Tata Power is in early-stage talks with IDFC Private Equity Fund-owned Green Infra to merge the renewable energy assets of both companies, a person with direct knowledge of the development said. The transaction, if consummated, will create India's largest renewable power producer.

IDFC PE has appointed investment banker Lazard to examine different options to raise capital, including a merger. IDFC Private Equity said that it cannot comment on this specific market speculation. Green Infra is a growing company with fund requirements.

The proposal being considered is to house the renewable energy assets of the two companies in an independent company managed by professionals while Tata Power and IDFC Private Equity will play the role of promoters.

Further Tata Capital's PE fund and Tata Communications could invest in the new renewable energy company. Tata Capital PE fund will play the role of a financial investor, exiting when the time is ripe, while Tata Communications' investment would be linked to an assured supply of power to run its towers.