We talk to an organisation involved with what it says is the fast-growing market for the low-emission energy sector in India. The country has been rapidly industrialising, raising demand for energy and also concerns about pollution and sustainability. And that creates investment opportunities.

The market for energy efficiency is already a hot area, and a UK-based outfit predicts that India is full of promise for this market segment. 

EnergyPro Asset Management, a UK company focused on producing energy without environmental drawbacks, recently said it was seeking to raise £2 million ($2.51 million) in working capital as part of its drive to open up investors to India’s $12 billion energy efficiency market. 

UK investors can tap into the story via an Enterprise Investment Scheme. The £2 million sum comes under the EIS umbrella.

Energy efficiency is a notable trend, although not without controversy considering the debate about where nuclear energy fits into this, for example. 

India’s importance as a major economy is only likely to grow, particularly as Western countries’ relations with China turn cooler for a variety of reasons. Historically, the UK has strong ties to India.

This news service recently spoke to the EPAM team about its business. (Editor’s note: the acronym EPAM is not to be confused with the US-based software services firm EPAM.)

Please give some background about the firm.
The company was created in early 2017 as a spin-off from our consultancy company EnergyPro Ltd. It was created specifically to hold a share in the Joint Venture with Energy Efficiency Services Ltd (EESL). EESL had engaged EnergyPro Ltd to assess the UK market and identify acquisition opportunities, driven by its strategy of international expansion out of India and the need to identify technologies and approaches that could be used in the Indian energy efficiency market. The company currently has a staff of four in the UK. Its main asset to date is the share in the JV with EESL. 

The £2 million EPAM fundraise relates to working capital for EPAM to finance the resources (in-house and associates) required in the UK and India to originate, analyse and transact opportunities.

For the investments into technologies and companies, we will look into using any appropriate tax efficiencies and concessionary funding available from both UK and Indian administrations, but these investments will not fall under EPAM’s clearance.

What sort of rates of return do you hope/expect these investments to generate?
Projects in the specific energy transition sectors we are focused on are likely to achieve above market rates of returns as they are in high growth markets and relatively neglected compared with ‘mainstream’ generation projects such as renewables. 

We believe that every investment should deliver not only strong financial performance but also solutions to the world’s most pressing social and environmental challenges, and that ‘impact’ is becoming the third dimension of investing, alongside risk and return. All of our projects will be designed to maximize impact and we will measure and report on impact as well as financial returns.

How do you deal with currency fluctuations between sterling and the Indian currency?
EPAM’s costs are primarily in UK sterling, so the exposure to forex is dealt with through contingency in the model. Individual investments will have bespoke forex considerations as part of the risk management strategy.

What sort of measures does the firm use to decide on investments?
Investment opportunities are screened according to how they fit known needs in India, technological maturity (ideally TRL 8 and above), team and potential impact.   
A typical engagement would have a defined output in India capable of achieving about a £25 million capital investment and/or about a £10 million annual revenue target in three years.  Where applicable, it should be adaptable to the Make in India programme with intellectual property that exists and is defensible in the region.

All opportunities are assessed for impact as well as financial performance at the evaluation stage and data collection and measurement is built into the transaction structure. 

What sort of investments are off-limits for this fund (I assume fossil fuels, but there may be others)?
EPAM focuses on the requirements of UN SDG 7 to double the global rate of improvement in energy efficiency by 2030, promote access to research, technology and investment into clean energy, and expand and upgrade energy services for developing countries.

Within this, sustainable cooling and heating, smart technology and e-mobility have been identified as priority sectors for EPAM as these are national priorities in India. Therefore, it is more about what fits than what does not. Oil and coal exploitation would not obviously fall within that, although a technology that radically improved efficiency and/or reduced carbon within the process might. Natural gas is currently an area of significant expansion in India and is within scope, such as the process heating technology that we have identified to save 25 to 50 per cent of the energy (and carbon) used in pre-heating gas at pressure reducing facilities.

What type of investors do you want to engage with?
Those that have the same ethos as we do; characterised by a dedication to impact as well as financial returns; those with an appetite for a relatively small investment (£2 million or part thereof) as enabling capital for a scalable proposition; and those that recognise the potential in India not just of itself but in the post-Brexit era of broadening the UK’s trading relationships.

What’s your view on the promise of the India market?
The Indian economy became the world's fifth largest economy in 2019, remaining one of only two leading global economies to forecast positive growth for 2020 (IMF forecast of 1.8 per cent) in spite of the COVID-19 pandemic, and a sharp increase of 7.8 per cent growth in 2021 is expected. It is currently anticipated that India’s economy will be worth $5 trillion by 2025, making it the world's third largest economy. Exceeding its Paris Accord commitments, the government of India has ambitions to improve energy security and sustainability while ensuring its economic growth, presenting a $12 billion per annum market opportunity according to the World Bank.

India’s goals for 2030 are to increase the use of renewable sources, installing 450 GW of renewable power up from 86 GW now; reduce the energy intensity of the economy by 33 per cent from the 2005 levels; and increase the use of natural gas for industrial use and to cover 70 per cent of the population.

What is your view of how the India economy is likely to develop in the next three to five years?
As above, we believe that the Indian economy will continue to strengthen and dominate the world stage in terms of scale and purchasing power.

Where are the risks in holding investments such as this?
Technology - While we are looking for technologies proven in the UK (or globally), these may yet to be delivered at scale. Therefore, the technology risk is in its adaption to Indian applications and production scalability.

Change in Law - Political risk and/or change in the law that mitigates against overseas investment and/or the selected technologies is a consideration but the scale of the ambition is such that India cannot crowd out overseas investment or technologies. Key to managing this risk is ensuring that selected technologies adhere to the Make in India programme of knowledge transfer and local manufacture. It helps that the common language is English as are the origins of the legal framework.
 
Currency - The ongoing volatility of GBP is a concern but one that can be hedged.

Competition/Intellectual property - A focus on the cheapest compliant offering at point-of-purchase is a universal hurdle for energy efficiency technologies and is prevalent in India. Selling the whole of life economics as well as immediate carbon benefits will be key, as will protecting the IP from cheaper imitations.

Accessibility - Breaking into a new regional market for established products and services is challenging. Energy efficiency is an inherently innovative sector and thus has the added challenge of selling something that the buyer didn’t know they needed!