How a startup is cracking the Indian solar market

“It’s year one for solar in India,” says Alan Rosling, the chairman and executive director of Kiran Energy, a solar developer startup based in Mumbai. But despite the early stage and small size of the crew at Kiran Energy — the company is two years old and has 25 employees and $50 million in funding from U.S. private equity firms — Kiran is determined to play a significant role in financing, owning and developing large-scale solar panel farms in India.

Kiran hits it big

During an interview this week in Kiran Energy’s Mumbai office, Rosling told me how Kiran has for the moment become “the biggest focused solar power developer” in terms of contracts in India. There are other large conglomerates or power companies that have potentially larger portfolios, but Kiran is currently the leader in terms of the solar-specific folks, says Rosling.

Kiran has 75 MW’s worth of solar contracts, including 50 MW that the company won just weeks ago in the latest Indian government solar auction (which Rosling called “nail-biting” and “exciting.”) The government has been bidding out projects under a goal to deliver 3 percent of the country’s power via solar by 2022: That could eventually be 25 GW. Individual states also have their own solar plans, and Kiran has a 5 MW project with the state of Rajasthan.

Kiran is just starting to hit it big. The company will open its first plant this month, and it has also managed to score a joint venture with Indian conglomerate Mahindra called Mahindra Solar One, of which Kiran is a majority owner. “When we signed the contract for the JV with Mahindra we were just two guys,” says Rosling.

Rosling’s counterpart is founder Ardeshir Contractor, formerly the head of KPMG’s Investment Banking business in India. Rosling, a former executive director of Tata Sons, tells me that Contractor came to him with the idea for Kiran and persuaded him with the pitch about the business model and the potentially massive size of the Indian solar market.

In a market that could potentially be controlled by Indian conglomerates and family businesses, Rosling emphasized that Kiran Energy is “professional” and “thinks corporately,” which is why Mahindra wanted to partner with them. “We are playing above our weight,” says Rosling.

Indian solar market

The Indian solar market only had 54 MW installed in 2010 and is expected to jump to 3 GW by 2016, according to the researchers at Greentech Media. That’s the equivalent of zero to 60 in a blink of an eye, and a variety of players have emerged over the past couple of years to try to play in this potentially huge market.

Rosling says he sees four types of players that Kiran competes with: large power companies like Tata Power; Indian conglomerates; foreign solar developers like SunEdison; and pure-play Indian solar companies like Kiran. The latter also includes direct competitors Azure Power, in New Delhi, and SunBorne Energy, in Haryana.

Right now the Indian solar market is being driven by the government mandate, and solar is about double the cost of wind in India. Kiran’s latest contract for its 50 MW project is for 9.34 rupees a kilowatt-hour. That’s pretty low compared to contracts a year ago, but wind, the cheapest clean power available in India, is closer to costing between 3 and 5 rupees per kilowatt-hour.

But those economics will likely change over the next few years. “The cost for our solar projects dropped by 40 percent in 2011,” says Rosling. The price of solar panels has plummeted this year, and while that has caused many solar manufacturers to struggle, it has been great news for solar developers. And most think that down the road, the economics for centralized solar PV farms will work without government mandates.

Part of that is because India is hungry for any kind of power — clean or dirty. Along with India’s rapidly growing GDP comes the population’s growing desire to consume more energy. There are regular rolling blackouts due to the constrained supply of electricity in many cities, and many Indians have no access to grid power at all.

“India is one of the few countries in the world where there’s demand for power, there’s land, and there’s sunshine. India is going to be an absolutely huge solar market,” says Rosling.

U.S. solar in India

Kiran’s investors include $50 million raised from U.S. private equity firms Bessemer Venture Partners, New Silk Route Partners and Argonaut Ventures — and yes, Argonaut is the firm that popped up in the media this year for backing now bankrupt solar panel maker Solyndra. It is widely agreed upon that solar project developers are a significantly less risky investment than solar manufacturers.

Kiran’s Series A funding round will take it through 2011 and 2012, says Rosling. But the company will be raising more funds to scale up and to finance more plants.

Kiran is also working with some U.S. solar makers for its contracts. Kiran went with SunPower for a 5 MW project and Japanese company Sharp for 20 MW. The contractor for the recently won 50 MW is yet to be disclosed, but Rosling says Kiran is talking to some U.S. companies.

Over the next three years Kiran Energy wants to build projects of 200 MW, says Rosling. To put that in perspective, that’s about a fifth of the total amount of solar that has been developed in India to date— from a startup that employs two dozen people.