Foreign strategic investors have largely stayed away from the flurry of deal-making in India’s renewable energy sector, preferring instead to build from the ground up.

Out of the $2.32 billion worth of mergers and acquisitions (M&As) in India’s renewable energy sector in the last 15 months, foreign companies have bought assets worth just $290.6 million, while Indian companies have acquired $2.03 billion worth of assets, according to data from Thomson Reuters.

Among the larger deals in this period are Tata Power Co Ltd’s acquisition of 1.1 gigawatt (GW) assets from the Welspun Group, Greenko Group’s’ acquisition of SunEdison’s India portfolio, and the merger of Orient Green Power Co. Ltd and IL&FS Wind Energy.

Preference for greenfield projects and troubled balance sheets in their home markets are seen as two reasons why foreign investors have not been active in the M&A market for renewable energy.

“With many of the foreign strategics, there has been a much larger preference for organic build-out for their businesses, because they believe that they have much better control over the assets, both from an operational perspective and from an implementation perspective,” said Kaustubh Kulkarni, managing director and head of investment banking at J.P. Morgan India Pvt. Ltd.

Strategic investors also feel that given the renewable targets in the country, there was good visibility of new projects of meaningful size to be awarded for a sustained period of time, and given that they have built teams and capabilities to develop these projects, there was a tendency to prefer participating in bids and winning projects on their own rather than going after somebody else’s portfolio, Kulkarni added.

In India, the opportunity to scale up is significant, with the government targeting to achieve 175GW of renewable energy generation by 2022.

Preference for greenfield development also stems from lower cost effectiveness of acquisitions and a shortage of assets of meaningful size, experts said.

“Given the significant drop in the capital outlay of the new projects, strategics believe they could end up owning a larger portfolio with a similar outlay and hence have been focusing on organic growth. Also, not many portfolios of decent size are available to strategic acquirers,” said Sudhir Dash, managing director at investment banking firm Investec Capital Services (India) Pvt. Ltd.

Another reason holding back foreign strategic investors is the structural issues back home.

“Europe, over the last 10-15 years, had structured itself for a significant part of electricity generation through renewables with the gas-based power plants meant to support and balance the intermittent renewable sources. However, given the lack of local gas resources and how the relative pricing with coal has developed, a number of gas power plants have become unviable,” said Rahul Mody, managing director, Ambit Corporate Finance.

This, in turn, has dampened their ability to make large deals overseas.

In Europe, companies have built tens of gigawatts of gas-based power plants, many of which are stranded or are operating at low capacity levels, leading to large write-offs at utilities, he said.

“These challenges in their home markets have restricted their ability for M&As,” Ambit Corporate Finance’s Mody added.

However, some believe that going ahead, foreign strategic investors could become more open to M&As given the pressure to scale up.

“For many foreign strategics, M&A is a secondary strategy which is typically pursued to complement greenfield development. Given the limited supply of organic opportunities compared to the demand in recent auctions, the greenfield approach has been slower to materialize than expected. These groups are increasingly open to evaluating acquisitions and we expect this trend to continue given the pressure to scale,” said Rahul Goswami, managing director at Greenstone Energy Advisors Pvt. Ltd, a boutique advisory firm.