Following the announcement of its plans to invest about ¥50 billion ($487 million) in the Japan Renewable Energy Co. unit, a solar power generation company in Japan over the next 5 years, The Goldman Sachs Group, Inc.’s (GS - Free Report) private equity arm also plans to invest another $135 million in ReNew Wind Power, an Indian wind farm company. Goldman plans to effectively exploit the demand for electricity generated from solar and wind power.
Due to curtailment of subsidies in some parts of Europe, global overcapacity in wind turbine and solar panel production worsened. Notably, about $153 million was invested in 2012 as compared with the investment of more than $700 million each in 2010 and 2011.
However, private equity venture capital interest in renewable energy is experiencing an uptrend, particularly in India and Japan. Moreover, energy production scarcity and new tariffs are expected to augment investment in these two countries.
Of the total $500 million to be invested in ReNew, Goldman has invested $385 million including the current investment worth $135 million. Moreover, for both ReNew and JRE investments, borrowings worth about three times the equity value to fund projects will be used.
Supply-demand imbalance in renewable energy in Japan and India prompted Goldman to pursue investments. Notably, India is considered to be a prominent market player for wind power generation while Japan is reliable for solar energy.
There is extensive awareness regarding the benefits of green energy in Japan, as evident from the rising number of projects in recent times. Consequently, financial markets have recognized renewable energy as an immensely valuable asset.
Japan has lessened its reliance on atomic power generation since the Fukushima nuclear-plant crisis caused by the Mar 2011 earthquake. Since Jul 2012, the Japanese government has been striving to promote solar energy by offering incentives through renewable tariffs.
Through these innovative transactions, Goldman will likely change help alter the dynamics of distributed solar generation and wind power, produce a significant source of clean energy and generate ample jobs across the U.S.
Goldman currently carries a Zacks Rank #3 (Hold). Some major banks that are worth considering include The PNC Financial Services Group, Inc. (PNC - Free Report) , JPMorgan Chase & Co. (JPM - Free Report) and Comerica Incorporated (CMA - Free Report) . All the 3 banks hold a Zacks Rank #2 (Buy).