When British International Investment set up the solar developer Ayana back in 2018, there was little to no investor interest in renewable energy projects to serve the rural and lower-income populations in India. The UK’s development finance institution would typically have made a minority investment into an independent company.
“We couldn’t find an aligned partner with whom we could agree on valuations or our mission of getting in the low-income states,” recalls BII’s Srini Nagarajan, who searched for more than a year. “We decided to set up our own platform where we could embody our vision of good governance and drive inclusive growth.”
Seven years later, India’s solar sector is among the most active in the world, adding 30 gigawatts of power last year, more than double the capacity added in 2023, a result of generous public and private financing, including from large private equity firms and global pension funds.
Now, catalytic investors are looking for the new leading edge of climate opportunities in India, sectors where there aren’t yet sufficient flows of commercial and institutional capital, and where returns will reward first-in funders for patience and risk-taking.
That includes energy transmission infrastructure, electric vehicle charging, battery recycling and climate-smart agriculture.
“For the scalability of these models, more private money has to come in,” Nagarajan tells ImpactAlpha. “Our job is to be catalytic, kindling them in anticipation of private equity and private investors coming in.”
Policy alignment
Family offices and philanthropic foundations have joined BII and other development finance institutions to provide such market-creation capital to accelerate India’s climate transition. The new crop of catalytic investors are focusing their financing on sectors where relatively small tickets can have outsized impact.
“There’s a sense that to solve climate change, we need to make sure that what happens in emerging markets is a clean transition alongside strong industrialization and development,” says Anna-Liisa Goggs of the nonprofit CREO, a climate investing network for more than 200 wealthy individuals and families.
India, the world’s most populous country, fifth-largest economy and third-largest carbon emitter, is ground zero for that work and a top emerging-markets entry point for family wealth from the US and Europe, where most of CREO’s members are based.
CREO has published a market spotlight on India in response to its members’ growing interest in climate opportunities in emerging markets. Members have pledged to invest $500 million in Asia, Africa and Latin America over the next three years.
That amount is “tiny, let’s be honest,” says Goggs, compared to the $2 trillion needed annually to plug climate financing gaps across those regions. “But we have a lot of system thinkers and system investors for whom this is really about catalyzing others to come in.”
Government policy support is one of the strengths of the Indian market in particular. According to the CREO study, “the Indian government is a strong partner for the green transition. Its policy and politics are aligned.”
The government has an ambitious goal of installing 500 gigawatts of renewable energy generating capacity by 2030 – with close to 300 gigawatts to go. It is also aiming to be net zero in greenhouse gas emissions by 2070. The regulatory environment, unlike in the US and other markets, is predictable, clear and robust.
And India has a “strong local investor base and supportive domestic institutional capital to fund the transition, spurred on by economic growth imperatives as much as environmental ones,” CREO reports.
Wealthy families
Trillions of dollars of climate investment is needed for India’s green transition goals; more than half will have to come from private sources of capital.
Wealthy local families are stepping up their climate investing activity. Most family offices are motivated foremost by the commercial opportunity, but they’re having a catalytic effect by signalling to other investors where future commercial opportunities could be.
The Khemka family, which made its wealth in mining and commodities trading, is now investing in solar energy and EV infrastructure through its business SUN Group. Its SUN Mobility division is working to accelerate EV adoption in the country by expanding battery swapping infrastructure for two- and three-wheel vehicles. The family, a CREO network member, is trying to prove that such infrastructure can be developed quickly and cost-effectively through strategic partnerships rather than subsidies.
SUN Mobility recently secured an investment from Indian Oil and will install EV charging and battery swapping stations throughout Indian Oil’s network of nearly 40,000 gas stations. It’s “an ideal solution for the mass adoption of EVs in densely populated cities,” Goggs explains.
Theia Ventures in Bangalore was seeded with family money and is looking to direct $25 million to $30 million into India’s early stage climate technologies through its first first venture fund. The fund has closed 10 deals, all in sectors that aren’t yet on many investors’ radar. OctoLife makes cooling systems to help families cope with India’s intensifying heat. Metastable Materials is developing a greener, chemical-free process for recycling batteries. Varaha sets up carbon removal and land and mangrove restoration projects. Canvaloop is turning agricultural waste into new kinds of textiles.
It’s an education process getting investors to understand the investment potential of such under-invested sectors, says Theia Ventures’ founder, Priya Shah.
“Many of the other family offices that we’re speaking to, when they see sectors like agriculture or the circular economy, they think these are impact investments with concessional returns,” she says. “This plays a big part in the communication piece.”
Those showing the most interest, however, tend to be families that made their wealth in hard-to-abate sectors like heavy industry, consumer goods and real estate. The fund also has institutional backers.
“They’re excited to have a window into technologies that can be applied to and utilized by their industries,” says Shah.
Risk mitigation
To unlock private and institutional capital in a wider range of climate opportunities, catalytic investors are looking for ways to replicate and build on successes in India’s renewable and electric vehicle manufacturing sectors.
BII is looking to build on the success of the model it used for Ayana, which it fully exited in February in a deal that valued the company at $2.3 billion. BII has partnered with Norfund and IndiGrid, a power transmission infrastructure company, to set up and derisk critical transmission infrastructure to deliver power generated from India’s fast-growing renewable energy portfolio.
“The transmission network involves a degree of uncertainty at this stage” that most commercial investors are uncomfortable with, says Nagarajan. Land acquisition can be a time-consuming process that causes construction delays. Transmission service agreements involve complex negotiations because they can last upwards of 30 years.
“Commercial capital is very happy to come in once the agreements are signed, because the income streams are predictable, but not many investors are comfortable with the construction risks,” says Nagarajan. “That’s where our development capital is helpful.”
Encourage Capital, a CREO member based in New York, set up a fund in 2019 to help India’s small businesses transition to solar energy. Encourage Solar Finance made equity investments in financial institutions building out or expanding their solar lending activities.
“There is a lot of capital deployment happening for larger customers and projects, but it is only going to high credit customers,” Encourage’s Ameya Bijoor told ImpactAlpha at the time. “The mass market is small and mid-sized businesses, which pay very high power prices and face a real gap in financing to invest in clean energy solutions.”
With a second fund, the firm is aiming to expand into green lending in agriculture, mobility and insurance. “They’ve done this so others can also replicate it,” says CREO’s Taline Filipovic.
Another of CREO’s members, a European family, invested in a growth-equity fund for companies focused on industrial decarbonization.
“It’s probably one of the most difficult opportunities because these are hard to abate sectors,” says Filipovic. Early stage venture funding is starting to invest in green cement, biofuels, carbon capture and other decarbonization technologies, but growth capital is missing.
The European family is anchoring the new fund and helping them warehouse deals. They’re planning to co-invest in some of the deals the fund manager finds.
“They’re signaling to others that this is a great team that is doing something where there’s a big gap in the market,” says Filipovic.
There are now more than 30 families in CREO’s network that are delving into such catalytic climate opportunities in India and other emerging markets. The work is not just about climate impact.
“They’re building market awareness and track records,” says Filipovic. That creates the potential for secondary sales, for buyouts, and for potential public offerings, she explains. “It’s not just about getting others to follow them in, it’s about opening up the market for exit opportunities.”
