Private equity (PE) investments in the domestic power sector have seen a sharp decline between April 2012 and February 2013, compared with the corresponding period a year ago.

Investments in conventional projects are almost nil this fiscal, so far. The prevailing regulatory uncertainties and fuel concerns in conventional power generation are forcing investors to think twice before putting in their funds, say market watchers.

Alternatives Focus

Investments made by PE players in India’s domestic power sector fell sharply from over $1 billion in between April 2011 and February 2012 to just about $320 million between April 2012 and February 2013, according to data compiled for Business Line by global business consulting firm Frost & Sullivan.

Interestingly, in value terms, 2011-12 saw 70 per cent of PE investments going to reneFISCAwables and the rest to conventional power projects.

However, from April 2012 to February 2013, PE players put their investments only in the renewables sector.

In 2012, the most notable transaction was the $210-million investment in Continuum Wind Energy by Morgan Stanley Infrastructure Partners.

“The power sector has typically accounted for 10-15 per cent of total PE investments in a quarter and this trend was intact until the first quarter of 2012-2013. The sector has witnessed a sharp decline in PE investments since the second half of 2012,” said Amol Kotwal, Deputy Director, Energy and Power Systems Practice, Frost & Sullivan.

In India, overall PE investment has fallen by 40-50 per cent over the last two quarters this financialyear, says Frost & Sullivan. To blame are low economic growth and muted industry sentiment.

Regulatory uncertainties such as new bidding norms not being cleared, the crunch in fuel-supply from Coal India and the coal block allocation controversy have resulted in negative investor sentiment, said Kuljit Singh, Partner for Infrastructure Practice at Ernst & Young.

Power situation

According to Singh, even renewable projects are likely to see a decline in new investments as many companies have raised funds and will now look to deploy them in commissioning projects.

Currently, more than 10,000 MW of thermal power generation capacity is at various stages of construction, and project delays are severely impacting the power situation.

“Given the sector challenges, and the uncertainty, investors are adopting a wait-and-watch policy and, to a large extent, investor appetite for the conventional space is fading,” said Kotwal.