Young Turks: Empowering India through solar power route

This serial entrepreneur from Silicon Valley always wanted to return to India and create a business that was socially relevant. So, Inderpreet Wadhwa, launched Azure Power in 2007, to power India's energy needs with his Solar solution.

Wadhwa has to his name India's first commercial Solar power plant. His venture Azure Power already has 30 Megawatts of power plants under development across the country and he now hopes to make India a solar super power by 2017.

He set up Azure Power to bet on the opportunities that Solar power throws up in India. He has already set up his first power plant in Punjab and he is targeting a 100 Megawatts over the next three years. The company is yet to see returns flowing in but Inderpreet is convinced that Solar power in India is a long term business.

Inderpreet Wadhwa, Founder & CEO of  Azure Power says,"It's scale, size and the opportunity, you can deploy solar for a small lantern, you can deploy for street light. You can do solar on rooftop of the parliament. In general sense you can do Solar in any size, any scale and any location in India, that makes the market so huge."

Below is the verbatim transcript of Wadhwa's interview with Saugat Saha of CNBC-TV18. Also watch the accompanying videos.

Q: Solar power today is still a complementary source of energy. While at Azure you are trying to create solar grids to make it a primary source, how are you going about doing that?

A: I would still say it is somewhat complimentary, its not always primary. But, there are lots of primary opportunities in the areas where the grid is never going to go or it is much difficult to build a long term grid.

You also look at peak demands, like opportunities where energy requirement is during the day, not at the night time like schools and hospitals. Lot of agriculture is also done during day time and not at night time. The other thing is Diesel Genset, India has almost 50,000 Megawatt of standby Diesel Genset capacity.

So where Diesel is burnt mostly during the day, when there is power shortage, there is more requirement of energy, so solar itself  lends really well to reduce your cost of energy during peak times. I don't generally emphasize that solar is the only solution. It is a good mix, it is a solution where you have high cost of power or there is no power.

Q: What is the cost of generating electricity via Solar and what is the business model that you have designed around the venture?

A: From a business model perspective, our model is very simple. We have a 30 year power purchase agreement with the Punjab State Electricity board, where we are selling them energy and then from their substation they care of the distribution, payments and collection of those 32 villages.

We don't get in to the end point distribution, we generate the energy and give it to the nearest interconnect point. The value of solar is in the long term, not in the short term. It is very clear, it is capital intensive.

The cost of energy is high in context to today's cost of energy in the retail market. We can predict the cost in a 20 year period. Today, we are working with utilities, so utilities do a 20 or 25 year agreement.

In Gujarat, we have a 25 year agreement with Gujarat Urja Vikas Nigam. Our cost to them is Rs 15 a unit for the first 12 years, then it drop's to Rs 5 a unit in year 13 and goes up to Rs 5 for year 25. So, 13 years from today, how many sources of power will be available at Rs 5 a unit? Not a whole lot.

Today, Azure Power has under development 30 megawatts of solar grid power plants across Rajasthan, Gujarat, Haryana and Karnataka. Seed Money came from foundation capital and venture partners and Azure sustainable business model has also attracted investments to close to USD 15 million from international finance corporation and overseas private investment corporation. While Inderpreet believes that an early mover in the renewal energy sector in India has helped doing business has not been easy.

A: The first mover advantage is, we can demonstrate that we developed some thing that has not been done before. The fact that we had a project running in Punjab was helpful in getting contracts in states like Haryana, Rajasthan and Gujarat. The second movers always learn from the mistakes of the first mover.

Since we are doing it for the first time lot of agencies we work with do not really understand solar. We have to spend a lot of time educating people and the employees that we hire because they have never seen 5 megawatt grid connected solar power plant in life. So, it is challenging but, interesting from the market perspectives.

Q: Is this a very competitive space?

A: Within a matter of two years we have gone from 20 developers to 400 developers. So, the interest is clearly there. In terms of whether these 400 players become 400 competitors I do not believe so.

Like any other new sector there is always a lot of excitement in the beginning and then things distill down to serious players. I would expect 40-50 good players in the market.

Q: What do you feel? What needs to be done in order to promote solar in India?

A: I was actually amazed by looking at the Indian Grid Code or the electricity act. It is so comprehensive that one can't imagine sitting outside the sector. While nobody has done solar before but there is lot of other types of power that has already been done the challenge lies in what do you need for solar.

So, it is not like when we sit across the table from a regulator or from a utility that they do now know how to do it. They just need to be educated about the properties of the solar plant and how do you match those properties to the grid code.

Supporting solar innovations the national solar mission has drafted a road map to generate 20,000 megawatts of power by 2022. A step Inderpreet believes will encourage entrepreneurs to cash in on this clean tech opportunity. Targeting 100 megawatt capacity Inderpreet sees a year breakeven by 2017.

A: First stepping point will be competition with retail energy prices. Retail energy prices in India vary from Rs 6 to 8 a unit. So when we can hit Rs 6 to 8 a unit then we can see a lot of private distribution companies getting in and trying to sell solar. Then you can compete with all other sources of energy.

Q: By what time frame are you looking to hit this Rs 6 to 8 band?

A: We believe that in 2017 we should be able to sell energy at retail parity Rs 8 or so.

Q: Clean tech businesses have been a favourite between investors both strategic and institutional. Do you feel the trend is still bullish?

A: You can always find good investors if you have a good business. But, there has been a lot of buzz in clean tech. Once the buzz comes out then from an investor community perspective everybody must have a portfolio of clean tech.

If you look at 2010 almost 25% of venture capital money in North America went in to clean tech. Still there is a big chunk of capital flowing in to cleantech and will continue to flow for the next 20-30 years.