Azure Power

Integrated business strategy sets it apart in a fragmented market

With increasing capacity additions, rapidly declining tariffs and improved power uptake, the Indian solar power market is now nearing maturity. The current state of the market is the result of a robust solar ecosystem built by the early movers that entered the industry almost a decade ago. Azure Power is one of the companies that have helped shape the country’s solar power segment. Founded in 2008 by Inderpreet Wadhwa, the company installed India’s first private utility-scale solar power plant in 2009. It was also responsible for installing the first distributed MW-scale solar rooftop project in the country in 2013. Since then, Azure Power has expanded in size, portfolio and every other dimension to become a major driver of solar energy in India.

Localised strategy

Creating a positive social impact on rural India was one of the founding concepts of Azure Power, which began with off-grid and small-scale deployment of solar power units. The ground-level work helped the company gain a deep insight into the local Indian market, and adopt a granular approach to project development. Azure Power soon became India’s first private utility-scale solar power plant developer. It swiftly ventured into the rooftop solar and microgrid segments as well, leveraging its experience in earlier deployments. This helped the company gain a significant market share in the Indian solar power segment. It held a share of 8.5 per cent in the solar market during the period March 2014 to March 2017. Azure Power’s installed solar power capacity grew at a compound annual growth rate of 107 per cent, from 17 MW as of March 2012 to 771 MW as of July 2017.

The development of expertise at the local level has remained pivotal to the company’s bottom-up strategy, which has helped it grow into a global business. To this end, Azure Power has forged key collaborations with the central and various state governments. Currently, the company has a portfolio of over 1.6 GW with assets spread across more than 20 states. Of these, around 805 MW were operational, as of December 2017. Being a pioneer in the Indian solar power industry, the company has also played a policy advocacy role, especially in designing the auction process, which allows multiple winners at different price points. Azure Power’s designs take into consideration the geographical, environmental and business requirements of the project, which helps create a customised solar power solution. Moreover, the company promotes community engagement and awareness by hiring workers from the local communities and leasing land that has no alternative use. This helps avoid cost and time overruns.

Integrated business model

Azure Power provides an integrated platform for solar power project development. It engages with a project from the pre-bid stage to the commissioning and  operations and maintenance (O&M) stages. The company enters a solar auction strategically, by tracking all ongoing and upcoming auctions with the help of a development team, and then bidding for the most effective tariff. This helps maintain its profit margins despite low tariffs as discovered in the recent auctions. Once the capacity has been won, the company acquires the land and associated permits and undertakes due technical diligence while engaging in stakeholder discussions. Azure Power secures the debt component, that is, 75 per cent of the project cost, through long-term debt with favourable repayment and competitive interest terms. Moreover, internally generated cash flows are reinvested into projects as part of an effective financial strategy for optimum returns on capital.

The company has in-house engineering, procurement and construction capabilities that help it choose the right equipment as per the project requirements while optimising the total project cost and returns. Further, the scale of component procurement helps reduce project costs. Azure Power’s projects are monitored on a real time basis from a network operations and control centre, which helps optimise the power output. O&M activities on daily, weekly, monthly and annual basis help the plant generate better output with reduced downtime. Moreover, solar-as-a-service also forms a significant part of Azure Power’s business model.

The company has also entered into only long-term fixed price contracts with its customers in India, often at prices competitive with alternative sources of power generation. It has a strong offtaker line-up, which includes central agencies such as NTPC, the Solar Energy Corporation of India (SECI), NTPC Vidyut Vyapar Nigam Limited, Indian Railways and the Delhi Metro Rail Corporation.

Azure Power’s partnerships with companies across the world have helped it achieve about 85 per cent savings on balance of system costs due to integrated engineering, design and procurement. It enjoys strong module-vendor relationships with module companies such as First Solar, Canadian Solar and Hanhwa. For associated components, it has partnerships with SMA, General Cable, Schneider Electric and Bonfiglioli.

Financial strategy

Azure Power recently released the financial results for the quarter ended December 2017. The company’s revenues stood at Rs 1,739.9 million, registering an 83 per cent year-on-year increase over the same period in the previous year. The total revenue for the first nine months of 2017-18 stood at Rs 5,441.6 million, a 90 per cent increase over the corresponding period in 2016-17. The steep rise in revenue can be attributed to the large capacity addition during the year.

The company’s financial strategy is based on its ability to forge global relationships using its local strength. It has raised capital from multilateral development institutions such as the International Finance Corporation, Proparco (a development institution owned by the French government and a few private investors), German development bank KfW, US Exim Bank, and the Overseas Private Investment Corporation. Several venture capitalists including Foundation Capital and Helion Venture Partners have also invested in the company to further its solar project development mission.

Moreover, Azure Power has been able to raise capital from central Indian banks and domestic financial institutions such as the Central Bank of India, the State Bank of India, the Indian Renewable Energy Development Agency and India Infrastructure Finance Company Limited.

Azure Power was the first Indian solar entity to be listed on the New York Stock Exchange and the only company in the world to have launched an initial public offering in 2016. Further, in April 2017, Hareon Photovoltaic (PV), a wholly owned subsidiary of Hareon Power Singapore, a vertically integrated solar PV manufacturer, invested $76.6 million to acquire a 45 per cent stake in Azure Power Thirty-Seven Private Limited, a wholly owned subsidiary of Azure Power.

In August 2017, Azure Power placed $500 million in India’s first solar green bond at an interest rate of 5.5 per cent, one of the lowest for an Indian solar company. The bond offering, which included 621 MW of renewable energy projects, will mature in 2022. The bond proceeds have been earmarked for financing under-development projects, repayment of existing debt and the future growth of the company.

Recent developments

In January 2018, Azure Power commissioned a 100 MW solar power plant in Telangana. The power produced from this plant will be supplied to NTPC at Rs 4.67 per unit. In the same month, the company won a 200 MW solar power project in Bhadla Solar Park, Rajasthan, through an auction conducted by SECI to supply power at Rs 2.48 per unit for 25 years. In another development, the company won 11.35 MW or 60 per cent of the total capacity auctioned by the Ministry of Human Resource Development for the installation of rooftop solar power plants in 152 schools across six states.

Meanwhile, in October 2017, Indian Railways awarded a contract to Azure Power for the development of 20 MW of rooftop solar capacity across 17 states and union territories. In addition, the company signed a contract with SECI to develop 50 MW of rooftop power plants on government buildings and institutions in 10 states. It also won 67.38 MW of rooftop solar projects auctioned by Railway Energy Management Company Limited.

Future outlook

Azure Power’s integrated business model and bottom-up approach have led to its progress in the Indian solar power market. It continues to enjoy the first-mover advantage despite facing heavy competition in a highly fragmented ecosystem. Going forward, the company is expected to consolidate its position, backed by a fresh tranche of investments. It believes in evolving its strategy while retaining its  fundamental ethos of local level development. With a large amount of its capacity currently under development and another 80 GW set to be auctioned nationally to achieve the 2022 target, the company is expected to increase its portfolio considerably over the next few years.

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