Earlier this month, Copenhagen Infrastructure Partners committed $100 million to renewable energy projects in India through its New Markets Fund. The Danish fund manager’s investment agreement with Indian renewable energy power producer Amp Energy India is expected to unlock joint equity investments in excess of $200 million, with the partnership initially targeting a 1.7 GWp portfolio of projects in the renewable energy space across the country.
The transaction is the New Markets Fund’s first investment in the Indian renewable energy market and its largest commitment since the fund closed on its $1 billion target in 2019. According to CIP partner and head of the fund Niels Holst, India was always going to be a key investment destination for the fund and will continue to be so for most fund managers with a renewable energy focus. Adding to the allure of the market is the policy framework in place for renewable energy projects – providing competitive pricing, transparency and relative stability – as well as a highly experienced and well-informed supply chain.
“We felt it was important to have a partner who has experience in the market but, at the same time, a partner that would give us the opportunity to add value and be intimately involved in projects.”
Niels Holst, CIP
“From a climate change perspective, India is one of the markets that one has to be in to make an impact and it is one of the markets where you [can] expect to be able to deliver projects at scale for quite some time,” Holst says.
“The [Indian] government has provided a good deal of predictability… we’re able to take a view on whether our projects are likely to be competitive or not in a fair context… and that’s something that the Indian government has been working on for many years.
“It is also a market where there is an established supply chain, where the universe of contractors and equipment suppliers and the like are well established, so the parties that we can contract with and discuss projects with, is broad. It gives us the ability to deliver projects in what we think is a predictable and high-quality manner… [It is] an environment that is clearly well tested.”
Despite the overall attractiveness of the market, it does remain complex. Holst says that to be really effective, it was clear the firm would need a local partner with which to enter the Indian market. The right partnership – providing the necessary track record within the market, while also ensuring the firm could participate in important aspects of project development – was essential but hard to find.
“[The Indian market] has grown incredibly quickly and is very competitive, so your margin for error is quite limited. Coming in from the outside is, in many ways, a high-risk proposition because there is so much experienced capital in the market,” Holst says.
“We felt it was important to have a partner who has experience in the market but, at the same time, a partner that would give us the opportunity to add value and be intimately involved in projects. That balance is not always easy to find in India because it is such an established market – you have some of the largest developers in the world [there] and certainly, with some of the larger players, it’s difficult to persuade them that we can participate in that way [and] add value to projects.
“It is quite a collaborative agreement that we have with [Amp India]… We’ve been impressed with the depth and breadth of the team and we’re looking forward to a very collaborative engagement with them to deliver this first portfolio of projects [and] many more after that as well.”
The covid-19 factor
Having a local partner has also helped the firm better navigate the uncertainties caused by the covid-19 pandemic, which Holst says has made the market a more challenging environment and remains a source of disruption in many emerging markets across the Asia-Pacific region and beyond.
“It has been striking, the impact that covid-19 has had on a lot of markets, and we see that from many different aspects. In some cases, it’s been difficult to deal with – things like travel restrictions, and the impact on some supply chains – we’ve seen significant impacts on solar panel pricing and the ability to move equipment into various countries,” Holst notes.
“It has clearly been difficult for a lot of governments and regulators to balance, on the one hand, the covid-19 crisis and, [on the other hand], moving some of the processes forward to facilitate the development of the renewable energy industry.
“We hope that [the pandemic’s impact is improving] but some expectations around developments on the regulatory side are [still] delayed in a number of markets… When you’re in the middle of a major health crisis, the next renewable energy policy is not always going to be a priority. We are hoping to see an improvement [in this area] over time, because [continued policy advancement] is necessary in a number of these markets.”
APAC ‘a particular focus’
Holst says the Asia-Pacific region is a particular focus for the fund because of the region’s underlying growth dynamics and the potential for countries within the region to benefit from renewable energy becoming a key source of power.
“[In the region] you have generally healthy economies and growing populations, and you have structurally strong demand increases for electricity. It is also, in many cases, a region where we can be very price competitive with thermal technologies,” Holst adds.
“If we have any hope of being successful mitigating climate change, Indonesia has to be part of that equation”
Niels Holst, CIP
“The confluence of price competitiveness… is something that has fundamentally changed in [recent] years. The fact that we can deliver solar power for less than coal is just structurally attractive to [many of these countries].”
Holst cites Vietnam and Indonesia as countries that stand out for potential renewable energy investment and development. He considers China to be a critical market as well, with Thailand, the Philippines and Malaysia also attracting attention as possible investment destinations for the fund.
“If we have any hope of being successful mitigating climate change, Indonesia has to be part of that equation,” Holst says.
“It’s also a market where we think that we can add a lot of value because we can bring our experience from other places. It’s not that deep a market from a renewables perspective, so we think that we can bring some of our experience to bear there and do quite a bit of good in establishing that renewable energy space.”
“[Investment in the Philippines] is made a little more complex through ownership restrictions for foreign investors, as is the case in Malaysia, but we certainly hope over time to be able to make investments in those countries.”
Beyond the Asia-Pacific region, Holst says the fund tends to focus on Eastern Europe and Latin America. Projects in Africa and the Middle East are also of interest, though to a lesser extent compared with other regions.
“Brazil is where we spend a lot of time and resources and we own projects [there]. It’s quite a similar market to India in that it is a well-developed market,” Holst adds.
“Mexico is a country that we have spent time on that’s a bit challenging now for regulatory reasons, but it’s one that we hope [to focus on] in the future. [It’s a big market] where you can deliver very cost competitive renewable energy, so we would like to be able to do that [in time].”
Looking to the future, Holst says cost competitiveness is one encouraging trend within the renewable energy sector that is also the most important in terms of advancing the industry globally and driving decarbonisation. As markets move beyond the effects of the pandemic, he hopes to see the sector move forward at an even greater pace.
“If I was going to highlight one over-riding factor [determining the future of the renewables sector], it is absolutely the cost competitiveness of the technology, and that is only improving,” Holst says.
“I very much hope that we can get past the [effects of the pandemic] as quickly as we can. There’s a lot of capacity – we certainly have been continuing to develop a number of projects in places where we can’t quite pull the trigger on them yet because of covid-related impacts. I think that there’s – not just with us, but also with other [fund managers] – some pent-up capacity to move projects forward once we have a bit of a normalisation.”