In the middle of an oppressive Hyderabad summer in 2007, Venkat Rajaraman stood in the long queue at the airport, when he noticed two young men checking their newly acquired iPod with a lot of curiosity. Rajaraman asked them if they knew the chip for the product was designed in Hyderabad. It was not a question that was unintended since he worked for Nvidia, the company behind the chip design. But it was the question that a 70-year old who was overhearing their conversation that made him take a hard look at the way things were. “Is a music player a priority for a country like India?” he asked him. Narrating the story, Rajaraman says it was “a hard slap across my face and the defining moment for me to do something different.”
In less than six months, he packed his bags and left the Bay Area for good and joined Su-Kam Power Systems in Gurgaon as its Chief Technology Officer. Though he had worked in Sun and Nvidia, he was inclined towards power and especially renewable energy. “There was a story waiting to unfold in India and I wanted to be a part of it.”
After close to six years of running Su-Kam and Solarsis India (a solar PV solutions company) the entrepreneur in him took over following a decisive moment of serendipity at IIT, Madras. He started Cygni Energy, named after a bright star in the Cygnus constellation. To date, his company has successfully electrified 10,000 homes across Rajasthan and Assam which had no access to the electrical grid. With a product called DC Inverterless Controllers (DIC), he will reach out to another 16,000 village homes in rural India this financial year.
During his stint in Solarsis, Rajaraman had installed 1.4 MW of solar panel at the IIT Madras campus. That was in 2013 and he got into a long conversation with Ashok Jhunjhunwala, who taught electrical engineering there. According to Rajaraman, just the process of generating electricity with solar panels, converting first alternating current (AC) to direct current (DC) and then back to AC, results in a loss of 45%. The academic was concerned about the loss on account on conversion of electricity. “He asked me if we were doing the right thing,” narrates Rajaraman, who is an electrical engineering masters from Stanford.
But the conversation between the two made it clear that there was an opportunity to build a new technology that worked on direct current (DC) that could solve this real-life problem in India. But both were aware that the transition to DC was not to going to be an easy one. According to Jhunjhunwala, now the principal advisor to the Minister of Power and New and Renewable Energy, the big challenge was in the form of an AC legacy in India. “All our appliances and standards are AC. That is very difficult to change, when there is a natural and large advantage. It was clear that someone had to make that change,” he says.
Jhunjhunwala’s only advice to Rajaraman was that the solution had to be low-cost and demonstrate the highest efficiency. “It sounded simple conceptually and was definitely worth a try.” Starting right away, he worked with the research team at the institute for close to two months, and the results were startling. They came up with a solar DC inverterless technology which does away with the conversion resulting in an energy saving of around 40%. This technology provides longer power back up with smaller batteries and solar panels bringing the overall costs lower.
This also tied in with the government’s objective to electrify 13,000 villages across India. For the unelectrified villages seriously cut off from any kind of grid, DC was the only option, given their inaccessible location. Rajaraman was ready to break off on his own and Cygni was incubated at IIT, Madras.
When the new company was formed in October 2014, the problem on hand was real. “Over 300 million people, or 80 million households had no access to electricity. Rural India alone accounted for 74 million of those households,” says Rajaraman. They had no option but to depend on kerosene or diesel generator sets depending on the extent of need and affordability. Even, if power had to be drawn from a distant grid, it would have been expensive and low on feasibility as well. However, Cygni’s DICs can also be used in areas with unreliable supply where it can be seamlessly integrated with the AC power supply providing 24x7 power backup.
The first phase leading to the following March was spent only on testing the product in centres like Hyderabad and Chennai. The DIC is a technological collaboration between Cygni and IIT Madras, for which the latter gets a royalty since they came up with the conceptualisation of the technology. This ten year collaboration agreement is exclusive to Cygni who was entrusted with the product development and commercialisation.
At a price tag of Rs.20,000 came a basic 125W solar panel with an inverterless controller and a battery – it sits on the terrace occupying 10 sq ft and keeps a home lit 24 hours a day. The battery lasts for five years and has to be replaced after that for Rs.8,000, while the DIC costs Rs.2,500. There was an additional outgo of Rs.5,000 for one tubelight, two bulbs, one fan, one mobile charger and one DC socket.
Early into the 2016 fiscal, the first breakthrough meeting took place between the Rural Electrification Corporation (REC) and officials from the Rajasthan State Electricity Board. A month later in May 2016, another meeting in Jaipur sealed the deal for Cygni for electrifying 4,000 homes in Rajasthan across 65 villages.
By this time, Cygni’s manufacturing unit at Shaikpet, in Hyderabad, was ready. Apart from Rs.1 crore that Rajaraman pulled out of his savings, another Rs.25 lakh came from IIT Madras. The unit has a capacity of making 2,000 units per month and has accounted for half of the initial Rs.1.25 crore investment, with the rest going towards R&D and manpower costs.
The finished products move physically from the factory to the respective locations. Cygni manufactures only the DIC, while the rest are sourced from third party manufacturers. Intelizon Energy is one such supplier who makes the light, the remote controls as well as the fans. Kushant Uppal, its founder & CEO, maintains there is definitely a higher level of awareness on solar today. “Commercial electricity is not getting any cheaper and we have to look for more cost-effective options. Reaching out to the hinterland with conventional power will only get more difficult with time,” he maintains.
The Rajasthan project presented itself with very hot weather and homes that were spread out. It took Cygni eight months to execute it, since starting work on February 2016.
If that was difficult, the terrain in Assam was no better with the homes in the middle of hills and thick forests, and the Brahmaputra being the only way to reach them. Launched in December last year, the project is scheduled to be completed in August 2017.
“Rajasthan gave us the belief we could deliver on scale and that was important when we looked at Assam,” says Rajaraman. To date, Cygni has penetrated 6,000 homes in Assam and has signed agreements for another 12,000 to be completed this year. Cygni is also in dialogue with three more states to light up another 4,000 homes in the rural areas. Besides reaching out to remote areas, Cygni’s business model also consists of more expensive versions of the DIC – ones that start from Rs.40,000 and goes all the way up to Rs.65,000 which find takers in the urban markets. The company already connected 1,000 homes in urban Bihar in FY17 and is looking to connect about 1,000 to 2,000 homes in urban India this year as well.
Lighting up lives
The cost savings in the DIC product, are best compared to what the users currently spend. Take the case of Khoya Rongphar in Assam’s Kangabura Rongphar village, located well in the hinterland and a day’s travel from the state capital. He is a farmer and owns 35 acres. His village has just 15 families who had lived in darkness till about six months ago. Once the DIC came in, electricity became a permanent feature giving life to a fan and five bulbs, all of which comes with the solar panels. “We spent Rs.30 a day for the kerosene and today electricity is free of cost,” he says quite gleefully.
There is a significant subsidy component here, which is footed by the REC and the respective state government. This takes care of the entire Rs.25,000, which covers the DIC, solar panels, tubelights and fans. Rajaraman says the plan is to sustain this system for a while, which will then possibly lead to the user making a down payment and then monthly payments.
Once the equipment is installed, there is no running cost to it. The scenario in Rajasthan’s Kanasar village in Jodhpur district is no different. Dev Prakash, a final year undergraduate student in a nearby college, says his family, that owns two large houses, could always afford electricity. “It was just not available to us and we were forced to spend over Rs.3,000 each month on kerosene. The supply of that was also unreliable,” he explains. The four solar panels at home now make sure that the tubelights, LED bulbs and fans are always running.
Cygni sold 11,000 units in FY17, earning a revenue of Rs.28 crore with a profit before tax of Rs.59 lakh. While its 10,000 installations in rural areas brought in Rs.20 crore, its installations in urban Bihar brought in Rs.3.5 crore. As part of its rooftop projects, Cygni, which charges Rs.75,000 per KW, installed 600 KW solar panels across Telangana, Andhra Pradesh and Tamil Nadu, which brought in the remaining Rs.4.5 crore.
But getting more users on board is clearly a priority for Cygni which has set itself an ambitious revenue target of nearly Rs.65 crore in FY18. Rajaraman expects the DIC business, which will cover 17,000 homes in the rural and urban areas this year, to generate Rs.41 crore; Cygni’s emerging business, which covers PSU banks and institutions such as schools and hospitals along with its channel sales partners is expected to contribute the remaining Rs.24 crore.
In 2014, Cygni found an angel investor in Sasken Technologies, who put in Rs.10 crore for a 40% holding. Last year, that was bought over by Rahul Saraogi of the Chennai-based Atyant Capital Advisors, giving him a holding of 40%. IIT Madras Incubation Centre, with its research associates, holds 10%, while 50% is held by Rajaraman and his wife. Of this 50%, 15% has been kept aside for employee stock options. Saraogi, who sits on the board of Cygni, thinks there is an opportunity to cater to consumers both in rural and urban areas using energy access and efficiency respectively. “To that extent, the scalability of Cygni’s business model is very large,” he says.
Rajaraman speaks of looking at Maharashtra as being the next stop. He will continue selling his product mostly, through word of mouth even as an online store is being launched. Saraogi says the technology is proven and the business model delivers. On the anvil is the fundraising process. The company plan is to raise $25-30 million over the next 12 months to rapidly scale up the business. That will ensure many more homes are lit without having to worry about the next round of kerosene.