Ek Titli interviews Vice Chairman and Managing Director of IndiaCo Ventures Limited, Rahul Patwardhan on IndiaCo Energy Efficiency Fund

Indiaco Ventures Limited is India’s only BSE listed private equity player and interestingly has a fund dedicated only to Energy Efficiency. What does this entail, Ek Titli finds out.

When and why did you feel the need to have a dedicated fund for Energy Efficiency?

Rahul Patwardhan – VC & MD of IndiaCo Ventures Limited

We feel that energy efficiency, a critical factor for India’s economic growth and sustenance, requires innovative ideas converging into practice. India’s energy demand has grown rapidly in past decades and is poised to double by 2030. India currently ranks as the world’s eleventh greatest energy producer and as the world’s fifth greatest consumer. Needless to say, India’s energy demand will continue to soar in coming years.

Considering this, there can be two possibilities; either we launch a fund to produce energy or we start a fund to save energy. Investing in energy producing companies would require huge capital and gestation period would also be very high. So, we thought of an idea to come up with a fund focused on Energy Efficiency.

Given a backdrop of national concern about climate change and rising oil imports, interest in implementing energy efficiency initiatives has been increasing in India’s government, business, and investment sectors. Both, government policies and efforts by multilateral and bilateral organizations to conserve energy across a wide range of sectors, have contributed to new domestic and international energy efficiency companies to serve this market. The potential for energy savings is enormous: an estimated 183.5 billion kWh per year, based on reports prepared by the Asian Development Bank and the Indian Bureau of Energy Efficiency (IBEE). One sub-sector within the energy efficiency industry that can help deliver both energy savings and financial returns in India is the specialized Energy Service Company (ESCO) industry.

The potential for energy savings is enormous: an estimated 183.5 billion kWh per year

India’s ESCO industry has grown steadily and significantly over the past five years; World Resources Institute estimates a compounded annual growth rate of 95.6 percent from 2003 to 2007. Small ESCOs, however, have had difficulty because they lack the collateral to meet bank requirements.

This creates an excellent opportunity to provide equity capital in the USD 5- $7 million range to small yet fast growing ESCOs and create strong returns for investors.

Consequently, IndiaCo is in the process of launching $60 million Energy Efficiency Fund (IEEF) that will make private equity investments by provision of growth capital to companies that provide energy efficiency related, value-added services, etc and also for whom performance contracting is a core part of energy efficiency services business, commonly known as ESCOs.

Do you think that the Indian investor is confident now to invest in energy efficiency space?

We believe Indian companies that currently use energy are already investing as they can directly benefit from this by reducing their own energy consumption.

India is still a small market for investment in energy efficiency space. In general Indian ESCO’s are still primarily driven through a consulting mode, standardization of products, and the ability to replicate sustainability though “pure services” is difficult for most indian ESCO’s to implement is still very nascent.

India is still not a mature market to raise Private Equity investment and for a niche, focussed fund strategy it’s even more difficult but I do believe that this scenario will be completely different in 2 or 3 years timeframe.

Investments in this sector are smaller as compared to clean energy or energy generation where gestation periods can be significantly long, as opposed to the model that IndiaCo intends to follow, our mandate is to create impact

What are the recent interesting developments in the industry?

India’s ESCO industry has grown at a staggering 5 year CAGR of 96% from 2003 to 2007, according to World Resources Institute estimates and we expect similar kind of growth in the coming years.

There is a lot of activity in the sector and organizations across the world are extremely optimistic; organizations like Asian Development Bank, European Investment Group, United Nations and even big corporate are taking effective steps to promote energy efficiency.

In India , the Bureau of Energy Efficiency India (BEE) star rating for the electrical products are now perceived as one the benchmarks by the consumers. MNCs like Sneider Electric, GE and Philips are already making their presence felt in Energy Efficiency sector in India.

Is the trend of investing in energy efficiency space already catching up abroad?

The flow of investments into the energy efficiency sector has increased at a CAGR of 23.8% during the period 2005-2009.The investment trend is yet to catch up as compared to renewable energy. The 2009 investments in global energy efficiency sector stood at $26.3 billion. Energy efficiency should be actively supported by regional governments instead of renewable as they entail prohibitive initial and operational costs. The market for energy efficient lighting systems was worth $10.2 billion in 2009 and has the potential to grow to $15 billion by 2015.

The 2009 investments in global energy efficiency sector stood at $26.3 billion.

What is the idea behind InEnCy?

While doing research for possible portfolio companies for the energy efficiency fund, we realized that there were not so many mature companies in the Energy Efficiency Sector but there are lots of startups. So, we thought of launching a business plan competition for Energy Efficiency with a prime objective to provide these startups a platform to create visibility for themselves in the investor’s community and seek active mentorship. InEnCy is conceptualized with an objective to create an eco-system for the development of the energy efficiency sector, by promoting entrepreneurship and developing investment opportunities. InEnCy is a platform for enterprises operating in the Energy Efficiency space and an opportunity to present their company to potential investors. BEE and HSBC have sponsored this initiative through their partnership.

How would you evaluate a possible portfolio company and its business plan?

We evaluate a possible portfolio company based on the following parameters.

  • Team
  • Defining market, geography, customer & consumer
  • Idea / Process / Services offering
  • Impact Evaluation on Energy Efficiency
  • Technology / IP
  • Exit

We also follow a unique “Heptalysis” model to analyze potential investment opportunities.

Tell us something about your partnering organizations in InEnCy.

We have received support from Asian Development Bank, European Investment Fund, United Nations Environment Program, European Union, Bureau of Energy Efficiency India and HSBC bank India.

We have partnered with Springboard Ventures, Grow VC and Nurture Talent Academy for our mentoring process. EkTitli.org is our online partner for InEnCy.

The mentoring process for InEnCy participants seems very interesting. What is the rationale behind that?

Yes, certainly, a panel of industry experts and academicians will mentor InEnCy business plans. Thus the participating entrepreneurs will have the opportunity to shape and fine-tune their concepts and hence turn them into successful and thriving businesses. Energy Efficiency being a niche and relatively new sector, mentoring will be a great ‘value add’ to turn the business ideas into potential investment opportunities.

InEnCY Mentoring process is well planned and formulated to cover all aspects of running a business. In the InEnCy mentoring process, there are modules for Finance, Marketing, Operations, Product/Technology and Team Building.

And the most awaited question, what is the prize money?

The winner will get Rs 3,00,000 and two runners-up will get Rs. 1,00,000 each and a structured, well mentored company. We hope that this prize money would motivate people to put their best foot forward.

Energy Saved is Energy Produced!

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