An Indian Solar Company Charges Ahead In a Hard Market

December 23, 2015, 8:42 PM UTC
Indian workers construct part of the France-India Solar Direct Punjab Solar Park project in Muradwala, some 30kms from Fazilka on February 6, 2015. The French hosts of a UN climate summit later in 2015 insisted February 6 that combatting global warming would not undermine efforts to fight poverty as they lobbied for India's support in cutting emissions. AFP PHOTO/NARINDER NANU (Photo credit should read NARINDER NANU/AFP/Getty Images)
Photograph by Narinder Nanu — AFP/Getty Images

Indian solar company Azure Power is a rarity in the world of solar. It’s a young, venture capital-backed company, that has managed to morph into a major player when it comes to developing solar projects across India, competing with much larger competitors like First Solar (FSLR), SunEdison (SUNE), and Soft Bank.

After building what the company says was India’s first private grid-connected solar project in 2009, Azure Power now has 17 large solar panel installations operating and selling power to utilities and companies across the country. It has another 11 projects under development, and installed another 200 projects on Indian rooftops.

Down the road, Azure Power aims to have 520 megawatts of solar power operating in India by the end of 2016, up from its current 242 megawatts of solar capacity. By the end of 2017, Azure Power wants to raise that to 1 gigawatt, and to 5 gigawatts by the end of 2020.

For comparisons sake, India had 4.3 gigawatts of solar installed across the country at the end of September. India’s government aims to have 100 gigawatts of solar installed across the country by 2022. If Azure Power meets its goals, a decent chunk of that could come from the young company.

Just this week Azure Power said it scored a contract to build 100 megawatts of solar projects for state-run utility NTPC Limited. Before that, the company filed for an initial public offering on the New York Stock Exchange that would raise up to $100 million (a common place holder figure that will likely be revised).

If a large power company achieved this type of growth and these types of contracts in another hot solar region, it wouldn’t be all that surprising. Solar is exploding in areas like California in the U.S.

But India is a notoriously difficult solar market. As SunPower (FSLR) CEO Tom Werner pointed out during an interview with Fortune last week, acquiring financing and land for solar projects can be difficult in India. The country also has a hodgepodge of regulation in its different states, which makes creating solar projects challenging. In addition, the prices that emerge through India’s auctions for solar power can be extremely low, which means that profit margins can be very slim.

All of that means the solar business in India requires a lot of capital. That’s why Azure Power’s competitors are all large companies, and it’s also one reason why Azure Power is trying to raise money.

WATCH: The economics of energy in developing countries:

According to its filing, Azure Power only generated operating revenue of $17.7 million from selling solar power for the year ending in March. Over the same period, the company lost $17.1 million.

Azure Power is also heavily indebted. It has long term debt of $243.4 million, and total liabilities of $309.4 million.

If Azure Power raises at least $100 million in an IPO, the company would have cash for another 12 months. This Summer, Azure Power raised another $60 million from International Finance Corp. (IFC), part of the World Bank.

Other startups that have tried to tackle this market have struggled to remain independent. French power giant ENGIE reportedly was looking to buy an 80% stake in Kiran Energy, a six-year-old, venture capital-backed company. However, it’s unclear if that deal ever went through. The company’s investors were reportedly trying to sell off shares in the company.

That Azure Power has gotten this far is truly a feat. The company was founded by Indian entrepreneur Inderpreet Wadhwa, who spent years in the U.S. getting an MBA and working at tech companies like Oracle and a consumer marketing software startup called Loyalty Lab.

Before starting the company in New Delhi in 2007, he had no solar industry experience. He raised funding from early investors Foundation Capital and Helion Venture Partners.

Beyond the difficulties of selling in the Indian solar market, the future there looks bright. Rolling blackouts are common in some areas of the country due to a lack of energy supplies and many people in rural areas of India don’t have access to the power grid. The country is investing heavily in building power sources of all kinds, not just for solar, but also using coal.

India signed the final climate agreement in Paris, and solar executives like SunPower’s Werner think this will be a big step for helping shape clean energy policy. As India’s solar market continues to mature, it will likely become easier for companies to navigate the hurdles in the market.

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