Leveraging India's sun resource with solar energy
In this series, Sramana Mitra shares chapters from her book Vision India 2020, that outlines 45 interesting ideas for start-up companies with the potential to become billion-dollar enterprises. These articles are written as business fiction, as if we’re in 2020, reflecting back on building these businesses over the previous decade. We hope to spark ideas for building successful start-ups of your own.
By 2005, the negative impact of fossil fuel-based energy was crystal clear. Dark, ominous clouds hung over the world’s great metros, collecting the pollution from cars, buses, and motorcycles. Each year, fossil fuels produce 21.3 billion tons of carbon dioxide. Enough that the consistently declining proportions of greenery could not hope to absorb more than half, leaving a net increase of 10.65 billion tons of atmospheric carbon dioxide per year. Experts were fast proving the link between carbon dioxide and global warming. The Energy Information Administration estimated that in 2006 fossil fuels comprised 86% of the primary sources of energy (petroleum 36.8%, coal 26.6%, and natural gas 22.9%). Led by the United States and Western Europe, and closely followed by China, aggressive research in renewable energy was underway. Wind fields loomed over the German countryside. Nuclear power plants dotted the French landscape. Despite aggressive damming of rivers all over the world, hydropower was still not a fully harnessed source. Brazil had taken a leadership role in the development and use of biofuels. But for India, solar energy was one of the most promising.
By the end of 2007, the green movement had captured the imagination of the world. Al Gore’s An Inconvenient Truth had left an indelible impression on consumer consciousness, sending hybrid car sales through the roof. Further momentum gathered when Gore took home both an Academy Award and a Nobel Prize for the work. And by August 2009, solar installations were cropping up across American rooftops as the New York Times hailed President Obama, who wanted to “make the United States the world’s leading exporter of renewable energy.”
To further drive the green movement, instability in oil-producing regions had long been a grave cause for concern among major energy-consuming economies like the US, as well as the emerging markets of India and China. But most importantly, the narrowing cost differential between photovoltaic electricity and grid electricity was finally making solar energy a viable alternative.
In the United States, there had been some 46 solar cell IPOs between 1995 and 2007, with 35 of these concentrated between 2005 and 2007. Total solar cell IPO capital raised since 1995 was $7.33 billion, with over 75% of that total raised between 2005 and 2007. The entire solar industry raised $5.8 billion in public capital in 2007, up from $2.2 billion in 2006, and $1.5 billion in 2005. There was little doubt: the solar sector was heating up.
India, with approximately 200 clear, sunny days a year and the potential to produce 5,000 trillion kilowatt hours of power per year, was a prime candidate to join this movement. But India’s sun resource was grossly underutilized, due both to limitations in energy storage technologies and, more importantly, a total lack of policy initiatives. Germany and Spain had brought about incredible adoption rates of solar energy through feed-in tariffs (FITs). But for all of India’s advances, the majority of its villages remained in a darkness unanswered by its urban governors, with the immense potential of solar energy un-leveraged.
Meanwhile, on the production side, the photovoltaic cell industry was full of relatively mature technological solutions, though not the cheapest, most scalable long- term solutions. Much of the entrepreneurship was therefore directed towards research and development of new thin-film photovoltaic cells using materials such as CIGS and organic films on different substrates, as opposed to silicon-based solutions. Our venture, AdiShakti, was one such effort. The scientist behind the pathbreaking thin-film photovoltaic cell was out of MIT’s energy department. Backed by R&D grants from the Obama administration’s stimulus funds, he nurtured the innovation in laboratories before ever exploring commercialization. He had decided early on that his market was going to be India, for all its potential. Not just in pure population numbers, but also for its cheap labor, through which he could achieve very attractive cost metrics for installation and support.
I came to this project from the other end, looking for a technology that could be paired with India’s low-cost resources to achieve rapid grid parity. While Germany, because of its expensive labor force, could not achieve grid parity until 2018, India could do so momentarily. I contacted the MIT Energy Initiative through the alumni association, and was introduced to Professor Vladimir Bulovic. From there on, I asked a lot of questions, met hundreds of people, and networked my way towards the solar cell technology that became the core of AdiShakti.
Our first decision was to manufacture the thin-film solar cells in India. India had missed the entire semiconductor manufacturing opportunity, an industry that went largely to Taiwan, and then to China. We were determined not to miss the next big manufacturing sector opportunity.
Solar cell plants typically resemble semiconductor fabs, taking the wafer through a processing sequence to create working solar cells. We looked at 50 megawatt capacity per fab, spread over 50,000 square feet of plant area. The capital investment in building a solar cell plant is about $2 million per megawatt, which meant each plant would cost us $100 million in CAPEX. We ramped nine solar cell manufacturing plants from 2012 to 2018 in Rajasthan, Uttar Pradesh, Bihar, Madhya Pradesh, Haryana, Orissa, West Bengal, Tamil Nadu, and Maharashtra. In each case, we structured debt financing for the CAPEX portion from various banks, and we raised equity from India Infrastructure Finance Company Limited (IIFCL), IFC, and ADB.
To build the plants was a herculean task in itself. Equipment manufacturers like Applied Materials were a big help, as were consultants with deep expertise in setting up semiconductor fabs in Taiwan and solar plants in Germany. The first plant, in Rajasthan, took almost a year longer than we estimated, but the team got thorough training on that project. Thereafter, the remaining plants were much more tightly managed and stayed within the budgeted time window.
Our main marketing channel in the urban geographies was construction companies and real estate developers who were riding the “green building” phenomenon. Living and working in “green buildings” had become fashionable among Indian consumers. It reminded me of the time in California when the hybrid Toyota Prius had become a status symbol. Now Indians were showing off their solar water heaters and boasting of their efforts towards zero-energy homes at dinner parties. And both residential and commercial developers were aligning themselves with this demand, retrofitting existing buildings and, of course, equipping new buildings with solar power.
The Indian government also created incentives for developers and consumers alike. Solar water heaters, for instance, came with metering technology, displaying household energy savings and qualifying consumers for healthy rebates. Developers investing in solar fitting their buildings earned significant tax incentives as well. An entire ecosystem of solar integrators developed around AdiShakti and the real estate developers. They were adept both in new building and retrofitting. And soon, soaring urban demand alone drove us to a point where, clearly, capacity was the bottleneck. That led us to building a new manufacturing plant almost every year.
We also wanted to access the rural Indian market, for which a different strategy was devised. A new genre of companies called “rural utilities” came into existence through yet another government policy incentive. Aided by attractive financing schemes, entrepreneurs started setting up decentralized rural utilities with solar farms. Driving through rural India, solar fields became as common a sight as wheat.
All over India, villagers who had never enjoyed the privileges of light, hot water, television, and numerous other modern amenities started discovering them. The delight of remote desert people in discovering an electric fan to fight the oppression of 45-degree heat was childlike. They stood around the spinning pedestals in worship. And the poorest of the poor, who made their livelihoods through carpet weaving, embroidery, basket making, and such, managed to extend their working hours till after sundown, and well into the night.
AdiShakti, needless to say, is now one of the world’s largest corporations, but one built not only on a hunger for profit, but a hunger to advance. To do better. We consider it our responsibility to convert India to a 100% solar-powered economy by 2050, in the process creating enormous wealth throughout the solar ecosystem – from rural utilities to green urban builders – as entrepreneurs and government officials, each in their own capacity, advance technology and policy towards a brighter day.