TPG Growth, an arm of global private equity major TPG, is leading a $116-million round of funding in clean energy firm Greenko Group plc.
The PE firm will pick up a little over 10% stake for around $35 million in the independent power producer focusing on clean energy generation with assets in hydro and biomass-fired plants. The new round of funding will see investments from existing and new investors in the company.
The deal marks the first investment by TPG, which has $45 billion of assets under management, in India's clean energy sector. Greenko currently operates 120 MW of clean energy assets and has another 400 MW of assets under development, said its MD & CEO Anil Kumar Chalamalasetty in an interview to VCCircle.
"Our primary focus happens to be implementing and investing hydro power projects on a small and medium scale," he said. Greenko currently has six biomass, three hydro plants and has acquired licences for projects of capacity of more than 200 MW. It could also look at wind assets in the future, said Chalamalasetty.
"Greenko has nine operating projects and is one of the few players in clean energy to demonstrate scalability through acquisitions as well as greenfield developments," Varun Kapur, partner at TPG Growth told VCCircle.
TPG Growth Eyes Infrastructure, Domestic Consumption
This would also be second investment by TPG Growth in India, the first being a Rs 200-crore commitment to KLG Power Ltd, a power system solutions and services firm. "We are interested in power because the macroeconomic environment, and the demand supply equation, appears to be favourable to the sector in the next 5-10 years," said TPG's Kapur, who was earlier a managing director with Intel Capital in Asia. At Intel, Kapur had worked on investments like NIIT, India Infoline and Sasken.
TPG Growth, which looks to invest $30-75 million, operates separately from TPG Capital which looks at larger buyout opportunities. TPG Capital's India investments include Shriram City Union Finance.
TPG Growth, which has $2 billion under management globally, is upbeat about India's infrastructure and domestic consumption space. "We are bullish on India's domestic consumption story, which, we feel, remains very strong in the next 5-7 years. Similarly, we see opportunities in infrastructure where the country will see a lot of work in both in renewal and development," he said. It is eyeing deals of between $30 to $75 million with minority shareholding.
The new round for Alternative Investment Market (AIM) listed Greenko comes after it raised $46.3 million in US-based Global Environment Fund (GEF) in November 2009. The investment by GEF was routed through Greenko's Mauritian subsidiary with shares being convertible into a stake in Greenko plc. Another one of its private equity backers, Aloe Environment Fund, has a 31.35% stake in the firm.
Greenko also recently said that it will acquire 20.25 MW hydro power assets and licences for another 100 MW worth from Hemavathy Power & Light Pvt Ltd for Rs 155 crore. In September, it bought a licence for a 96 megawatt hydro project in Sikkim. Greenko plans to achieve 1,000 MW installed capacity by 2015. It had revenues of $12 million for first two quarters (April-Sept 2009) of FY10 with a profit after tax of $1 million.
Greenko is led by Chalamalasetty, a first generation entrepreneur who co-founded Greenko with Mahesh Kolli (Joint MD & President). The company counts amongst its non executive directors Y Harish Chandra Prasad (founder of Malxmi), Hari Kiran Vadlamani (co-founder of KSK Power Ventur), Vivek Tandon (co-founder and general partner of Aloe Private Equity) and Narasimharamulu Pantam (former finance director of NTPC).
Advantage Clean Energy
Renewable and clean energy assets in India have started to gain traction not only due to climate change challenge, but also because of the energy deficiency. And PE players seem to have spotted this opportunity by backing independent power producers in the space. Other players who have raised capital from this source include Orient Green Power, which has raised $55 million from Bessemer Venture Partners and Olympus Capital. Green Infra Ltd is another player incubated by IDFC Private Equity for aggregating energy assets.
"Within power, like the trend elsewhere globally, the stacks seems to be in favour of clean energy compared to fossil energy," said Kapur. Renewable energy currently account for 8% of India's total power capacity of about 150,000 MW but the government aims to double green power generation to 25,000 megawatts in four years. The alternative energy companies also get subsidised loans to build plants, tax breaks and tariff subsidies.
Besides incentives by governments, these firms also get additional revenues by selling carbon credits. For instance, Greenko made $1.7 million for first two quarters of this fiscal by selling carbon credits. "Carbon credits have always been an icing on the cake but we don't have any dependability on them," said Chalamalasetty.