ReNew Energy Global Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 20, 2023

There are 8 speakers on the call.

Operator

Thank you for standing by, and welcome to the ReNu Second Quarter Fiscal Year 'twenty four Earnings Report. All participants are in listen only mode. There will be a presentation followed by a question and answer session. I would now like to hand the conference over to Nathan Judge of Investor Relations. Please go ahead.

Speaker 1

Yes. Thank you, Jason, and good morning, everyone, and thank you for joining us. This morning, we issued press release announcing results for the fiscal 2024 Q2 ending September 30, 2023. A copy of the press release and the presentation are available on the Investor Relations section of REMU's website at www.renu.com. With me today are Sumant Sinha, Founder, Chairman and CEO Kailesh Praswani, our newly appointed CFO and Vashali Nigam Sinha, Co Founder and Chairperson of Sustainability.

Speaker 1

After the prepared remarks, we will open up the call for questions. Please note, our Safe Harbor statements are contained within our press release, presentation materials and materials available on our website. These statements are important and integral to our remarks, and there are risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward looking statements. So we encourage you to review the press release we furnished in our Form 6 ks and the presentation on our website for a more complete description. Also contained in our press release, presentation materials and annual report are certain Non IFRS measures that we reconcile to the most comparable IFRS measures and these reconciliations are also available on our website in the press release, presentation materials and our annual report.

Speaker 1

And it's now my pleasure to hand it over to Samant. Samant?

Speaker 2

Yes. Thank you, Nathan. Good morning, everyone. I'm glad to have you all in our Q2 fiscal year ended 20 24 earnings call. This year has presented new opportunities for us in avenues that align seamlessly with our competitive advantages.

Speaker 2

The backdrop for Indian renewable energy developers is the best we have seen ever seen, marked by a significant surge in power demand, Shortfalls in energy supply significant increase in auctions for renewable energy, which is the lowest cost electricity supply without subsidy A softening of solar module prices and a shift towards complex projects that is best served by wind, of which we are the largest developer in the country. I firmly believe that Renew, with its disciplined approach to identifying the best Return Opportunities is well positioned to capitalize on the current market. We continue to make progress towards our goals, Maintaining capital discipline along the way. We are more confident of achieving our financial guidance set earlier this year and are raising the lower end of our EBITDA guidance by approximately 3%. We now anticipate delivering between INR 62,000,000,000 to INR 66,000,000,000 in adjusted EBITDA for FY 'twenty four.

Speaker 2

We have put in a majority of our wind turbines and solar panels in our largest projects being commissioned this year, which puts us in good stead to deliver on our guidance of between 1.75 and 2.25 gigawatts of projects to be completed by this fiscal year end. We expect the additional capacity should translate to approximately 35% or more per share EBITDA growth next fiscal year. We continue to see consistent flow of auctions as central agencies such as NTPC, SJBM, SECI, NHBC and some states have announced our vision Of 65 gigawatts this year, the highest that we have ever seen in the history of our industry. Notably, 18 gigawatts of auctions have already been completed this year, already surpassing the previous year's amount, which still about 4 months plus to go. A higher ratio of complex auctions signals the trend that distribution companies want The complexity and limited development capabilities in India, Anomal by the sales have resulted in less participation by competitors.

Speaker 2

Broadly, we have seen an upward lift to auction tariffs For the past 12 months and recent auctions indicate that this trend will continue further. We have signed a power purchase agreement, PTA, with GOVNL, which is the Gujarat distribution entity, For 400 megawatts of capacity that we won earlier this year and have received letters of awards for another 2.9 gigawatts that we have won. As a reminder, we do not include projects with LOA into our portfolio Until we have a contract, a signed PPA, which indicates another step up in our long term earnings potential As of 3.1 gigawatts of projects, 1 received EPS over the next 3 to 6 months. Our assets continue to attract interest from investors and strategic partners at favorable valuations. Recently, we concluded the sale of 100 megawatts of solar assets, resulting in a gain.

Speaker 2

In a little over 2 years, We have raised about $565,000,000 from asset recycling and year to date about 93,000,000 The ability to recycle capital and deploy it in higher return opportunities remains a significant component of our capital allocation and value creation strategy. We reported a profit after tax of $45,000,000 one of the highest reported by us till date. This quarter, for the first time in a while, the wind resource was about close to normal. Wind PLS increased to 41.3% from approximately 33.7% in the corresponding quarter last year. And last 3 straight years where we have seen improved wind resource, which may portend for more normal weather going forward.

Speaker 2

While we remain optimistic about long term wind PLS returning to normal levels, we are choosing to remain conservative at this time about our weather expectations for the remainder of this year in our guidance. Turning to Page 5. In September 2023, we witnessed a record surge in power demand, hitting 2 40 gigawatts with its peak hours As well as a surge of power prices traded on the exchange, reflecting strong overall growth in power demand in the country. We have seen overall power demand consistently rise at 8% over the last several years and continue to expect Sustained growth for the next few years. While the Indian government is ambitious about achieving the 2,030 renewable energy targets With a 50 gigawatt renewable energy annual auction calendar, our position as a market leader in developing wind remains differentiated.

Speaker 2

With a shift away from Manila wind and solar auctions, There is a tilt towards round the clock and complex auctions, a significant step towards catering to unique power demand profile of distribution companies with wind as a key differentiator. Our experience in developing complex solutions provides us with significant advantage over others who do not yet have in house wind EPC capability, Digital or AI platforms and strong understanding of the supply chain cycles that enable us in securing returns superior to our peer group. Turning to Page 6. While the market opportunity is substantial, our commitment to capital discipline remains unwavering. In house wind and digital capabilities empower us to seamlessly build, operate and maintain renewable energy projects, providing us competitive advantages in the market and enabling returns above our competitors and above our cost of capital.

Speaker 2

Recently, we signed a PPA with Juvenile at a tariff of 2.71 per kilowatt hour For 400 megawatts of solar and letters of awards, secured letters of awards for most of our 3.1 gigawatts of auctions wins earlier this year at attractive status. Given the increase of intermittent generation in the country, There is substantial demand for electricity supply that meets more stringent delivery and reliability requirements. More than 60% of the 30 7.2 gigawatts of auction yet to be completed this year are complex power solutions. Given our industry leading wind DPC capability, Our scale, given the larger size required for complex projects, our ability to source equipment through vertical integration, Our superior access to the lowest cost of capital and our substantial land bank, we have competitive advantages in delivering these complex RE projects quicker and at a lower cost than anyone else in India. To summarize, this is therefore one of the best backdrops for Indian Renewable Energy that we have seen in a very, very long while.

Speaker 2

Turning to Page 7. Our on ground progress remains on track as our projects enter final construction phases. Cheaper solar module prices have enabled us to procure modules at almost half the price as compared to the same time last year. We delayed projects in the past Because of then CapEx costs would have resulted in subpar IRRs. As we continue to reiterate, we remain laser focused on capital discipline and have been rewarded by our patients.

Speaker 2

We have seen shareholders by our estimate of $100,000,000 in lower CapEx by pushing out certain projects. We have consistently invested small amounts of capital in complementary businesses to enable even greater competitive advantages of our core renewable energy development business. For example, we spent about 10% of our CapEx To develop solar manufacturing, given the substantial reductions on imports that are being imposed by the central government. This decision has borne fruit in allowing us to procure high IRR projects in recent auctions that others may not have been able to procure supply for. Investment in transmission is another example.

Speaker 2

There are currently chronic delays across India in completing interconnection hubs that allow new projects to connect to the grid. Rather than leave our large projects sitting idle, we decided to invest a small amount of capital, less than 5% of our equity to build a transmission ETC business. Furthermore, we have recaptured most of this equity Through capital recycling that have garnered gains, we successfully commissioned our first transmission project this quarter, which is the connection point for our large peak power project providing 138 circuit kilometers of connectivity. Before I turn it over to our newly appointed CFO, I'm really pleased that the Board has chosen to promote Kailash to the CFO role. Many of you would have interacted with Kailash previously and know of his experience and extensive knowledge of renewable energy debt markets.

Speaker 2

Gilat has been with the new since the beginning, having joined us in 2011 As one of the founding members of the company and has been instrumental in all of our fundraising efforts, both debt and equity. To date, he has helped renew raise close to $15,000,000,000 through various sources, including about $565,000,000 raised through Asset Recycling. I do consider us lucky that we were able to identify someone internally for this position who has in-depth knowledge about the business as well as a proven track record. With that, I would like to turn it over to Kailash to go over the latest financials.

Speaker 3

Thank you, Sumant, and it's my pleasure to be here and interact with all of you. Before I begin my comments on the quarter, I thought I would like to share a little about my view on my commitment to capital discipline, in which I'm a staunch believer. We live within our means and only deploy capital when the returns on our investments are comfortably above our cost of capital. Having been on the renew's investment committee for some time, I fully supported the $250,000,000 share buyback that was authorized In February of last year, as I saw investing in our shares as one of the most attractive investment opportunities of scale at that time, I still believe that at the current share price, there are a wide array of options that we can use to fund growth without issuing shares. I have led all of the capital recycling efforts so far and see a significant amount of demand for our projects.

Speaker 3

I also will lead efforts to deleverage our balance sheet over time. With regard to the veracity of our reported numbers, I fully stand behind them. Turning to Page 9. While the global markets have been impacted by rise in interest rates, we have actively managed by refinancing a higher cost debt and ensuring our overall cost of debt is kept within check. In India, the yield spread for Indian RE debt has compressed significantly as the sector matures.

Speaker 3

We can currently raise debt for our projects at sub 9% through large Indian Financial Institutions. Importantly, assuming interest rates remain where they are now, we expect to be able to refinance debt maturing of 850,000,000 Over the next several years at a lower interest rate, saving an average of 25 to 50 basis points, We have significant access to debt from diversified sources, including from PSC and REC, which is the Power Finance Corporation and the Rural Electrification Corporation, which are known to provide one of the most competitive costs of project debt in the industry. We recently signed an MoU of $8,000,000,000 with them. We continue to expect that we will be able to effectively manage our interest costs and ensure that project IRRs remain within the targeted range. Turning to Page 10, our asset recycling program Continue to see interest from international players seeking an offset to their carbon footprint.

Speaker 3

We believe that asset recycling will effectively provide us with a long term advantage by helping us scale at faster pace as well as provides us avenues to optimize the build process and funds on invested capital. We completed a sale of 100 megawatt of solar assets in the current period and raised almost $93,000,000 through asset recycling year to date, about $565,000,000 in aggregate. For growth beyond the current pipeline, we expect that we have operational development capability To be able to build about 2.5 to 3 gigawatts of assets annually, of which we intend to recycle assets, including sale of arm down of net interest of about 1 to 1.5 gigawatts each year, which will generate the required free cash flow to fund growth in addition to our internal sources. This would ensure we have sufficient equity for growth without having to issue shares. Turning to Page 11, we're pleased to report our highest quarterly profit after tax of $45,000,000 and the highest first half year profit after tax of $81,000,000 till date.

Speaker 3

We saw a return to normal wind patterns during the current period and the wind PLS during the quarter was 41.3% compared to 32.7 percent in the same quarter last year. And we continue to remain cautiously optimistic about recovery in the long term win pay less towards the long term normal levels. Our operating capacity increased by approximately 600 megawatts over the last comparable quarter in the prior year, an increase of about 8%. For the full year, we expect interest cost to be marginally higher to the prior year on account of new project commissioning and the same is offset by savings and interest rates from refinancing. Of course, this is subject to volatility in the foreign exchange market.

Speaker 3

Taxes look to be about 20% to 25% higher in FY 'twenty four as more of our subsidiaries are turning profitable. Turning to Page 12, we reported an adjusted EBITDA of $256,000,000 for quarter 2 FY 'twenty four. The higher EBITDA is primarily attributable to addition revenue from projects commissioned during the period, higher wind PLS, offset by lower late payment surcharges of about 11,000,000 As more of our customers are paying on time and higher operating costs reflecting more headcount to support our growth. Turning to Page 13, our DSO continues to improve year on year And we have seen an improvement of 119 days since September 'twenty two, an improvement of 26 days since the beginning of this fiscal year. We continue to work with states and continue to believe that our DSO will continue to improve over time as we continue to focus on Getting paid for overdue receivables as well as a favorable mix shift where more of our revenues come from central government and corporate customers who pay on time.

Speaker 3

Moving to Page 14. We are focused on improving our liquidity and leverage. Our cash balance stood at close to $1,000,000,000 almost $985,000,000 and our net debt on operating assets was $4,700,000,000 Off gross debt, about 59% of our debt has a fixed interest rate. We only have about $325,000,000 of debt maturing In the next 12 months, which we expect to refinance at an average lower rate than what we are currently paying. We have good visibility on how we anticipate refinancing the remaining $600 odd 1,000,000 that matures in FY 2025 and FY 'twenty six.

Speaker 3

With that, I would like to turn it over to Vishali to talk about our ES initiatives.

Speaker 4

Thank you, Selash. Turning to Page 16. Building upon the momentum from the previous year, we remain steadfast in our commitment to establish New benchmarks across all aspects of our ESG vision, performance and transparency. We are leading the way for ESG in our sector. Vimeo has released its sustainability report for fiscal year 'twenty two, 'twenty three titled Driving Decarbonization.

Speaker 4

The report is aligned with GRI, SaaS P and PCFD and externally assured by BNV. Some of the key highlights of the report are Renew has generated clean electricity, which is 17,386 gigawatt hours, Which is enough to power nearly 5,000,000 Indian households, which has also helped to avoid 14,000,000 tons of carbon emissions through its operations, which is about 0.5% of India's total emissions. The carbon intensity of renewed electricity generation is about 92% less than the Indian Power sector's average. Renewed take about 318,708 kiloliters Of water, about 48% year on year increase through our robotic cleaning and condition based monitoring system. Vinyu achieved carbon neutral status for the 3rd consecutive year for our Scope 1 and 2 Greenhouse Gas Emissions.

Speaker 4

As mentioned earlier as well, the new net 0 targets By 29.4 percent by 2027 and by 90% by 2,040 2, clean energy procurement for operations, electrification of fossil fuel based equipment, Encouraging suppliers to set STTI aligned targets, low carbon footprint raw materials and green logistics for transportation. So as you can tell, we are deeply committed. Social responsibility continues to remain an integral part of our business. Our CSR journey, which began in 2014 and since then, we have impacted the lives of over 1,000,000 people Across 500 plus villages in India spanning across 10 states in the remotest parts of our country. Now if you could turn to Page 17, I would like to switch to specifics of some of our efforts for First half of fiscal year twenty four.

Speaker 4

Lighting Lights, which is one of our flagship programs, It's an initiative where we electrify schools with less than 3 hours of electricity using solar off grid, electrification of 50 schools And we have also established 50 digital learning centers and all of this is in progress I'm going well. Climate curriculum, we are in the process of rolling out the applied curriculum to about 9,000 students Across the country, Women for Climate is another program we are very passionate about. It is our effort To include more and more women in the energy sector, and we have programs on pre skilling in partnership with UN organization and we are also working on re skilling some of the salt pan workers in Gujarat To becoming now, solar technicians. Nearly 60 women salt and farmers have been trained and have secured Employment, about 48 trainees have secured employment. Employee engagement is an important part of what We do.

Speaker 4

We have programs designed for and led by employees at the new annual volunteering campaign, which is the rice bucket Challenge saw about 40,000 kilograms of rice distributed than India. We have kick started the fiscal year 'twenty four disclosure cycle With the submission of CBT Climate Change 2023 disclosure, we will be disclosing further progress in our forthcoming sustainability report. With this, let me hand it back to Sumant to talk about our annual guidance.

Speaker 2

Thank you, Vishali. Turning to our annual guidance, I'm happy to report that we have increased the bottom end of FY 'twenty four adjusted EBITDA guidance by INR 2,000,000,000 to INR 62,000,000,000 to INR 66,000,000,000 On account of a better than expected H1 performance, we have provided some additional details on how results were compared to our original guidance in the appendix of the Sanish presentation. We reiterate our capacity of completed guidance for this fiscal year of between 1.75 to 2.25 gigawatts. Regarding our buyback, we have repurchased By now, 38,600,000 shares in total since February last year, which represent approximately 35% of the free float At the time of listing, we have $11,000,000 of authorization remaining, which represents about 4% to 5% of the total free float. With that, we will be happy to take any questions.

Speaker 2

Thank

Operator

Our first question comes from Puneet Gulati from HSBC. Please go ahead.

Speaker 5

Yes. Thank you so much and congratulations on Good numbers and good profitability as well. First question is on the wind PLFs. So this quarter has been particularly good at 42% PLF. Should one consider this to be normal for 2Q?

Speaker 5

Or Do you think it was higher than the normal course?

Speaker 2

Yes, Puneet. Hi, thank you. No, this year's PLF in Q2 was a little bit, but very marginally, I would say, higher than What would be normal? But keep in mind that Q1 is actually significantly lower as well. And so in aggregate, Q1 and Q2 put together is lower than what should have been the case.

Speaker 5

Okay. Understood. So first half is normal, but Q2 higher, Q1 lower?

Speaker 2

Yes. First half is a little bit less than normal, but Q2 is a little bit higher than normal and Q2 was lower. And so therefore, overall, we are ending up a little bit lower Then the overall exon expectations would have been.

Speaker 5

Understood. That's perfect. And secondly, can you also update on one of the acquisitions that you announced a few quarter back? What is the progress there?

Speaker 2

Yes. I'll let Kailash do that.

Speaker 3

Yes, Puneet. So on the question that we had announced, there was a lot of delay which happened in getting the approvals because those assets were sitting in a partnership firm and they had to demerge it into a company. And the approval for the demerger took a lot of time. So that deal reached a long stop date and we decided we didn't want it because The entire market had sort of taken so much time for these process to get completed that we don't want to wait any longer. And we got better opportunities on the bidding side, so we decided to allocate capital more on the organic front.

Speaker 5

Understood. And there are no penalties that we had to pay for that?

Speaker 3

No, no penalties. There was some transaction cost which was involved, initial cost, which was less than $1,000,000 That was your total cost that we ended up incurring on

Speaker 2

Okay. Okay. Got you.

Speaker 5

Okay. And secondly, Sumit, you announced in this year, a lot of EPI has been Lot of bids have been announced, tendering has happened, some EPI has been signed. Do you have a similar number for FY 'twenty three? What kind of bids got announced and how much PKS at this time and what is the backlog for that?

Speaker 2

So on FY 'twenty three, so to me, it's very hard for me to give a number because FY 'twenty three, we actually hardly won a week capacity. We just had a 3% market share last year. And but I should tell you that our The key 8 solar, which was the outstanding, which in fact we haven't put anywhere in the presentation, but Therefore, Jason, you have to tell me whether I can talk about that or not.

Speaker 5

Yes. Go ahead, Sumant.

Speaker 2

Okay. So the Checky8, which was an outstanding 200 megawatts, that detail is also worth time now. So after 13.7 or 8 that we now have, everything is fully signed PPA. So there's nothing that is now not signed. So the only point I'm trying to make is that all PPS are now getting converted quite rapidly.

Speaker 2

And with power demand going up, there is definitely interest among the discounts To go to SECI and try to convert some of the options into firm PTOs. But Puneet, the process is a long one because the distribution utilities Have to first, of course, go through the commercial implications. Then they have to go through their local regulator and get the approval of the tariff. That process itself can take a month or 2. Then they come back to the Seki, and then basically go ahead and sign the PSA after which Seki signs the PSA.

Speaker 2

So that whole process can take several months to get consummated. And in auctions where there is a central acquirer, they have to go to the central regulatory authority. So for example, a couple of bids that we've done back in April, May are now sitting with the Centrals and wait to see our seat for approval. And it's just a process, frankly speaking. It just takes a little bit of time.

Speaker 2

And so the process of conversion of these Bids to PPAs is happening. It's in the works. And I think progressively as some of these approvals from the regulators come through, You see found that getting announced.

Speaker 5

And any reasonable expectation of the 2.9 left, how many of them should you see PPS getting signed this year at all?

Speaker 2

I would imagine that most of

Speaker 5

them I don't know.

Speaker 2

It's hard to say, though. Yes, it's hard to say, but I would imagine most of them should get signed. Certainly, some of the more plain vanilla ones should, but then, of course, there is also some complex auctions. Complex auctions, as you know, does require a longer lead time to convert to PPA simply because they are, by definition, complex. And therefore, this comps also take a longer time to understand them and then be able to get their own internal approvals.

Speaker 2

And then Also to that extent, regulators take longer to understand that. So the whole process of conversion of complex auctions is just a little bit longer. But the reality is that for us, Sreed, there is no urgency at all right now on some of these because for the capacity that we won, These are things that we're going to construct only in FY 2026. And so we have time on our side to get them signed. Meanwhile, I should tell you For all the projects that we've got LOA, we've already blocked transmission capacity.

Speaker 2

So transmission capacity has been blocked. NAND, we have obviously, we're working on that right now. But eventually, we will convert them into actual sort of Deals when the PPAs these are timed as we go forward. And keep in mind that our clock to execute starts ticking only once the PPAs time.

Speaker 5

Right. But you have mined for the entire 3.5% which is 1%.

Speaker 2

Yes. I mean, we don't have to acquire it right now as long as we have good line of sight into where that land is. In some cases, you can block the land without actually paying There are significant amount of money. But the important thing is as long as you block the transmission capacity, then that's the most critical factor. And with the LOAs in hand, we are in fact able to block the transmission capacity.

Speaker 2

And so for all the capacities that we have, All the 3.1 gigawatts that we've won, we have blocked the transmission capacity for all of that.

Speaker 5

Understood. That's great. And lastly, any progress on excess recycling? Anything that you did in Q2? And what's the outlook for the second half?

Speaker 2

Yes. Kailash, could you take that?

Speaker 6

Yes.

Speaker 3

So we have consummated transactions of almost around $93,000,000 till date, And we are working on a few in the pipeline. But the timing on asset sales is really hard to say because when the deals get done, so how we get done in Q3 versus Q4, we are working towards it.

Speaker 5

And $93,000,000 would include the Gentari acquisition and its senior results?

Speaker 3

That's right. It improves the 2 days or 3 days rather. It's the Gentari deal, the 100 megawatt Sales to Technicolor and the third one is the amount that we got from Northland for the transmission asset.

Speaker 5

Okay. Understood. That's all. Thank you so much and all the rest.

Speaker 2

Thank you.

Operator

The next question comes from Justin Clare from Roth MKM. Please go ahead.

Speaker 7

Yes. Hi. Thanks for taking my questions here. So I wanted to ask just about the I'm out of capacity here. So there's it seems that significantly larger opportunity for renewable projects Here in terms of the auctions that are expected annually, so I was wondering if you could just speak to the potential for bottlenecks to emerge given the larger volume of capacity?

Speaker 7

And then maybe you could speak to your strategy in Managing those potential bottlenecks.

Speaker 2

Justin, thank you so much for the question. But you've asked me A question that I can spend many hours discussing with you as you can imagine, because this is obviously essential to our business. But just to give you a very quick sense of that, I think the key issues that are required for Executing the project, of course, our PPAs, which as we've discussed, there's ample opportunity for us to bring capacities there. The second is transmission. And there is that is not a limiting factor right now because the government is building transmission capacity quite at quite rapid pace.

Speaker 2

And as I said, once we win an LOA or we win a bid and get the LOA, then we are able to block the transmission capacity. And if there is no transmission capacity available, then the execution timelines are automatically moved forward. So transmission does not Become therefore a problem for us to roll out and we should not become. The third is land. Land, of course, we're working on constantly and we're always trying to look at what is the forward pipeline and we're trying to block land for 3 years out, 4 years out project.

Speaker 2

And we're also obviously putting up a number of met marks in different parts of the country. We have several 100 met marks that are now up and running to measure gain. And in solar, we have blocked By a number of mechanisms, transmission capacity in the state of Afghanistan, which allows us to execute projects even for 2, 3 years beyond our existing pipeline. So and there is a lot of land available in Rajasthan for solar projects. So land is handled on that basis.

Speaker 2

And then, of course, there's the issue of people and organization. That is something that we have our own in house capability of execution in both wind and solar. And that is something that we constantly reevaluate and we are looking at scaling that up, but slowly because obviously we want to build an organization That is high quality and our execution capacity should be sustainably improving rather than just sort of going up on a onetime basis. And then, of course, there is the issue of capital. And capital, I think we are looking at Looking at mix of internal capital and asset recycling to raise capital for funding some of these projects.

Speaker 2

So I think that's how we're looking at these 5 key areas. The 6th actually is supply chain. And there, obviously, we have as the largest win player in the country, Very key relationships with the important OEMs, which go out a few years. And so and we get best terms from these wind OEMs because we are in fact the largest buyer of wind turbines in the country. And as far as solar is concerned, as I've discussed multiple times with all of you, that's an area where government policy is evolving and changing.

Speaker 2

And therefore, we have tried to stay one step ahead of government policy by making sure that we have invested as much as we need to have that security of supply. And that therefore also allows us to keep bidding With a high degree of confidence around being able to source and procure our own modules. And that's actually becoming a significant competitive advantage. So that's those are some of the issues that we are working on to make sure that we are able to continue to execute 2 to 3 and then sort of gigawatts a year and then try to increase that in years down the road. I hope that answers your question.

Speaker 2

Got it.

Speaker 7

Okay. Yes, very helpful. And then I guess just on the supply You have your own in house module manufacturing today. I was wondering if you could share what the cost structure was for the modules that you're producing in house and how that might compare to what's available in the market Including the cost of the import duty and how this might give you a relative advantage in terms of your cost structure?

Speaker 2

Yes. Nathan, we haven't come out with those numbers right now, right? But can you please reconfirm?

Speaker 1

No, not just yet. But I mean, if you want to give some ranges, that's fine.

Speaker 2

Okay. Thank you. So, yes, Justin, the thing is that, as you know, import duties in India for solar modules are about 40%, And that gives us sufficient protection against imported modules. The cost differential between what we produce in India and what is produced in China, just for the module, In our estimation, it's about 10% to 15%. And so the 40% protection is sufficient to allow us to not Have that as an issue for us.

Speaker 2

The second thing is keep in mind that from that day, we also have the approved list of models in manufacturers, which is really a hard barrier to imports, which the government had imposed from this April, but had deferred it for a year And it is coming back in April of next year, which will then prevent any imports from coming in at all, notwithstanding any duties and everything else. And so at that point, it will not even just become a cost issue, it will become an availability issue because anybody who has access to modules We'll be able to continue to execute projects when people who don't, obviously, will not be able to. Our sense is that module supply next year We'll be in deficit because obviously, while capacity is coming up, it does take time to Essentially get it to a level where people have good quality and stable production improves. Having said that, our sense also is, although there is no specific data that is there that allows us to point to, But just based on people that are working with us and so on, our cost of production is very competitive among other Indian companies.

Speaker 2

So That is really also something that we would like to benchmark ourselves to.

Speaker 7

Okay. I appreciate it. Thank you.

Speaker 2

Thank you.

Speaker 1

And Samant, there's actually an inbound email question From Girish at Morgan Stanley that is related to that. So if I can just ask this, basically, are we open to selling a minority stake in our solar And there seems to be an overcapacity coming online in Indian given strong response to BLI. What are our thoughts about those?

Speaker 2

Yes. So, look, we certainly are open. We're not well into keeping 100% of Solar's plant. As we've stated many times, the reason that we've set it up Is to assure ourselves of supply security. And as long as we're able to do that, we are that meets our plan to be objective.

Speaker 2

As far as lower capacity is concerned in the Indian market, that is something that we'll have to wait and see Because obviously, while there are a lot of people who have announced plans, how many of those actually rectify, we will have to Monitor. And the second thing is also that a lot of the earlier capacity that have been set up are actually going to become uncompetitive because they just won't have Either the efficiencies of production or the ability to make the latest generation of modules. So to some extent, some of the earlier capacities will have to be discounted In the calculation of the capacity that are coming up. Yes, so that's my response in that, Wilkins.

Speaker 1

Thank you. Jason, go ahead to the next question. Thank you.

Operator

And our next question comes from

Speaker 2

Hi, Chief. I would just add. Yes, sorry. Yes.

Speaker 1

Go ahead, Sumay. Go ahead and finish your thought.

Speaker 3

Okay. Yes. No, no, the only other

Speaker 2

thing I would say is that also keep in mind that A lot of modules are being exported shipped out of India to the U. S. And other places. And so that also adds to the deficit and will add to the deficit

Operator

Thanks. And our next question comes from Nikhil Naganya from Bernstein. Please go ahead.

Speaker 5

Yes. Thank you. Congratulations on a good set of numbers. My first question is regarding the RTC and Peak Power projects. Good to see their guidance be maintained.

Speaker 5

But just wanted to clarify that transmission is not a bottleneck for these 2 assets. So when they are commissioned in Q4, So power evacuation and delivery conditions should start happening?

Speaker 2

Yes. And Mikhail, I can categorically confirm that to you, transmission is not a bottleneck, largely because we are actually building a lot of it ourselves. The very first project, Opcee, In RTC, there are 3 different wind projects and 1 solar project. The first wind project was making to a substitution that we ourselves are And that we have now commissioned and that has been charged. And so therefore, we're just now waiting then for the Connectivity protocols now to connect the first project into that Copel substation that we did.

Speaker 2

The second one also we are building actually, which is the Dulles substation. And so therefore, obviously, we have clear understanding and control of When the substations are coming up. The third one is getting connected to a substation that has been made by a third party, which we are closely monitoring and we're in touch And that also looks like it's on track. So that should not lead to any problems either. So I don't anticipate any transmission related issues In commissioning these projects.

Speaker 5

Got it. Good to hear that. I think the related question then is transmission. I think the point Slightly alluded to during the discussion earlier, is transmission still seen as a constraint in India ramping up to 30, 40 gigs of renewable installation. Are you seeing that as a constraint in reaching that higher renewable installation number, Sterling?

Speaker 2

I would say the government has been so far quite proactive in building our transmission capacity. And I think a lot of transmission capacity exists in the country that can allow for the 50 gigawatts of initially. The only thing is, of course, that the transmission capacity is not necessarily areas that people would want to set up or that maybe there is some So it's in places like Rajasthan or Karnataka and so on. And there, there might be bottlenecks as we go forward. But when I say bottlenecks, I mean that the bottleneck will emerge after 30 gigawatts or 40 gigawatts of connectivity by then 10 or 15 gigawatts.

Speaker 2

So There is a lot of room to go before we actually start having constraints really, really emerged. So I would say that at least for the next 2, 3 years, we should not be seeing any transmission bottlenecks. And the government is, as you very well know, trying to really Speed up the construction of transmission projects and the auctioning of transmission projects. So they are very closely evaluating What the issues are and are trying to debottleneck that.

Speaker 5

Got it. Got it, Sumit. Thank you. And my last question then is there was this one big tender regard, TC2 tender, I think for more than 2 gigawatts, which I think has been going around for quite some time. Any update that could be shared on that from GreenSky?

Speaker 2

On the I'm not sure which vendor is actually talking about. There is one that I think sorry.

Speaker 5

The one that coal was also allowed to be blended, coal fired generation.

Speaker 2

Okay, okay, okay. No, listen, I haven't heard about that tender for quite some time. So I'm not sure that it is live right now. But as you know, in the meantime, a number of other RTC auctions have happened. 36 was the first one that happened.

Speaker 2

That is for 200 megawatts of headline capacity, which as you know transfers to about 3.5 gigawatts of actuality capacity. Then as you have recently did another 100 Megawatts capacity, which is not actually fully subscribed to, in which we won 184 Megawatts. And then there's the REMCL tender as well. So there have been 3 such tenders in the last few months. And as you know, a number more are queued up to be coming up in the next for a few months.

Speaker 5

Go ahead. Thanks. Thank you so much. Those were my questions. Thank you.

Operator

And our next question comes from Angie Storozynski from Seaport. Please go ahead.

Speaker 6

Thank you. So just 2 simple questions. 1, you do lots of And so I'm just wondering if the gains that you Cord on that reflected in your EBITDA. So that's number 1. And number 2 is when you show us EBITDA and debt projections, wanted to make sure that this is proportional EBITDA and proportional net debt, meaning the portion of both that You keep us renew net of those divestitures or asset recycling?

Speaker 2

Yes, Ganesh?

Speaker 3

Sure. Yes. So the gain on The asset sales have not been reflected in the EBITDA line as of now. I think the accounting transaction happened subsequent to the end of The previous quarter, so that's the reason why I think we'll get accounted in the subsequent period. To your second point, where we consolidate The full EBITDA, where we own the C1 percent majority of the assets, there the full debt also gets consolidated with us into the balance sheet.

Speaker 3

So we don't convert on a proportional basis because if we are in control of the asset, then the entire EBITDA and debt sort of Steve is with us. We'll take out the minority interest on account of the joint venture partners' interest in the project.

Speaker 1

Just to clarify on our guidance that you see there, that is just our net. So if you look at the debt

Speaker 6

So it is net of minority interest?

Speaker 1

Yes. So those are actually net to shareholders.

Speaker 6

Okay. So I mean, so again

Speaker 1

Recorded. Yes, actual recorded, we would We'll be taking out the net or the minority position in the minority interest line. But as the projection and our guidance is concerned, it's all Net of what we currently own.

Speaker 6

Okay. That's good. And then just going back to the gains on capital recycling. So again, I mean, you've done a couple of those transactions in the past. And I'm just wondering, I mean, have those been A meaningful contributor to the EBITDA.

Speaker 6

I understand the difference in the timing of recognition of the gain for this The latest transaction, but I'm just wondering how big of a component of EBITDA this has been or can be again? Just I know that that's an ongoing business, but I'm again wondering how big of a position of the EBITDA this is?

Speaker 3

So, see again, there's an accounting value to it. What tends to happen is that we booked cost Basis and accounting calculation on the capital expenditure will also include some margins at the EPC levels. When we consolidate them, They get knocked out. When we sell those assets, those assets are marked at a higher value in our books because of the Because we are sort of selling those assets. So to that extent, the gains are smaller, but the cash flow impact is larger.

Speaker 6

Okay.

Speaker 1

So you can also

Speaker 3

yes.

Speaker 1

Yes. And also remember that Most of the larger transactions were related to projects that are under construction, right? So our Peak Power and our RTC projects, Right. So, and those gains would be, well, commercial gains, but accounting gains are de minimis because They haven't been actually selling of operating assets. That's where you would see gains.

Speaker 1

So far, there's not been much.

Speaker 6

Okay. And then lastly, and again, by now, you probably see where I'm going with this. I'm trying to compare you to other renewable power developers, that there's been Differences in how that and EBITDA are shown. So you guys do Project financing. And I'm just wondering if there is any reasons for you to change that stance, like don't know, as the balance sheet grows, would you consider balance sheet financing?

Speaker 6

Again, any changes in how you finance newbuild?

Speaker 3

Yes. So again, there what happens is that, obviously, we have an existing portfolio, which is quite sizable. We have Debt, which is quite sizable. So to change everything to balance sheet, it will take time, And it requires a certain type of market environment, which is relatively easy money policy type of Where the rates are lower, in which market you can obviously get transactions done by getting borrowing balance sheet and then repaying the debt at the opco levels. But given that market conditions are what they are, investors are very focused on getting Security on specified assets.

Speaker 3

And then the lenders typically wouldn't want to consolidate or have in their entities where they hold the security under construction risk because then the risk weightages for them also changes. So we are not moving to a balance sheet type of financing Anytime soon. For us, this model really works. And most of the Indian context, the lenders are project finance lenders to specific assets, And they want the full security of that asset without sharing it with any other lenders. So from a bankruptcy remoteness point of view also, That is the preferred model in India.

Speaker 3

So it seems like we'll have to sort of continue with that.

Speaker 6

Great. Thank you.

Operator

There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.

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Earnings Conference Call
ReNew Energy Global Q2 2024
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