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The new government at the Centre is widely expected to encourage the renewable energy sector. However, private equity (PE) investors are hesitant to put in money into the sector owing to various issues such as uncertainties around policies and tariff.

According to data from VCCEdge, the renewable energy sector - which includes the wind, solar and biomass power segments - has seen an investment of $109 million in six deals during January and May this year. Nithin Kaimal, director (private equity) at IDFC Alternatives, pointed out that there are uncertainties associated with the sector about the mechanism used to arrive at tariff, the period for which the tariff is set for, and what happens next.

"If one of these things goes wrong, the internal rate of return (IRR) will go for a toss and that is a risk equity investors want to avoid," he said during a panel discussion at RENERGY 2014 recently held in Chennai. The Ministry of New and Renewable Energy (MNRE) has set a target of 30,000 MW during the 12th Plan period (2012-17). According to the ministry, financing is the single biggest challenge for the industry.

Tarun Kapur, joint secretary in MNRE, said while the 12th Plan projects INR 3 lakh crore to be invested in the renewable energy sector, a significant part of it is yet to be invested.

"Till we get to a stage where there are clear policies and visibility of cash flow, I don't see the investments going up,"

Mohan Kumar, senior director, IDFC, which has significant exposure to the renewable energy projects, said: "Certainty of cash flow is the king." He added the key challenge is to meet the expectations during the long-term. For equity funds, it is a horizon of seven to 10 years.

According to Amber Maheshwari, investment manager at Infuse Ventures, renewable energy firms will attract more investments if there are some schemes or initiatives to help the firms to grow in the early stage, which in turn will help the companies grow and attract investors.

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