A consortium of global investors and domestic entities have created an investment platform to invest in Indian energy assets.

Khaitan & Co and Norton Rose Fulbright, advised a consortium of foreign investors with local entities Tata Power and ICICI Venture, which were advised by AZB & Partners and Akin Gump Strauss Hauer & Feld. The international participants include Canada pension fund Caisse de Depot et Placement du Quebec and sovereign wealth funds Kuwait Investment Authority and the State General Reserve Fund of the Sultanate of Oman. The joint investment platform aims to raise $850 million to invest in thermal, hydroelectric and transmission power assets in India which are in advanced stages, near operational readiness or operating. Depending on market opportunities, the investors may put in more money. Originally a collaboration between ICICI and Tata aimed at investing in distressed units and turning them around, the group expanded to bring in the foreign consortium.

Siddharth Shah

“The prime minister has indicated in his vision statement to move towards a renewable energy future, so it is part of his political agenda,” says Siddharth Shah, a partner in the funds practice of Khaitan & Co.

“A national policy was absent in the previous government. Now there is a regulatory framework to facilitate renewable energy plants, solar in particular, and states are competing to offer incentives.”

Multi-year investment

The Indian government adopted a $250 billion five-year programme in 2014 to complete the electrification of the country as a spur for economic growth and to improve living conditions. To meet this demand, the country will need additional capacity of 93 gigawatts by 2022 which will be generated by both traditional and renewable energy sources.

India’s energy security has become an important part of its economic policy. Rather than spend money on energy imports, it is looking to expand its own energy infrastructure to increase installed capacities with an increasing focus on renewable resources. Globally, India is the fourth largest importer of oil and the 15th largest importer of petroleum products and liquefied natural gas.

PM’s energy focus

Prime minister Narendra Modi has made energy infrastructure a key priority of the Make in India programme, aimed at pulling India out of the status of being one of the fragile five, emerging market economies that have become overly dependent on foreign investment to finance growth. This has seen the Ministry of New and Renewable Energy increase its target for electricity generated from renewable sources to 175GW by 2022. Subject to provisions of the Electricity Act, up to 100% foreign direct investment is permitted under the automatic route for renewable energy generation and distribution projects.

 “The energy market infrastructure haven’t lived up to expectations, so the government is trying to build capacity through customised platforms and there is interest from institutional investors. Countries such as Canada and the US are looking to India, as are China and Japan, with a smaller portion from Germany and Sweden.” says Shah.

“The government is working with capacity building organisations like UK Climate Investments and Korea’s Global Green Growth Institute to remove hurdles for foreign investors and supporting engineering, procurement and construction management contractors and manufacturers,” says Shah.

Investment potential

“There is positive growth for foreign limited partnerships looking into India for investment,” says Shah. “Before the capital was invested for a shorter term, now investors are looking longer term and building deeper relationships with the general partners that are raising capital. Family offices and endowments previously looked at returns on investment in five to seven years and now they are looking at extended fund lives of 10, 20, 30 years.”

As the fifth largest electricity producing nation in the world, India is hungry for funds to build its stock of energy assets. The outlook suggests to great potential for foreign entities searching for locations for their money. Both the nation and investors are hoping for a win-win situation as they for swoop in to seize opportunities.