Cleantech opportunities abound in China and India, said experts today, but first-time Western investors need to understand the differences and potential pitfalls.

That was the message from two panels at the Cleantech Forum XVI in San Francisco detailing cleantech investment opportunities and challenges in the world’s two most populous nations.

Pankaj Sehgal of the SUN Group gave an overview of the great cleantech potential in India, citing with the country’s rapid economic growth from what he called the traditional “Hindu rate of growth” of 2-3 percent per year to the current 8-9 percent projected to continue for at least another decade.

As an example, he cited the fact that in the mid-80s, there were two car companies with a single model each in the entire country, and now there are hundreds of brands and models available. (See Cleantech.com’s India’s Tata funds air-power car and Hyundai introduces competitor to India's Nano minicar.)

With 1.2 billion consumers, and a 450-million strong middle class, India, Sehgal said, was a “very large, very fast-growing market” that has money and an interest in cleantech.

“I don’t think India is worrying about the money,” he said. “I think it’s how you can deploy the capital appropriately.”

He noted opportunities in energy, citing a current energy gap of 25-30 gigawatts per year in India, expected "to balloon to 75 gigawatts by 2012, which is staggering.”

Satish Mandhana of IDFC supported Sehgal’s comments, noting another driver of interest in cleantech was the nation’s oil import bill, which had increased 15.5 percent to $38 billion annually.

At the Cleantech Forum, the Cleantech Group announced that investor Vinod Khosla of Khosla Ventures is chairing a new Cleantech India operation aimed at accelerating the adoption of clean technology products and services in India.

Khosla told a press conference he’ll be helping by personally focusing on doing what he does best: facilitating new technology companies by connecting them with money.

“The critical thing … is empowering entrepreneurs to come forward with ideas. To step and up and apply ideas. For venture capitalists to fund those ideas when they’re still very risky. It’s what I call the power of ideas fueled by entrepreneurial energy, and somewhat foolish venture capital. It’s a combination that works every single time,” said Khosla.

Jaswinder Kaur, executive director of the Indian Venture Capital Association (IVCA) in Delhi, is country director of Cleantech India.

While Naren Gupta of Nexus Capital agreed with Sehgal and Mandhana on the rise of cleantech in India, he was more cautious about the opportunities.

“Just taking U.S. technology and applying it to India is not going to work,” he told the audience. “India is not as straightforward an environment as it might seem.”

Gupta said people need to understand India before investing, which means getting a first-hand look at the opportunities there rather than throwing money at projects sight unseen.

One example Gupta cited was solar energy. With sunny days 95 percent of the year, India has great interest in solar, but the panels need to be able to withstand the dusty conditions and higher temperatures than are found in the United States.

Speakers at a panel on opportunities in China also stressed the importance of getting a first-hand understanding of doing business with China, but were markedly less upbeat.

While China’s sheer size means cleantech opportunities abound (see Cleantech.com’s World Bank, China working together on clean energy, ZAP going big with China venture, and Watch hydro in China, says consulting company), panelists suggested Western investors would have a harder time getting in because the Chinese would take the lead in developing their own technologies and handling the business aspects.

Hanson Li from the HINA Group cited geographical size and cultural differences. London Asia Capital's Simon Littlewood and Brad Armstrong of Focus Ventures mentioned the constantly changing regulatory system. And John Rockwell from Element Partners noted the difficulties of selling to a “very large but very slow moving market” and in finding qualified project managers there.

One of the problems prominently mentioned was the lack of IP protection. Rockwell noted that his company’s solution was to combine obsoletion with making sure that “as few people as possible know the whole secret.”

Armstron noted the importance of selecting the right local partners and giving them an incentive to protect the IP rights.

“If we’d invested in a law firm four years ago, we’d have made a lot of money,” noted Li.

For more information on doing business as a cleantech company in China, see Cleantech.com's Selling cleantech products & services in China.