Indian VCs ready to finance carbon credit business

December 19, 2007 (The Times of India) – The Indian carbon sector is getting hot. Venture capital firms are making a beeline to set up exclusive carbon funds for clean development projects (CDM) which have the potential to generate carbon credits. Kick-starting the process is IFCI Venture Capital Fund, which is planning to float Green India Venture Fund with a corpus of around euro 50 million, to begin with. The fund could be raised to euro 100 million once a partner is roped in. ‘‘We are currently looking out for a partner. We will raise the corpus of the fund, depending on the appetite for the carbon sector in India. One can size up the growth potential after the interest generated in greenhouse gas mitigation projects post-Bali,” said IFCI Venture Capital Fund managing director Ashok Kumar Choudhary.

Green India Venture Fund is expected to be two-tiered, one for the domestic market and one, probably, for outside India. The fund will scout for viable CDM projects which could generate a good amount of carbon credits.

Other financial institutions and banks are also said to be considering similar carbon funds, on the expectation that the carbon market will witness a huge upside in terms of valuations.

An indication of this is the United Nations Framework Convention on Climate Change (UNFCCC) website, according to which India is expected to generate around 28 million CERs (certified emission reductions) or carbon credits, going by the CDM projects which have been registered. Green India Venture Fund will take up equity positions in promising CDM projects, to provide the initial funding. The fund is looking at moderate returns of 12-13%.

IFCI Venture Capital Fund is mainly promoted by IFCI, which has a 76% stake in the firm. Tata group companies, Tata Tea, Tata Steel and Tata Chemicals, hold around 9% in the firm, while UTI holds 12% and the balance is held by IL&FS.