by Andrew Hore

India is one of the fastest-growing economies in the world - and that means demand for electricity is also growing rapidly. The country has experienced power shortages for some time and an enormous amount of investment is required to develop new generating capacity. 

Since 70% of its oil and gas is imported, India is keen to find more secure ways of generating power. The Indian Government has set a target for 20% of electricity to be produced from renewable sources by 2020. 

India was not as hard hit by the recent global economic meltdown as Western economies. Its economy continued to grow and the rate of growth is now recovering to past levels. 

In fact, the Indian economy grew by 7.7% in 2009, which represents a recovery from the 5.1% growth rate in 2008 at the height of the global economic problems. And GDP growth during the three months to June this year was 8.8%.

For the year as a whole, India’s GDP growth is forecast to be 8.3% (source: Economist Intelligence Unit), which is a small upgrade on the previous estimate. Similar growth is also expected during the next two years.

This growth rate presents its own challenges. India’s generation capacity of 163GW is not sufficient to maintain the present level of growth, and the Indian Government is targeting a capacity of 342GW by 2017. The country’s peak power deficit, currently 13.3%, is expected to rise to more than 20% during this decade. Even so, energy consumption per capita is around three-quarters of the global average.

Greenko is an Alternative Investment Market-quoted company investing in renewable generation in India from a number of sources. Hydro and wind are the main focus of Greenko’s ambitious expansion plans. 

India has the potential for 148GW of hydro electricity and so far one-quarter of this has been harnessed. Greenko has 104MW of capacity, with more than 430MW under development. 

A similar proportion of the potential for wind power has been tapped. Favourable tariffs, incentives and Renewable Energy Certificates mean that the market is skewed towards wind farms. By 2030, it is anticipated that 15% of India’s energy requirements will be met by wind power. Wind already represents one-third of Greenko’s generating capacity and it expects to add a further 345MW of capacity over the next five years.  

Since wind speeds in India tend to be lower than in Europe, a slightly different technology is required. General Electric has therefore developed a turbine that has a higher hub height and larger rotor diameter. 

Greenko’s preference is to work on a cluster model so that it can build up relationships and influence in individual states. The company currently has 183MW of generating assets with a further 850MW at various stages of development. 

Greenko raised £72 million earlier this year, while the Global Environment Fund invested a further $46 million in a subsidiary of the company. This gives the firm plenty of cash to push forward with its plans. 

According to Greenko, London’s junior market is a perfect place for its listing because the investors understand the patience required. The company will need to be much larger, with a market value in the region of $1 billion, before it is worthwhile considering a listing on the Indian stock market.

 

Indian Energy is another AIM company developing wind power assets in India, while Caparo Energy Ltd is the latest independent power producer in India to look to float on AIM. Caparo plans to build a portfolio of wind power generation assets.

Strand Hanson is nominated adviser and Mirabaud is the broker. Although the Caparo flotation was expected in late September, the company had not joined AIM by the end of the month.  

Both Indian Energy and Caparo Energy are much smaller than Greenko, and AIM is the only real alternative to private equity when it comes to financing companies of this size. The support that Greenko has received could attract more Indian renewable generation companies to the junior market.

All of these companies may eventually move on to the Indian market, but that is not a bad thing for AIM. It will have done its job in enabling them to grow to a size that makes such a move an option.