The Unicorn In Solar Market : Zetwerk’s Story

Ever since the solar sector was brought into focus sharply in 2014, in the form of an ambitious capacity addition plan by the central government, the sector has been abuzz. Yes, there have been the predictable, and some unpredictable roadblocks too, be it the covid pandemic, or the price volatility that followed it. But there is no doubt that the sector has spawned a thriving ecosystem of manufacturers, EPC players, developers and many other service providers today. 

They are all seeking a share of the approximately $30 billion plus market annually from here to 2030 and beyond, as India continues to ramp up installed capacity. A name that might surprise quite a few people is Zetwerk.

Starting from a $1.8 million seed round in 2018, Zetwerk has raised close to $600 million in funding till date, with the last round raised at a valuation of $2.7 billion. That places the firm firmly in the top tier of Solar players in India, in terms of valuations as well as actual revenues from the decision, at over Rs 1500 crores in Fy23.

The startup was launched as a B2B firm that sought to connect mid-to-large original equipment manufacturers (OEMs) and manufacturing SMEs who are based in tier-2 and tier-3 cities.  The firm has grown quickly since, crossing milestones virtually every year, from turning a unicorn (valuation over $1 billion) to turning into a firm that provides end to end manufacturing solutions to its clients. With operations spread globally, and a model that promises flexibility and speed, it was perhaps natural that Zetwerk would move into the solar sector too, as it did in the second half of 2019. 

Today, solar as a category is big enough to deserve its own standalone listing in the 12 business units that Zetwerk has, with energy and utilities as another among the 12. 

Abhay Adya, Business Head, Renewables at Zetwerk informs us that “We manufacture structures, get cells from China, and outsource module making to partners in India. In fact, last year we supplied close to 400 MW of modules also”. Adya stresses that this outsourced manufacturing has supported the firm in its solar projects, helping keep overall costs down. 

With a global outlook, the firm is also looking at opportunities in the US and elsewhere that have been opened up by the Inflation Reduction Act (IRA) and other incentives.

Adya says “We are discussing with few technology partners to have a manufacturing facility for panels and trackers in the US too. We acquired Unimact there recently which already has a manufacturing facility in New Mexico, and Las vegas also now. We have plans to get into batteries etc as well”. Zetwerk has done well enough to explore opportunities in the middle east and Africa now. Having a presence in North America means it is exploring more work there too, besides partnerships that can leverage the IRA to deliver more scale.

Timing Early Start

There is no doubt that Zetwerk benefited from the timing of its foray into solar, starting as it did in the second half of 2019. From initial project sizes of 5-20 MW, the firm focused on getting the supply chains right, and identifying partner manufacturers who could fabricate key components, especially modules for it. As the pandemic slowdown hit, it didn’t really suffer unlike other large EPC firms, that were locked on to fixed price contracts, even as module prices rose almost 30% by 2022.  And then the firm got its first truly utility scale project. A 280 MW project in Bangladesh, the largest ever in that country, where Zetwerk  partnered Jaipur based Rays Power Infra to execute it. 

“This project in Bangladesh was a very old kind of a project which hadn’t been happening for many days because of the site conditions etc. Based near the Teesta river, the project was much delayed, and execution was a challenge”. Successful commissioning of the project early this year firmly established Zetwerk as a key player in the solar EPC market. It’s opened many more opportunities for the firm, with the result that today it claims a pipeline of over 1 GW of solar projects. Dominated by PSU projects at 60% share, Zetwerk is executing almost 50% of this pipeline alone, while it has partners for the other half of the projects. 

Doesn’t turning a full fledged EPC of sorts put it in competition with its partners? 

Adya doesn’t deny that it does. “230 GW of solar to be installed by 2030. It’s a once in a lifetime opportunity and requires a huge push. The market is so big that you’ll need a lot of players. I think there is need for more players to come so that these targets can be met”. 

EVs and green hydrogen plans are also kickers that Adya expects to play out strongly over the next few years that will create additional demand for renewable energy. 

Solar Share And Plans Ahead

The solar business today contributes nearly 10-15% of revenues. Amrit Raj, Brand Director, Zetwerk  informs us that “Last year we did around Rs 11,500 crore in  revenue. And out of this 10-15% is from solar”. That is not too far from a strong player like Reliance backed Sterling and Wilson Renewable Energy, which limped to just Rs 1825 crores of revenues in FY23 after a protracted issue with previous overseas contracts. Of course Sterling and Wilson will hope for a much stronger rebound in FY 24 and beyond, helped along by Reliance’s own captive projects.   

With the 1 GW pipeline to be executed over the next 18 months, Zetwerk is committed to acquiring more business, especially from the PSU segment, where it has already got its biggest client, and many projects are set to be tendered out. That explains the breakup between utility scale and C&I segment too, at 80-20. Among states, Karnataka, Tamil Nadu, Andhra Pradesh and Maharashtra dominate, while smaller,  private  projects are spread across the rest of the country. 

But that could change soon, as Adya believes higher margins in the C&I segment, besides faster turnaround times will drive Zetwerk to seek more there. The firm has also been fortunate with many of its PSU project wins, which were acquired when panel prices were relatively high. With prices dropping to all time lows now, margins have never been better. 

The solar unit, where a Rs 500 crore project can be executed in as little as right to twelve months at times, also delivers the cash flows a startup at this scale values. By comparison, a Rs 500 crore road or railway project could take upto 2 years or more. For Zetwerk, with the massive funding it has raised and breakeven not far off, the focus on solar will only grow as it enjoys the benefits of access to finance. 

The residential or rooftop segment however, will remain off limits, as the firm is not too thrilled with the experience, on the few projects it executed for some PSUs. The focus is clearly on 10 MW plus projects now. 

Looking ahead, what’s the prognosis on costs and prices? 

Adya says “I think the tariff is getting competitive by the day but I think most of the people who took projects earlier at an extremely competitive rate are finding it extremely difficult to execute. The industry has become more prudent. Going forward I think there will be a slight increase but it should stabilise in price. Solar panel prices fluctuate a lot and it’s very difficult to predict the market but now that solar panel prices have settled down and plus or minus five percent is what we’re aiming for which will bring a lot of stability to the market.”

Adya looks ahead to a strong resurgence in the market based on the drop in panel prices in 2023. 

Looking Ahead

The EV infrastructure space is the next frontier for the firm, as it explores partnerships for battery manufacturing and other infrastructure. Solar plus wind plus storage is the future that the firm has doubled down on, as it expects it to play a key role in a couple of years. “Today, because of the battery manufacturing shortage, it has not taken off, but eventually it is going to happen”, adds Adya. Wind energy is another area where discussions are on, and Adya expects the firm to make a start, sooner than later. 

With a strong design team, and even some patents in place, the firm is confident about its ability to give the best proposals in terms of IRRs for clients. Word of mouth has also grown strongly. The 250 people strong solar team has almost 35 in the design team, with the firm expects 25-30% growth year on year for its solar division. That could mean crossing the Rs 2,000 crore mark comfortable in FY24 for the solar unit. With work varying between BOS, to module supplies to structures, the firm has tie-ups in place with leading industry names for supplies. The only space it does not seek actively is the O&M space, even as it will do it where it comes as part of the project.