Monday, April 18, 2011

CLEAN ENERGY AND EQUIPMENT INVESTMENT GROWTH

Burning GDP.
Burning crude prices are burning the pockets of the every economy. From US to India from west to east every corner of the world is feeling the heat of higher crude prices. Higher crude prices are swelling up the food prices and affecting the industrial production. Rising cost of input is reducing the margin of profit for the companies and results to lowered growth for shareholders returns.

In china we find that monthly crude demand of China picked up to 10% as compared to last year and 15% higher year-to-date pushing the figure to 9.5 million barrels daily.
The biggest twist in the tale is that more Chinese officials have tried to cool of the rising GDP growth from unprecedented levels to 7% the more demand of crude have gone up from 1 million extra barrels of oil per day. So it well clear that a slowdown in the Chinese GDP will not affect the demand fro crude and hence pressure of crude prices with increasing demand will play their roles in the coming years.

China to Cut Back Carbon Emission and Opportunities.

In between all these China is focusing to shift from a high bracket of Carbon Emission tagged country to a lower one. For its high carbon emission scores china went for an extreme level of merger of old industries with new ones and even close down of some manufacturing plants. Very recently China announced at the Copenhagen Climate Change Conference in 2010 that its carbon emissions per unit of gross domestic product (GDP) would decrease by 40% to 45% in 2020 from the 2005 levels. China is also in search of extensive coal blocks across the world and its rate of scouting have soared up to such levels where in every week we find new coal blocks coming up on the ladder of Chinese search.

Main reasons for such a mad chase of coal locks is that first china needs coal for running the GDP (Steel Manufacturing) of growth and secondly for its huge electricity demand.

China's electricity consumption rose 13.41% over the previous year in March to 388.8 billion kWh, increasing the first quarter power consumption to 1.09 trillion kWh, up 12.72% from last year, according to the National Energy Administration (NEA).
According to the NEA's statistics, power use by the secondary or industrial sector, rose 12.31% to 802.5 billion kWh, or about 73.5% of the country's total electricity consumption during the period.

Industrial Growth of India in Emission Equipments the Bottle Necks.

We find demand of industrial investments into goods related to carbon emission reduction equipments. Engineering and light as well as heavy industrial equipments will find high demand of sell as well as manufacturing in China. China is very poor in terms of manufacturing of these products.

Where as in the world we find US is having adequate technical as well as production knowledge about reduction in emission standards.

India is basically into carbon trading which is also at its nascent stage. India presence in to Carbon Emission Equipment manufacturing is also negligible but it has huge growth. But if Indian industries go out for export of Emission Reduction Equipments then it will face some strong hardships.
The following are the glimpses of the hardships with which Indian manufacturing of Carbon Emission is surrounded:

• Higher cost of input

• Fluctuating Exchange Rate

• Higher import bill of Inputs imported by India

• Red Tape policies in duties and Subsidies offerings for promotion of exports.

• Lack of manpower and Technical schools for generating man power

• Price increase pay backs to sub suppliers and not able to clear from the end consumer the higher price hikes.
On the other hand we find operational issues and low government interest in boosting up the growth of these companies. Octrio, land permit, road permit and tax structure are the other operational problems. These problems make the growth as well as the ROI less attractive as compared to china and US investments.

Where India finds opportunities?

If Indian companies goes to china and opens shops their we find lot of support for opening up new ventures in China. China have been a favored destination for new open ups and also for its lucid structural changes. Moreover manpower and technical skilled labor gap is less in china and other operational and taxation structures are lucid and favoring to growth. India is getting flooded with finance in clean energy. India attracted $4 billion in private investments, ranking 10th among the G-20 countries. If Indian companies open up the shops in china then these hardships will be negligible, resulting this number of $4 billion PE investments swelling to $16billion within next 5 years.

The new model that has emerged is a Hybrid Model where among venture capital, hedge funds, and private equity funds coming together to fund ad reap the long term growth. This will derive the growth of Indian clean energy equipment market. Higher global energy demand growth will continue to drive return on investment (ROI) higher in the clean-tech space. Emissions reductions, renewable energy credits, and energy efficiency are three prime areas where an investment of hybrid nature is focusing. Investment interest is now more focused on how to invest in new technologies and gain investment streams that encompass two or three of these environmental benefits and should benefit from multiple credit streams .India lags in these advance stages where as China is way ahead. This is the reason why China is best destination for doubling the returns on Investments.

If we look at some of the new opportunities of clean energy Business we find the demand of equipments going to come up in the coming years.

Classification of the Clean Energy Business Opportunity

Type of Opportunity Type of Opportunity

Alternative energy

Solar

Wind

Hydro, tidal, and wave

Geothermal

Bioenergy and biofuels

Distributed energy

Combined heat and power

Microturbines

Fuel cells

Hydrogen generation

Flywheels

Energy efficiency

Lighting

Buildings

Transportation engines Energy recycling

Waste-to-energy

Battery technology/energy storage

Medical and biological crossovers

Environmental technologies

Water and wastewater treatment

Clean coal gasification

Emissions mitigation

Desalination of water

Information technology

Net metering and real-time pricing

Demand response (energy efficiency)

Energy management systems

Remote sensing
What Indian needs for having a stupendous growth in good venture projects for the clean technology space are (1)Technical support and infrastructure, (2) a seasoned management team to grow the business, and (3) a defined exit strategy (usually by an initial public offering, trade sale, or roll up).India lags in all the three. More interesting are the second-stage investments in clean technology and alternative energy that do have revenue and can make money for investors. Several venture funds are focused on these later-stage investments, and the investment space is beginning to get crowded. There is a great need for viable later-stage companies. Higher global energy demand growth will continue to drive return on investment (ROI) higher in the clean-tech space.

According to a report from the Pew Charitable Trusts last month, global clean energy finance and investment surged to $243 billion in 2010, a 30% increase over 2009. Excluding research and development (R&D), worldwide investments in clean energy are 630% higher than they were seven years ago.

Chinese Investments

The wealthy G-20 countries dominated last year's clean energy funding, with 90% of clean energy investments in 2010 directed to companies and projects based in the G-20. Minus R&D funding, clean energy finance and investment last year grew by 33% to $198 billion among the G-20.

China has made huge investments into clean energy. When we break the figures of the Chinese investments we find investment rose 39% from $39.1 billion in 2009 to $54.1 billion, setting a world record. Hence If India goes to china for then its cheap manpower and super red tape policies will make the ROI on investments to grow by manifolds.

Indian Mutual Funds.

If we come into the Indian mutual fund space we don’t find any dedicated funds for alternative energy or related to carbon emission or carbon trading related. We should have a starting point of new ventures rather than flocking with old Infrastructure name tagged mutual funds.

In addition to venture capital, both private equity and hedge funds will supply additional billions more as new technology is rapidly commercialized and deployed globally. The need is that great. Demand pull of global financial markets is accelerating. We have entered the world of Kyoto Protocol implementation in 2008 in 174 countries, and that already has impacted environmental project finance.

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