Heijunka iim ahmedabad-cleantech

Mahindra War Room 2011
 Team Name: Heijunka
 Campus: IIM Ahmedabad
 Sector: Cleantech Sector
 Team Members
 Akshay Gautam – 2nd yr.: p10akshayg@iimahd.ernet.in
 Siddhartha Bhargava – 2nd yr.: p10siddharthab@iimahd.ernet.in
 Vinay Kumar – 2nd yr.: p10vinayk@iimahd.ernet.in
 Pratik Gupta – 2nd yr.: p10pratikg@iimahd.ernet.in

Team Heijunka

Indian Institute of Management, Ahmedabad

Agenda

 About Us
 Solar Energy In India
 Summary: Growth of Solar Power Industry in India
 Opportunities in the Solar Space
 Mahindra Solar One: Presence across the Solar Value Chain
 Off-Grid Solar Market in India
 Identifying Customers in Off Grid Solar Space
 Off Grid Solar Systems: Marketing Plan
 Mahindra Solar One:Value Proposition
 Matching Needs of the Customers
 Other Issues

3

About Us

Akshay Gautam Vinay Kumar Pratik Gupta Siddhartha Bhargava
Education: B.Tech Education: B.Tech Education: Dual Degree Education: B.Tech IIT
IIT Delhi, Computer Sc. IIT Delhi, Mechanical IIT Madras, Electronics Roorke, Chemical
Interned at: Nomura Interned at: Reliance Interned at: Nomura Interned at: JP Morgan
Investment Banking Industries. Corp. Fin Securities Investment Banking
Work Exp: 10 months Work Exp: 22 months Work Exp: 3 years at Work Exp: 3 years at
at IBM at BPCL Lehman/Nomura Royal Dutch Shell

Worked on: Pharma, Worked on: Forex Worked on: Interest Worked on: Metals
Retail, Consumer, Solar Debt Structuring & Rate Derivatives Infrastructure, Power,
Energy, IT & Cleantech Credit Profiling Pharma & Cleantech

Team Heijunka
strategizing for Cleantech Division
4

Solar Energy In India
Overview Indian Power Production (2009)
 Solar energy technologies consists of solar thermal technologies,
which utilize sun's thermal energy and solar photovoltaic technology, Oil In 2008, the solar power
which convert solar energy directly in to electricity 36% capacity was 10 MW
 Despite more than 5,000 Trillion kWh per year solar energy By 2022, 20GW of solar
potential equivalent, solar power as of today has a negligible share: power is targeted
 Other than the high cost, some of the other challenges for the
development of this sector in India includes; lack of standards,
land acquisition problems, lack of consumer awareness etc. Unofficial targets of 10% of
 Solar energy is in a nascent stage in India, with less than 10 MW Natural power from solar, wind,
of installed capacity. India has a total installed generation capacity Gas hydro power and other
of almost 167GW Coal
9% renewable energy sources by
 Due to Government's initiatives, the Indian solar energy sector is all 51%
Nuclear 2015, and 15% by 2020 have
set to grow rapidly in the coming future
 In January 2010, India launched the JNNSM program, which aims Hydro 2% been decided
to add 20,000 MW of solar power to India's capacity by 2022 2%

Indian Power Scenario (2009-10) Capital Costs of Power Generation
 Capacity: Installed power capacity of approximately 167 GW $/Kw
(2010), which is 4% of the global capacity 4751
 Consumption: The per capita power consumption (per year) in 5000
India is about 720 KWh (or units), which is less than 5% of the per
capita consumption in USA, and less than 20% than that of China 4000
3149
 Demand-Supply Gap: The electricity deficit was approximately
10% (84 TWh) and the corresponding peak load deficit is 12.7% 3000
(over 15 GW) 1869
 Lack of Grid Connectivity: Though 80% of rural areas have been 2000 1500
1208 1290
connected to electricity, less than 45% of rural households have
access to electricity 1000 398
 Losses: Transmission and distribution losses – 35-45%
 Future Trends: The power demand in India is set to explode in the 0
coming years. Various estimates suggest that if (a very big IF indeed) Gas Wind Coal Hydro Biomass Solar Solar PV
India wants to sustain a 8-9% GDP growth over the long term, it will Turbine Thermal
need to have 4,00,000 MW of installed capacity by 2020

6 Source: MNRE, Indian Power Ministry, Street Research

Incentives for Solar Power Production
Jawaharlal Nehru National Solar Mission
 JNNSM Targets:
 To ramp up capacity of grid-connected solar power generation to 1000 MW by 2013, 4000 MW by 2017, 10000MW installed power by 2017 and
20,000 MW or more by 2022
 To create favorable conditions for solar manufacturing capability, particularly solar thermal for indigenous production and market leadership
 To promote off grid applications, reaching 1000 MW by 2017 and 2000 MW by 2022
 To achieve 20 million sq. meters solar thermal collector area and deploy 20 million solar lighting systems for rural areas by 2022
Feed-in-Tariffs  Under the FITs, a power producer who feeds the grid with solar power will be compensated at a level higher than traditional coal
based power producers. The current rate is set at `18.80 per unit, which is much higher than `4 per unit which is the cost of
power production using traditional sources
Renewable  Existing legal framework under Electricity Act 2003 puts responsibility for promotion of renewable energy on states
Purchase  RPOs obligate the state electricity boards in India to purchase a minimum quantum of energy from renewable sources
Obligations  Currently, the minimum and maximum numbers are set at 5 and 10% respectively and vary across states
Capital Subsidies  The Solar Mission would also consider a capital subsidy of up to 30% (which would progressively decline over time) for
promoting innovative applications of solar energy
Fiscal incentives  The government also provides incentives such as 10-year tax holidays, accelerated depreciation, zero excise and customs-free
import of specific equipment
 Through help from the IREDA, the government also will give a generation based incentive of `12 per unit for solar photovoltaic
and `10 per unit for solar thermal
Renewable  REC is a market-based instrument to promote renewable energy and facilitate renewable energy purchase obligations among
Energy various stakeholders. Under the proposed mechanism, the RECs will be issued to the renewable energy power producer. The
Certificates RECs can be sold to sold to state electricity boards, for whom the purchase of RECs can be used to meet the RPOs. Thus RECs
enable states with abundant RECs to sell them to other states to help them meet their RPO targets

Indian Solar Industry is bound to get the strong impetus
both in terms of marketing and manufacturing

Summary:
Growth of Solar Power Industry in India

Strong
Favorable
support from
Geography
govt.

Fillip to the
Huge power
supply Solar Power Ability to
reach out to
demand gap
due to losses Industry Rural India
in India

Due to
polysilicon
oversupply, its Lack of grid
prices have power
crashed availability


Opportunities in the Solar Space
On-Grid Projects EPC Off-Grid Projects
 Solar power systems that are connected to  Engineering, Procurement and Construction  Solar power systems that are not connected
the electricity grid otherwise known as grid companies typically install and develop solar to the electricity grid otherwise known as
connected, grid tied, on-grid photovoltaic power projects across the country off-grid photovoltaic systems generate
systems generate electricity for home or electricity for home or place of work
 An EPC typically helps to reduce business
place of work and feed excess energy risk in site analysis, system design, project  They are typically installed in remote
produced back into the electricity grid financial feasibility, product selection, locations where grid connectivity is very low
system construction execution, procurement, and or electricity is otherwise very expensive
 There are two types of grid connect systems on-going monitoring and support services
 Remote power systems are installed for a
- Grid connected systems without a battery and therefore selecting right EPC provider
range of reasons, including:
holds key to successful and sustainable
and Grid-tied systems with a battery backup
business revenue for developer  Expensive grid connection
 There are many advantages of using a grid
connected system  Plant design and Product requirement,  Desire to use renewable energy
 Simple to install technology, specification and evaluation  Low running costs
 High efficiency  Procurement  Environmentally safe - no overhead wires
 Reliable  Panel structure, panel inverter, cable and
 Flexible  Desire for independence from the grid
transformer installation

Given the lack of grid connectivity in rural areas,
Off-grid solar projects and EPC will drive growth

Mahindra Solar One:
Presence across the Solar Value Chain

Raw Material Component Appliance EPC Players Developer
Suppliers Manufacturers Manufacturer

Companies produce Companies create the Companies Generally, this is a Companies in this part
Crystalline Silicon or all-important pn- manufacture thin-film high-margin segment of the value chain
Thin Film Silicon and junction, coating and modules consists of as companies offer actually deliver solar
other inputs that go layering and this part depositing PV material end-to-end services to power solutions to
into manufacturing a of value chain is on a substrate, the customer customers
solar cell responsible for 14% of structuring it into cells
a module's cost to form a circuit

1. Tata BP Solar 1. IndoSolar 1. Punj Loyd 1. Reliance Solar 1. Zeba Solar
2. Moser Baer PV 2. Titan Energy 2. L&T/Sharp JV 2. Mahindra Solar 2. Titan Energy
3. Moser Baer 3. Moser Baer 3. Azure Power 3. Azure Power
4. Tata BP Solar 4. Tata BP Solar 4. Tata BP Solar 4. Mahindra Solar
5. Kotak Urja


Off-Grid Solar Market in India
Overview Current & Future Off-Grid
 A key opportunity for solar power lies in decentralized and off-grid Application Units MW Power
applications in remote and far-flung areas where grid penetration is
neither feasible nor cost effective Solar Street 125,000 - Current -
 In India, close to 400 Mn people are not connected to the electricity Lights 20 Million - 2022
grid, which makes the case for off-grid solar power production to
reach rural areas all the more stronger Home Systems 625,000 - Current -
 Under the JNNSM, the government has set targets for
 Off-grid power production of 1000 MW by 2017 Solar Lanterns >1 Million - Current -
 Providing solar lighting systems under the ongoing remote village
Off-grid solar - 200 MW - 2013
electrification programme of MNRE to cover about 10,000
villages and hamlets applications 1000 MW - 2017
 Set up stand alone rural solar power plants 2000 MW - 2022
 Promotion of other off grid solar applications such as hybrid
Villages 6800 - Current -
systems to meet power, heating and cooling energy requirements
currently being met by use of diesel and other fossil fuels Electrified 95,500 - Yet to be

Drivers for Off-Grid Solar Power JNNSM Off-Grid Eligible Projects
 Lack of Grid Connectivity: 40% of the Indian population still lacks  Various off-grid SPV applications which have a maximum capacity of
access to the Grid 100 kWp per site and decentralized solar thermal applications are
 Entrepreneurs: Entrepreneurs have come forward with innovative eligible for being covered in JNNSM
solutions to provide highly cost effective solar energy to rural India  Mini-grids for rural electrification with applications upto 250 kW
 Costs: A single-panel solar system goes for about $360, the same or stand to benefit from JNNSM
less than a year’s supply of black-market kerosene. And government  Some particular examples include:
subsidies mean customers actually pay less than $300  Power computers to assist learning in schools and hostels
 Government incentives: The Indian government is promoting the  MIS to assist better management of forests
use of solar energy in place of diesel because about 70 per cent of  Powering milk chilling plants
the fuel is imported. About 15-20 per cent of India’s diesel  Empowering women SHGs involved in Tussar reeling
requirements is used for captive power generation applications  Cold chain management for Primary Health Centres
 Financial Incentives: Soft loans for projects, including a  Street lighting and rural electrification
component for working capital, capital subsidies  Solar cookers, solar lanterns and heat collectors


Identifying Customers in Off Grid Solar Space
Commercial Segment Industrial Segment
 Telecom Operators  Captive Power Plants
 India has more than 2,50,000 cellphone towers that consume  Increasing demand from industrial consumers, who are suffering
about 2 billion litres of diesel every year from inadequate power supply and high tariff rate, find captive
 Tata BP Solar has installed solar panels for Airtel, Nokia, Reliance, generation as the best alternative for meeting their demand
Siemens, Tata Teleservices and Vodafone among others
 Hospitals  Solar power may be used as a diesel replacement or the plant
 With hospitals needing round the clock power supply, it becomes may be completely solar power based
imperative and cost effective to use solar power as substitutes for  Some of the advantages include – 25 year life of the plant, decent
diesel generators IRR for investors and recovery of fixed costs in the first 7-8 years
 Green Buildings  Use of Diesel based power plants for energy was the highest in textiles
 Integration of solar cells into glass panels to save electricity costs (32.4%), automobiles (19.7%), cement (19.5%), food products
 Moser Baer used BIPV technology on the front of the exterior facade of (18.9%), chemicals (15.8%) and engineering industries (15.5%)
a shopping complex in Hyderabad
 Education
 Reliable power supply for schools in rural areas
 Retail
 Reliable lighting for retail stores and cold chains
 Street Lighting
Public Utilities
 A complete street lighting system
 Existing Customers: Mahindra Solar one provides solar street lighting  Distribution Companies
for rural electrification purposes  State distribution companies have to meet the RPO targets of 5%
 Banks  RPOs reflect the target set out in the national action plan—5% of
 Solar Power ATMs in rural areas renewable energy in 2010, followed by a 1 percentage point
 Tata BP Solar has electrified 400 to 500 bank branches across several increase every year, leading to 10% in 2015 and 15% in 2020
banks, including Bank of Baroda, Bank of India and rural co-operative  Some Indian states have achieved their RPO quotas
banks such as the Karnataka  As impressive as it seems, there are certain issues with relying
 Water Pumps too heavily on state distribution companies – solar repurchase
 20 Mn agricultural water pumps run on subsidized diesel
add to liabilities of the discoms which may further burden them
 IT/Computing
 Solar Power to provide reliable backup going forward
 Tata BP Solar has already executed a project for Tata Consultancy
Services in Bhubaneswar that generates electricity of around 30 KW
 Hotels
 Solar power to provide electricity and hot water to guests


Summary:
Identifying Customers in Off Grid Solar Space
Customers Market Size Size of off- Type of Generating Currently Future
grid system Technology Leads being tapped Potential
(KW) (MW)
Commercial
Telecom Towers 1,200,000 Photo Voltaic Tower Operators Partially -
such as Indus
Green Buildings 200 500 Photo Voltaic Building Developers Yes 100
such as DLF
Hospitals 15,000 1200 Photo Voltaic Hospital Operators No 18,000
such as Apollo
Banks 20,000 100 Photo Voltaic No 2,000

IT/Computing 500 900 Photo Voltaic IT services operators No 450
such as Mahindra
Satyam
Street Lighting 2,000,000 0.2 Photo Voltaic Yes 400

Education Photo Voltaic Target rural schools No -

Water Pumps 3000 150 Photo Voltaic Target subsidized No 450
water pumps
Industrial
Captive Power Photo Voltaic Target industrial No
Plants 1 clusters
Public Utilities
Distribution Photo Voltaic Target state No
Companies distribution
companies

14 Source: Street Research & own estimates
1. Assumed for only textile companies in India

Off Grid Solar Systems: Marketing Plan
Situation Analysis Market Opportunity
Customers  Commercial organizations and institutions  Based on current trends in the sector, there exists a huge
who use off-grid energy solutions and opportunity for the Company in off-grid solar power systems and
rooftop setups and Telecom towers which the EPC business
use solar hybrid solutions  Based on our estimates, there exists a tremendous opportunity in
 The Company is exploring the possibility of off-grid solar power and EPC businesses across commercial,
selling to other segments such as captive industrial and public utilities segments across the country
power plants, public utilities and rural India  The key success factor for the Company lies in being able to provide
end to end service to the customer – project feasibility studies,
Competitors  In on-grid solutions they face competition design, procurement, installation, project management, support
from Titan Energy, Moser Baer and others services and financing options
 In off-grid solutions they face competition
from Reliance Solar, Tata BP Solar
 In the EPC business they face competition
from SunBorne, Tata BP Solar

Marketing Strategy
Company  The Company was set up in 2010 as a
subsidiary of Mahindra Cleantech Ventures,  Using Porter’s generic strategies framework, we expect the
and offers a range of solar solutions spanning Company to be customer focused in segments such as:
on-grid solutions, EPC and off-grid solutions.  Off-Grid
 They also build utility-scale solar power  Rural electrification
plants and provide turnkey EPC services  EPC projects
 The Company can also achieve superior performance by delivering
value to customers through its expertise and its network of global
Context  Production of solar power in India has suppliers and innovative financing
received a fillip from government incentives,
falling polysilicon prices and favorable
geography
 More companies are expected to switch
from traditional fuel sources to solar as solar
power achieves grid parity


Off Grid Solar Systems: Marketing Plan
Target Markets Marketing Mix
 Commercial  Product: Product offered includes solar power systems with the
 Telecom promise of end-to-end service in EPC contracts
 Green buildings  Price: Derived from costs incurred and consultation with company
 Hospitals such that the Company makes a reasonable profit
 Banks  Place: The Company will target the business customers such as
 IT/Computing industrial clusters, telecom tower operators and banks to deploy off-
 Street Lighting grid solar power systems and EPC contracts
 Education  Promotion: The Company should promote the product and service
 Water Pumps offerings via B2B channels such as events, national/international
 Industrial exhibitions and event sponsorships. To convince potential customers
 Captive power plants to shift from conventional sources to solar power, the Company
 Public utilities should get its products accredited by well known names such as
 State Discoms TUV or CEC

Positioning/Offering Contingency Plan
 The Company should position itself as an “end-to-end” service  With competition from several existing players in the EPC and off-
provider to customers in off-grid solar power segments grid solar power systems, the Company anticipates pricing pressures
 The key success factor for the Company lies in being able to provide on the systems it sells and inability to sell to many clients
end to end service to the customer – project feasibility studies,  To deal with such a scenario, the Company envisages tight cost
design, procurement, installation, project management, support controls, procuring from many global suppliers, entering into long-
services and financing options term contracts with suppliers and efficient supply chain management
 The product helps meet different needs of the customers such as  The Company also will maintain a healthy capital cushion to manage
 Need for industries to get access to cheap and reliable power enhanced capital requirement during construction
 Need to shift away from diesel and kerosene as fuels
 Environmentally friendly power solution
 Reliable Power supply


Mahindra Solar One: Value Proposition
Manufacturers & Financing partners Value Proposition
 Total project planning: The Company helps the customer
Global Access to Credit with site analysis, system design, project financial feasibility and
product selection
Procurement globally
of solar cells  Design of solar power plants: The Company works with the
Quality and customer to design the power plant based on the exact
Reliability requirements specified by him

 Procurement and delivery: The Company has access to
large and cost-effective supply arrangements with leading
module, inverter and racking suppliers around the world. It also
has established important relationships with major vendors that
provide the balance of the major parts and components to the
solar projects
Costs Service
 Turn key installations: The Company helps the customer
with Panel structure, panel inverter, cable and transformer
installation

 Project management: The Company may leverage its
experience while helping the customer manage requirements
Turn Key
Installations  Operation and maintenance: The Company is qualified and
Engineering, Operation, has the capability to provide long-term operations, maintenance
and monitoring support and services for the systems
Procurement & Maintenance and
Construction Monitoring  Financing: Assessment of available incentives (tax credits,
Services accelerated depreciation, state and utility solar rebates)
Evaluation of financing options, if needed (e.g. leases and power
Investors, Customers & Resellers purchase agreements) and Preparation of paperwork; filing for
non-tax based incentives

Matching Needs of the Customers
Customers Customer Needs Value proposition
Commercial
Telecom Towers  Lower Capex Required  Switch to Opex model where solar system for the tower is
paid off through rental payments
 Complete End-to-end solutions to telecoms
Green Buildings  Lower pollution and be environmentally friendly  Complete End-to-end solutions to developers
Hospitals  Reliable Power Supply  Solar Power can be used even as a backup
Banks  Banks and ATMs need to be connected to the central  Reliable power supply of off-grid solar systems works even
system at all times where grid connectivity is poor
IT/Computing  Reliable Power Supply  Solar Power can be used even as a backup
Street Lighting  Environmentally friendly solution and cost effective  Complete End-to-end solutions
Education  Power computers in schools  Solar energy can power computers in schools in rural areas
Water Pumps  Need to shift away from diesel operated pumps  Solar powered pumps have longer lives, are efficient and
turn out to be cheaper in the long run
Industrial
Captive Power  Need for industries to get access to cheap and reliable  Complete End-to-end solutions starting from feasibility
Plants power studies to procurement to installation
 Innovative financial solutions help in setting up the power
plant
Public Utilities
Distribution  Need to buy solar energy to maintain binding RPO targets  Solar power plants help the discoms maintain RPO targets
Companies annually


Other Issues
Solar VS Diesel
Solar Power Diesel Generator
Life  ~25 years  ~8 years
Cost  Higher Initial Cost  Lower Initial Cost
 Lower operating expenses  Higher operating expenses
 However with the subsidies in place, the Solar power  Subject to prices of diesel
project payback in the first 10 years
Pollution  The solar generator not only conserves power, but also  The diesel generator would produce continuous noise,
reduces pollution whereas the solar generator doesn’t
Efficiency  Efficient even when the utilization is low  Highly Inefficient even when the utilization is low
Reliability  Typically less reliable when the weather is not sunny  Typically more reliable

Financing Issues
 The Company can leverage the potential of Mahindra Finance and country’s significant rural banking system to finance sustainable energy systems for
poor rural households. Partnerships with regional rural banks, commercial banks, NGOs and rural farmer cooperatives will enable the company to
develop innovative financial solutions for its customers
 The Company can help its customers obtain the necessary credit to purchase solar lighting and thermal systems. Much like, in the urban world, when
considering other large purchases such as new homes or automobiles, the presence of credit facilitates purchasing. Since an energy service to an
underserved household can represent several months of income, the provision of affordable and accessible credit is essential
 Financing Partners
 To assure that the customers have access to credit at the door-step, the Company can partner with commercial banks, regional rural banks (also
called as grameen banks), and credit cooperatives
 Credit Terms
 Interest rates are based on the credit source and range from 5% to 14%. Customers typically put between 10-25% down, paying the balance over
three to five years


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