Vikram Solar JV Set to Boost US Solar Industry with $1.5 Billion Investment

Vikram Solar, a prominent solar panel manufacturer, has announced a new venture called VSK Energy that plans to invest up to $1.5 billion in the US solar energy supply chain. The initiative aims to establish a strong foothold in the American market and contribute to the development of a robust clean energy manufacturing sector.

The joint venture is between Vikram Solar, Phalanx Impact Partners (a sustainability-focused private equity firm based in New York), and Das & Co (an investment and development company with solar holdings in the US and India). By combining India's extensive solar manufacturing expertise with American resources, the partnership seeks to bolster the US's competitiveness in the renewable energy sector, particularly to offset China's dominance.
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​Indian Solar Terrain: India's solar industry has experienced unprecedented growth and transformation. With an installed solar capacity exceeding 66.78 GW as of March 2023, it accounts for more than 15% of the nation's total installed power generation capacity of 410.3 GW. The solar industry has grown significantly in the past few years, with installed capacity increasing by 35% in FY22. This surge in solar power is a testament to India's commitment to sustainable development and marks a 17% year-on-year increase in installed capacity in FY23 alone. As the industry continues to scale new heights, it illuminates a path towards a greener and more energy-efficient future for the nation.

Cost Efficiency: As the solar industry thrives, another captivating aspect comes to light which is cost competitiveness. The cost of solar energy in India has witnessed a significant decline, making it one of the country's most affordable sources of electricity. At present, solar power is available at an astonishingly low price of ₹2.43 ($0.033) per kilowatt-hour (kWh). This cost is even lower than the average cost of thermal power, making solar energy an economically viable and sustainable solution. Moreover, when compared to other conventional sources of electricity such as coal or natural gas, solar power proves to be highly competitive in terms of cost. Coal-based power generation, for instance, can range between ₹3-5 ($0.040-$0.067) per kWh, while natural gas power generation typically falls within the range of ₹5-8 ($0.067-$0.108) per kWh.

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Government's Steadfast Support

The Indian government plays a pivotal role in nurturing the growth of the solar industry. It has introduced various policies and initiatives to incentivize renewable energy adoption. The ambitious target of achieving 500 GW of renewable energy capacity by 2030 demonstrates the government's commitment. To further boost the solar industry, the government has implemented some measures and introduced fiscal policies like:

 
Production-Linked Incentive (PLI) scheme, worth ₹24,000 crore, aims to enhance domestic manufacturing of PV Solar Modules. Vikram Solar won the bid for 2.4 GW capacity addition under the cells and modules basket out of a total of 7.4 GW awarded in PLI tranche-II.
Imposed a Basic Customs Duty (BCD) of 40% on solar ingots and wafers, reducing reliance on Chinese competition and facilitating domestic production.

Substantial investments have been pouring into the industry, with a total investment of $14.5 billion

(₹1.16 lakh crore) recorded in FY23. This influx of capital highlights the confidence of investors in the vast potential and growth prospects of the Indian solar market.

Mounting Costs of Raw Materials Pose Significant Challenges for India's Thriving Solar Sector
Due to the instability caused by the Russo-Ukrainian conflict, the prices of chief raw material of the solar industry i.e. polysilicon went up. The situation was aggravated by the disruptions in production caused by the Covid-19 pandemic in China and inflationary pressures in the global market. As a result, polysilicon prices increased by 75% compared to the previous year, reaching $35 per kilogram in FY22. All of the upstream solar industry was more or less relatively less affected by the rising costs of sales.

Cost Reduction & Fiscal Push- Prominent Indian solar manufacturers have embarked on a strategic path of capacity expansion and backward integration, driven by the objective of reducing costs. This proactive approach is commendable as it not only enhances profitability in the future but also diminishes reliance on government support, ultimately fostering a robust and highly competitive industry.

Investment Thesis

Legacy: Vikram Solar, headquartered in Kolkata, India is one of the leading manufacturers of high-efficiency mono-crystalline and polycrystalline silicon photovoltaic modules (installed capacity: 3.5 GW) of international repute. The company has a presence across 6 continents, includes offices in 11 countries and 3 manufacturing units in West Bengal, Kancheepuram and Tamil Nadu and possesses a track record of installing and commissioning over 1.35 GW of solar projects across India . The company has marquee clientele of Berger Paints, Pacific Quartz, Sopariwala 172, Sopariwala 203, Green Ply, Jindal Poly Buttons, Coast and Coast, and Pratibha Syntex.

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Unleashing Profit Potential; From Cost Decline to Carbon Neutrality: As India progresses towards its goal of achieving net-zero emissions by 2070, solar power will play a crucial role in meeting this ambitious target. Prices of polysilicon dropped due to an over-supply of wafers in the latter half of FY23 owing to delayed production-cut by China & high inventory (22 GW above the level of 2021) led sharp decline (43% from Q3 FY22 levels) of prices back to $ 15/Kg. The decreasing costs of solar components, particularly polysilicon, will play a crucial role in increasing the profitability of upstream solar manufacturers.

Backward Integration: Vikram Solar's Key to Control, Quality, and Growth: Vikram Solar's adoption of backward integration plays a crucial role in its operations as it allows them to take full control of the manufacturing process. By producing key components internally, such as cells, wafers, and ingots, they ensure superior quality, cost optimization, and reduced reliance on external suppliers. This approach is instrumental in their plans to invest $1.5 billion in the US solar energy supply chain, facilitating accelerated growth in that market. The establishment of local manufacturing capabilities through this joint venture not only contributes to the US's clean energy transition but also reduces dependence on imports. This strategic move aligns with the broader goal of bolstering the domestic solar industry and supporting the expansion of renewable energy infrastructure nationwide.

Way Forward: Building a Sustainable Future

The initial step for VSK Energy involves setting up a factory in Brighton, Colorado, which is expected to commence module production in the coming year. This facility will play a vital role in enhancing the local solar manufacturing capabilities and creating job opportunities in the region. Additionally, VSK Energy has plans to establish a second facility in a southern state of the US by 2025. This forthcoming site will focus on producing cells, wafers, and ingots, which serve as the fundamental components of solar panels. Vikram Solar's capital expenditure is carefully directed toward enhancing manufacturing processes, optimizing efficiency, and driving technological advancements. The company was deeply affected in FY22 due to the volatility of raw material prices but with the fresh stability and growth impetus the industry is expected to have a strong turnaround in FY23.
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Vikram Solar Ltd. Share Price:

The face value of each Vikram Solar share is ₹ 10. Vikram Solar's stock price is ₹ 450/share. Vikram Solar IPO price band is not disclosed yet.