anything with lucrative economics of production and visibility on sale attracts investment. This can be well established from investments seen in the solar and wind energy segment.

 

Solid biofuels especially Briquettes are manufactured in a very distributed manner and offers investment opportunity across India. This has not only enabled many entrepreneurs to start the business but also generated huge rural employment. A standalone briquette plant can generate Rs 50,000-70,000 per month net income if run optimally. This implies very good returns on investment especially in rural areas where the capital cost  is relatively less. Although, the possibility of mega plant is unlikely since the raw material is very scattered, multiple plants remain viable with controlled raw material cost.

 

Similarly for pellets business the operating margins are even better with possible branding and multiple pricing options. We clearly see pellet manufacturing as an emerging trend expect investments in this field.

 

Another potential area of investment is biomass or raw material procurement for these plants or even for direct firing into biomass based power plants. India generates ~500 mn tonnes of agri residue every year and of which almost 200mn tonnes has been destroyed/ burnt without any productive use. This in value terms is almost Rs 500 bn ($6bn) worth of business. The agri residue can also be used as a feedstock for manufacturing of liquid or gaseous biofuels using bio-digestors or making of ethanol 2G technology. We expect investment in automation and supply chain of agri residue to be the biggest investment opportunity still to be exploited. Needless to say that equipment manufacturing for collection and storage offers a proven and viable investment. This is expected to augment farmer’s income as the agri waste is valued and also paid for.

 

 

A potential and futuristic investment is energy crop plantation which is not even seen any action for now. India with large track of unutilized land can offer opportunities for energy crops such as Bamboo, Napier grass or many newer varieties. This segment is likely to get government support in the form of capital subsidy for entrepreneurs.

 

The clean energy sector is likely to gain importance and attention from all stakeholders and players in the value chain. This is manifested from entry of global majors such as Shell into this field as strategic investors. Many CSR and agri focused funds find the businesses in clean energy actually related to agriculture as they support farmers and augment rural income with employment generation. 

 

The effect percolates to the entire chain and many professional players set up this to take up this as a business. As the unorganized set up becomes more organized, it improves compliance level and transparency and professionalism in the segment. This is a pre-requisite for any of the investors to even consider evaluating the business for investment. 

 

A strong proxy to this can be the ethanol manufacturing industry in Brazil which over a period of time became mainstay and equally important like Sugar industry. India, being agrarian economy would always promote businesses, which augment farmer income and complement the way it’s done. Thus for example cotton stalk after harvesting burnt in the fields and also cost farmers for this disposal. However, a viable system of collection can convert the same to good quality biofuel and also help farmer get extra income instead of disposal cost.

 

Many marquees corporate have harnessed clean energy across their facilities to reduce the carbon footprint and for better compliance of pollution and environment norms. Case in point is Hindustan Unilever, which has adopted usage of biomass fuel at most of their manufacturing plants as well as vendor plants across India. 

The company intends to reduce usage of fossil fuel shift to clean fuel such as biomass briquettes or pellets and has been shifting the balance facilities every year. Government’s hard stance on usage of forest wood as a fuel is forcing many traditional users to shift to biofuels. Since most of the drivers have been impacting the sector very recently – like past three years, the biofuels sector is poised for exponential growth and hence the related investment too.

 

In a nutshell, we sell growing opportunity to invest in the clean energy sector for entrepreneurs as well as investors. We expect reputed players from the energy industry to enter Indian energy market as strategic investors with an objective to reduce their carbon footprint, which in turn would incentivize the financial investors to take this opportunity seriously.