Record $7.2 Billion India Renewable Funds Buck Europe’s Pain

Investment in clean-energy projects in India reached a record $7.2 billion in the first three quarters, bucking debt woes in Europe that threaten to derail more established solar and wind markets.

The total value of project finance, money raised on public markets, and new investments from private equity and venture capital in the nine months to September already exceeds the $5.7 billion raised in 2010, Bloomberg New Energy Finance said.

“The major difference this year is the contribution from the solar sector,” said Ashish Sethia, India country manager for the London-based researcher. “We’ve seen a four-fold rise in investment driven by federal and state-level policies.”

India has awarded permits to build about 1,100 megawatts of solar photovoltaic capacity by January, more than what any other country outside of Europe installed in 2010, according to data compiled by Bloomberg. Solar investments surged to $2.4 billion by the end of the third quarter compared with $543 million in 2010, Sethia said.

The companies supplying equipment for those projects include First Solar Inc. (FSLR), Suntech Power Holdings Co., Sharp Corp. and SunPower Corp. (SPWRA)

Rising Borrowing Costs

“Despite the turmoil in the West, the Indian renewable market has been strong,” though rising interest rates may pose a challenge ahead, said Brad Sterley, head of clean energy project finance at Standard Chartered Bank. “A sustained increase of the cost of local financing would be a threat to the renewable sector’s growth.”

BNEF said in an Oct. 4 note to clients on debt financing in Europe for wind and solar projects that “the market turmoil that started in August is putting banks’ appetite for lending to renewable energy to the test. At the very least, we expect the swollen costs of funding for many banks to lead to upward pressure on pricing in the next few months.”

India’s solar industry is seeking about $3.2 billion in funds when rupee borrowing costs are the highest in Asia. Renewable power projects tend to be more sensitive to rates than conventional projects because most of their costs are incurred upfront to set up though they have no long-term fuel costs.

The Reserve Bank of India today raised interest rates for the 13th time since the start of 2010, boosting the repurchase rate to 8.5 percent from 8.25 percent.

Clean-energy projects have had a “cushion” because the government regulators, when calculating the tariff to be paid for their power, assumed interest rates higher or equal to actual funding costs, Sethia said. “With multiple base rate hikes and the rising cost of debt in India, any such benefit has eroded significantly,” he said.

Wind Industry Leads

India’s wind industry, the world’s third-largest for new capacity, drew the biggest chunk of investment, or $3.7 billion so far. By the year’s end, it should surpass last year’s record wind investment of $4.1 billion, Sethia said.

Suzlon Energy Ltd. (SUEL), Gamesa Corporacion Tecnologica SA and Vestas Wind Systems A/S were the three biggest publicly traded suppliers of turbines in India’s wind sector last year, according to the Indian Wind Turbine Manufacturers Association.

The $7.2 billion total doesn’t include money invested through equity buyouts, mergers and acquisitions, exits from public market deals, investments in manufacturing capacity or research and development, Sethia said.

There have been three private equity buyouts with a total transaction value of $252.5 million this year, including Goldman Sachs Group Inc. (GS)’s 10 billion rupee ($200 million) purchase of a majority stake in ReNew Wind Power Pvt.

India had 46 megawatts of solar capacity and 14,989 megawatts of wind as of Aug. 31, according to the Ministry of New and Renewable Energy.

To contact the reporter on this story: Natalie Obiko Pearson in Mumbai at npearson7@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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