PE firms develop their own wind energy assets

New Delhi: In an attempt to maximize returns on exits, private equity (PE) investors are steadily developing their own platform of wind power assets in India. JP Morgan Asset Management Holdings Inc, Morgan Stanley Infrastructure Partners, IDFC Alternatives Ltd, Goldman Sachs Group Inc., Actis Capital Llp and other PE firms are seeking to raise their exit internal rate of return (IRR) on wind projects to as much as 20-25% from current levels of 15-17%—something that’s possible if they directly own the assets. Generally speaking, the higher a project’s IRR, the more desirable it is to undertake the project. The low IRR on wind projects is due to their low plant load factor (PLF), which in turn is on account of uncertain wind conditions. PLF is a measure of average capacity utilization. According to industry estimates, projects fuelled by conventional fuel sources such as coal offer an exit IRR of around 20-25%.

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