Emeren Group Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 31, 2023

There are 9 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by for Emeren Group Limited Second Quarter 2023 Earnings Conference Call. Please note that we are recording today's conference call. I will now turn over the call to Mr. Yujia Zhai, Managing Director of The Blueshirt Group. Please go ahead, Mr.

Operator

Zhai.

Speaker 1

Thank you, operator, and hello, everyone. Thank you for joining us today to discuss our Q2 2023 results. We released our shareholder letter after the market closed today and it's available on our website at ir.emrin.com. We also provided a supplemental presentation that's posted on our IR website that we will reference during our prepared remarks. On the call with me today are Mr.

Speaker 1

Hanyanshu Sha, Chairman of the Board Mr. Yunnan Liu, Chief Executive Officer and Mr. Cook Chan, Chief Financial Officer. Before we continue, please turn to Slide 2. Let me remind you that remarks made during this call may include predictions, estimates and other information that might be considered forward looking.

Speaker 1

These forward looking statements represent MRN Group's current judgment for the future. However, they are subject to risks and uncertainties that could cause actual results to differ materially. Those risks are described under Risk Factors and elsewhere and Emeren Group's filings with the SEC. Please do not place undue reliance on these forward looking statements, which reflect Emeren Group's opinions only as of the date of this call. Ameren Group is not obligated to update you on any revisions to these forward looking statements.

Speaker 1

Also, please note that unless otherwise stated, all figures mentioned during The conference call are in U. S. Dollars. With that, let me now turn the call over to Mr. Hanyanshu Shah.

Speaker 1

Hanyanshu?

Speaker 2

Thank you. Great to be here and good day to everyone. Strategically, Ameren is positioned well and we do have a strong balance sheet. The 2 strategic acquisitions that we made 10 months ago in UK and Italy have been operationally accretive to our results. It says a lot about our disciplined acquisition methodology.

Speaker 2

Our equity buyback also has been accretive to our shareholder value. Out of our almost 5 gigawatt hour of storage pipeline and team focus going forward, which is a step in the right direction. Our team is also executing well as can be seen from our Q2 results. Now, I would like to turn the call over to Yumen and Keh to talk about our operating results.

Speaker 3

Thank you, Dineshud, and thank you everyone for joining our call today. I will begin by presenting a high level overview of our Q2 2023 results, followed by an in-depth discussion on our guidance. After that, Koe will provide a comprehensive review of our financial results for Q2. We delivered a strong quarter and made good progress on our key strategic initiatives. Q2 revenue grew 312% year over year was RMB33.8 million, driven by strong contribution across all of our business lines.

Speaker 3

Gross margin was 37.4 percent, driven by improving mix of higher margin projects, Specifically, in Europe, where we are benefiting from a tailwind of high energy prices. These results show a net income of $8,300,000 which was a record high for us in the last 5 years. In our Project Development business, building on our successful track record in Europe, We sold 2 major projects in Poland and Hungary for a total of 62 Megawatts. During quarter and in July, We successfully closed the sale of an 11.5 Megawatt Solar Project to the Swiss based energy company, MET Group. This marked our 1st major product sale in Germany and represents a significant milestone for our company and Germany stands as one of the foremost renewable energy markets in the world.

Speaker 3

In addition, During the quarter, we saw strong revenue and margin contribution from our recently acquired solar farm in Brussels, UK, due to the favorable energy prices. This results given us confidence in our IPP strategy in Europe. Further, in Q2, we executed on our storage pipeline strategy and began the monetization process of our storage pipeline with an inaugural 2 60 Megawatt of battery energy storage system projects in Italy. This effort was part of our recently announced strategic partnership with Matrix to develop up to 1.5 Gigawatt of portfolio of This solar star system projects add a new revenue stream with attractive margins to our business and we look forward to sharing further progress in our upcoming quarters. Over the past 2 years, the European market has been our top strategic priority and we are very pleased with the progress we have made thus far.

Speaker 3

We have a very strong pipeline here, and it continues to represent Ameren's largest In China, we continue to make progress in our realignment strategy to the rest of the world as development, build, own or sell compared to the original strategy as develop, built on SIPP. Last quarter, we announced that with our refocusing our efforts to 5 coastal provinces that have the most favorable power prices supported by a strong economy and regulatory environment. We anticipate setting all of our solar assets outside of these 5 provinces and some in these 5 focus markets, It will help strengthen our balance sheet. In Q2, we successfully closed the sale Our portfolio of rooftop distributed generation projects is located in Henan Province, totaling 29 Megawatts With CNMP Rich Energy, a prominent leader in the China's renewable energy sector, We anticipate on closing the sale of additional projects in the upcoming quarters in Henan and Hebei provinces. Looking to the remainder of the year, we expect strong performance, driven by product sales and contribution from our recent acquisitions.

Speaker 3

Our full year guidance for net income continues to be between $22,000,000 to $26,000,000 with gross margin anticipated to exceed 30%. For revenue, We now anticipate results to be near the lower end of the previously stated range of $154,000,000 to $174,000,000 Due to the project timing, our net income guidance reflects impressive annual growth of approximately 300%, a milestone we are extremely proud of as our focus remains on profitability given the volatile nature of our top line due to the product timing. We expect our Q3 revenue to be between $27,000,000 to $30,000,000 and gross margin to be in the range of 35% to 38%. Regarding our solar development at Starz Pipeline, over the course of quarter, We conducted a comprehensive review of our global product pipeline and implemented a standardized tier system expands across both development and storage pipelines. This refinement has led to the establishment about more rigorous requirement for projects that are reported in our pipeline.

Speaker 3

As a result, We will now track and report another one stage and an early stage pipeline metric. The 1 stage pipeline represents projects with a significantly high likelihood of success completion, thus serving as a reliable predictor of our future revenue. Meanwhile, the early stage product At end of 2023, we anticipate another one stage solar product pipeline of at least 3 gigawatts, of which we now anticipate monetizing approximately 400 megawatts of projects in 2023. Beyond 2023, we are targeting to monetize 500 megawatts to 600 megawatts a year. In addition, we expect an advanced day storage pipeline of 6 gigawatt hours by the end of 2023.

Speaker 3

In conclusion, we are optimistic about our revenue growth this year and beyond, driven by a robust product pipeline. Our strong position in rapidly growing solar markets, fueled by rising thin energy demand, increased PPA price and supportive government policies, further boosts our prospects. With expertise in solar process development and extensive industry network, a solid balance sheet, we are making significant progress towards becoming a leading global solar company. We are committed and delivering the value for our shareholders. Now, let me turn the call over to our CFO, Ke Chen, to discuss our financial performance.

Speaker 4

Thank you, Yiming, and thanks everyone again for joining us on the call today. I will now go over our financial results for the Q2. Our revenue of $33,800,000 increased 312% year over year and 163 percent quarter by quarter. The growth in revenue was mainly driven by strong project sales in Europe and our IPP assets. Gross profit was $12,700,000 and the gross margin was 37.4%, up from $1,600,000 and 12.4 percent in Q1 2023 and up from 3,700,000 and 45% in Q2 2022.

Speaker 4

Gross margin was at the high end of our guidance, events primarily driven by improved mix of higher margin projects, particularly in Europe. Operating expenses were $7,600,000 up from $4,600,000 in Q1 2023 and up from $3,900,000 in Q2 2022. The increase in operating expenses primarily results from the recognition of $2,100,000 Wontai North from the divestiture of our China rooftop projects in Heilang Apartments. Net income attributable to Ameren Group Ltd. Common shareholder was 8,300,000 compared to a net loss of $200,000 in Q1 2023 and a net loss of $200,000 in Q2 2022.

Speaker 4

Diluted net income attributable to Ameren Group Ltd. Common shareholder per ADS was $0.14 compared to 0 in Q1 2023 and 0 in Q2 2022. Cash used in operating activity was $2,400,000 which was mainly for the continuous development of Poland and Hungary COD projects. Cash provided by investing activity was $400,000 Cash provided by financing activity was 1,200,000 In terms of our financial position, cash and cash equivalents at the end of Q2 were $60,500,000 compared to 66 dollars 700,000 in Q1 2023. Our net asset value or NAV is approximately 5.98 per ADS.

Speaker 4

Our debt to asset ratio at end of Q2 2023 was 10.1% compared to 11.3% at the end of Q1 2023. Lastly, regarding our stock buyback program, We purchased approximately 1,400,000 of our common shares during the quarter and plan to continue to execute on the program over the coming quarters, which has about $15,000,000 remaining in authorization. Now, we would like to open up the call for any questions. Operator, please go ahead.

Operator

Our first question comes from Donovan Shafer with Northland Capital Markets. You may proceed.

Speaker 5

Hey guys, thanks for taking the questions. I want to first start off with the Storage Pipeline because that really stood out for me with the target of hitting 6 gigawatt hours. At this point, it almost makes Seem in some ways even bigger than the solar pipeline, kind of depending on how you measure it. I mean, I know that can only back up 6 gigawatts for 1 hour, so not really an apples to apples comparison. But, so my first question is Just the size of it, does this reflect any kind of shift in strategy in terms of are you guys are you trying to are you moving towards being more of a storage developer than a solar developer?

Speaker 5

Or is a lot of this Yes, maybe combined. And my second question, following up on that is just a lot of this is around the storage market in Poland, it looks like. You have the 3 gigawatts in your advanced stage pipeline. So just is there something special about the market in Poland that makes Good storage market, do they have special incentives? Is it a high demand market to get around grid Congestion or securities concerns, what's making Poland such a big part of that?

Speaker 3

Okay. Very interesting questions. Number 1, I will say that the storage we initiated the storage development, storage price development back to about 18 to 24 months ago. And in the U. S, as a start, Decreely speaking, U.

Speaker 3

S. Market is a pioneer on the storage development starting like 2015, 2016. And Europe, we started also around 12 to 18 months ago on storage development. And we do see storage sector becomes a very strategic and important play for our whole company. I will not redefine the company as a storage company only, but it is a very important sector in our company.

Speaker 3

The second point is the major two major markets we are developing storage In Europe are Poland and Italy. Even you did not ask, but the Italy, just very recently, The government announced the full support to storage market, including upcoming Clear policies, how developers can develop and benefit from the support of the policies. Holland has been a very strategic market, important market for the company too. One of the reason is, Holland is moving from a centric of coal fired production to a renewable energy country with the 80 plus percent of the coal fired power production going to promote solar, wind and all other renewable energy. At the same time, They are in big demand of energy storage projects.

Speaker 3

That is why we committed to develop a big solar pipeline put together with the storage pipeline. And we are confident that the country not only is it big demand, but also we see a big benefit developing those projects and provide good contributions to the company from those at one stage and early stage storage pipelines.

Speaker 5

Okay, thanks. That's helpful. And then I want to talk about the 29 megawatts of Rooftop Projects that were sold in China. And I guess, linking that to there is a $2,000,000 Loss on disposable PP and E in the EBITDA reconciliation. So just was that Was the loss that $2,000,000 loss attached to that sale of projects in China?

Speaker 5

And if so, Just if you can talk at all about what kind of drove the loss on that? Were these older projects From years past when solar panels maybe were more expensive, were there some other factors just kind of And maybe if that is likely to happen with other assets in China, just trying to kind of link connect the dots there and understand it a bit better, that'd be great.

Speaker 4

Yes, Donovan. First of all, we actually this deal were good in terms of cash flow for us And we sold at very good price, but compared to when this was built more than 3 years ago, again, the cost at that high is much higher than the cost of today. So that's because again accounting treatment. So that's a loss based on accounting treatment. But From cash flow point of view, this is a very good deal for us and we expect very good cash inflow for this project sales.

Speaker 4

And yes, we are expecting to continue sales out of this legacy project to Again, collects on cash, but from accounting point of view, we do expect some of these accounting losses.

Speaker 5

Okay. Thank you. That's helpful. If I could just squeeze one more in on gross margins. Gross margins looked really great for the quarter and that was nice to see.

Speaker 5

And I imagine IPP revenue was about 30% of revenue for the quarter. I'm imagining this is sort of saying, okay, you've been building more of this IPP portfolio, you've got Branston, which has become a big part of it and then Didn't have a strong contribution in Q1 because that's not a sunny time of the year, but now Q2, boom, here we see it. So I'm just curious if you can help us kind of separate out gross margins. What were do you have the information? Could you Share what the gross margins were for the IPP business because I know those tend to be very high.

Speaker 5

And then if you strip that out, What would the gross margins be for the rest of the business just excluding IPP, the IPP business?

Speaker 4

Yes. In Q2, you actually mentioned that again Q2 is a good season for the solar generation. So again, ITP margin is very high, around about 70% gross margin. Our project development is over 30%. And also, again, we did mention the service Given Silver's gross margin, not also pretty high, above 50%.

Speaker 4

That's related to our

Speaker 3

utility Business.

Speaker 5

Well, the blended gross margin was You know $57,000,000 So what kind of was is it just that a lot of it was the 30% for projects? Because if the numbers you gave, if you kind of combined all that, you'd think you'd even get into like the 40%. So is there is it the EPC services? Is that part of what kind of

Speaker 4

Yes. The EPC revenues yes, you're right. EPC revenues over US8 $1,000,000 but the EPC Margins are vertical.

Speaker 5

Yes. Is it sort of between 0 and 10, but positive? I mean, was it positive for the quarter?

Speaker 4

It's 1%, almost breakeven.

Speaker 5

Okay, got it. I know how that ties into all your models. So I totally understand that. All right. Thanks guys.

Speaker 5

I'll get back in the queue.

Speaker 4

Thank you, Lalor.

Operator

Thank you. One moment for questions. Our next question comes from Phil Shen with Roth M. K. M.

Operator

You may proceed.

Speaker 6

Hey guys, this is Matt on for Phil. Thanks for taking the questions. First, I just wanted to get your outlook for energy pricing in the back half of the year and where you think that could go in 2024 and if you Continue to expect to benefit from higher energy pricing?

Speaker 3

Let me answer your question in two ways. One is the for example, we do have our major contributor, 50 Megawatts for Essent project. We do have 4 year PPAs starting from April 1 this year, going there all the way 4 years locked PPA with very favorable PPA price. Although other talking about the merchant price in the European market, We see the current price is absolutely a lot lower than 12 months ago or even than like 8, 9 months ago, Going to in the average country by country about $70 to $90 per megawatt hours. But going into 2024, we do see the uptrend of the price going from the current number to as high as 25% to 40% higher compared to today.

Speaker 3

That literally led us to believe our IPP strategy in Europe is absolutely sustainable, and we are applying our IPP strategy continuously in the Europe.

Speaker 6

Okay, great.

Speaker 3

Another point on this one is the demand for renewable energy, solar specifically, is so big in the Europe and we have been seeing all those strong support from all the governments in Europe That will help on the demand side, while when the demand is high, the price remains to be very, very good Throughout the 2024 based on the forecast.

Speaker 4

Again, our Boston project, we signed Full year PPA was much, much higher price than current emerging products. So we'll benefit from that.

Speaker 6

Okay. Yes, great. Thank you. Appreciate the color there. And then moving to the U.

Speaker 6

S. Utility scale market just as a whole, We've been doing some work recently that there could be some slowing because some developers might be having difficulty accessing liquidity for project financing and working capital, resulting in some project delays. Are you seeing this at all? And if so, how How big of an issue do you think this could be for the industry looking ahead?

Speaker 3

Very good question. You are absolutely the expert on this one. We do see from North America West Coast or East Coast, PJM, PG and E, all those utilities, they put hold of their approval process for the interconnection queue. That is also one reason that we mentioned that we have a lot Tighter control on our tier system, qualifying our products into the advanced tier or the 1 stage, Okay. We absolutely consider that as part of our quality or part of our considerations, okay.

Speaker 3

I do see that The speed of the development may get picked up sooner than later within the next 6 to 12 months in the U. S. We feel proud about one big thing we present today, which is a very profitable quarter because of our contribution from the European business. Our U. S.

Speaker 3

Is low as we see same as many other companies We reported the last 3, 4 weeks, but we reported today a very strong quarter, Thanks to our balance, our strategic business operation in Europe.

Speaker 4

Again, I would like to add again, We talked about this. We have strong balance sheet. That's part of our competitive advantage. I believe we talked about this in the last quarter. We have Deposit put refundable deposit with this U.

Speaker 4

S. Utility projects. So again, We have strong balance sheet. We can compare to others. We can carry this on and you will see the results Our U.

Speaker 4

S. Reals in the second half and the next year.

Speaker 6

Okay, great. I appreciate the color guys and I'll pass it along.

Speaker 3

Thank you, Matt.

Operator

Thank you. One moment for questions. Our next question comes from Amit Dayal with H. C. Wainwright.

Operator

You may proceed.

Speaker 7

Thank you. Good afternoon, everyone. With respect to the storage pipeline, can you clarify if the Solar pipeline and the storage pipeline are tied in some fashion. Just trying to see if when you are successful in converting your solar projects, Does that also imply that you will convert the storage projects as well or are they a little independent?

Speaker 3

Very interesting question. We have 2 different portfolios when we talk about megawatt hours on the storage. One is the Solar attached to Solar called Solar Plus. But here, when we say that the one stage At the worst stage of the storage pipeline, the majority or almost all of them are independent Storage Projects. And those are not solar attached.

Speaker 2

Okay.

Speaker 3

Understood. That is also a trend We are developing and in different countries, we have different strategy, developing different sizes. And even in the different states in the U. S, We have different approach on the size of the storage facilities. So but most of them are independent solar independent storage projects.

Speaker 3

And

Speaker 7

you didn't see anything from storage in 2Q, right?

Speaker 4

No. Amit, actually we Talk about this last year we start our storage initiative. Actually in Q2 we already recognized the revenue and profit. We talked about the Italy projects, as we continue to see this monetization in Q3 and Q4, Overall this year, we expect between 8% to 10% of that profit will come in from the storage business. So we're positive about our storage development here and you will see more in the coming years.

Speaker 2

Understood. Thank you for that.

Speaker 7

My other question was around the margin outlook. Some of them you've already addressed, but These 35%, 37% type margin levels, can this be sustained in 2024 Also or can you help us maybe get some clarity on what are the drivers behind margins? Is it depending Whether IPP or project sales come through In different percentages for the quarter, like just trying to see, I know there is some fluid situation for you guys, but Is $35,000,000 to $37,000,000 a little bit higher than normal or is that potentially going to be a normal level for Into 2024?

Speaker 4

Yes. That's a lower margin we have target. And again, obviously, it's between 27% 30%. And again, because our nature of project development, We focus on RTP, NTP sale and the light IPP model. So that we believe that will be our margin target going forward.

Speaker 4

Okay.

Speaker 7

That's all I have for now guys. I'll take my other questions offline. Thank you.

Speaker 3

Thank you.

Operator

Thank you. One moment for questions. Our next question comes from Pavel Molchanov with Raymond James. You may proceed.

Speaker 8

Thanks for taking the question. I remember You have talked over the past year about looking at some new European countries to enter, I think maybe Czech Republic, Greece, Turkey, but it seems like you've remain focused on your existing geographic footprint. Can you talk about that?

Speaker 3

Interesting question. We are continuously looking at new markets to expand our business in Europe. We are looking at the several countries now, but it's a little bit too early to talk about it before we ink a deal in the European countries. But Literally speaking, we are looking about 3 to 4 countries in Europe. As also as I mentioned, we are also looking to expand Our business into all Australia, the Asia Pacific area.

Speaker 3

That's the plan. And also the plan is for both Solar and Storage, it's a combined Strategic play for the company inside out. Pavel, I just would like to talk about storage because You probably know U. S. Storage market

Speaker 4

is relatively in advanced computer Europe. Europe a little bit behind. And the Europe, UK is maybe number 1 right now, but the coming market is Italy and Poland, which we have leading position. So that's why we focus on those 2 markets and to monetize or get the leadership in those 2 markets. That's why you see our Store pipeline increased quite a lot in those two countries.

Speaker 8

Speaking of storage, we're watching battery costs coming down quite substantially. I would love to get your thoughts on the battery market and also If you're observing module prices down 30% according to some estimates in the last 100 days, is that consistent with your analysis?

Speaker 3

Absolutely. We do see the CapEx from the two things you mentioned that for example today's price is over $300 And we do see that this price should be going down the next 12, 18 months or even sooner. The 2 like at least 25%, 30% lower. And that is the first part of the story. And CapEx on the solar side led by module price decline, We do have seen the you're right about over 30% decline, but in the last 3 months, I will say about 20%, 25% in general, it did not really happen too much in the U.

Speaker 3

S. Yet, But in Europe, absolutely, it happens even goes below the price we can purchase back to before COVID.

Speaker 8

Why are European prices so there are no tariffs, But of course, that's always been true. Why do you think European module prices are so cheap right now?

Speaker 3

I think oversupply has been built up throughout the whole industry. No matter it's modules or battery storage. And the oversupply will continue to be the case in the next, I will say, a longer term, not only talking about 12, 18 months, will be longer. That drives the price either at a stabilized low or even go lower. But we feel very comfortable at this time as it is comparatively Pretty low as we feel comfortable about it.

Speaker 8

Okay. Last question, your IPP revenue of $10,000,000 In the quarter, but you sold some ITP assets. So will that number come down from current levels?

Speaker 3

Yes and no. The one is that we talk about IPP portfolios. We have US, Europe and China, we saw the China one. The US and literally Mostly Europe will continue to be very strong. At China, we sold or will continue selling some Henan Hebei provinces, The solar farms, the legacy ones is Hohdan Topi Province, okay.

Speaker 3

The IPD, we talked about the government subsidies in those legacy solar farms. And that is one of the reasons we are considering or We implemented the sales strategy, but at the same time, we are also building new Solar projects in China in the focused market, okay, we do see some, I would say revenue coming down as we saw some in Q2, but The impact to the whole scheme is minimal. Yes, Pawel, whole year the IPP revenue is still About maybe 20% of our total revenue.

Speaker 8

Got it. All right. Thank you very much.

Speaker 3

Thank you, Pavel. Thank you.

Operator

Thank you. Our next question comes from Donovan Shafer with Northland Capital Markets. You may proceed.

Speaker 5

Hey guys, thanks for allowing time for some follow-up questions. I wanted to dig just a little bit more into the Polish Storage market again, just because I know it seems like it's it looks like it's a very big opportunity for you guys. I You have a legacy kind of like kind of relationships and you guys have been in the Polish market for a long time. But I'm curious if you can elaborate on like so to take a counter example, I know Spain, for instance, Spain is kind of notoriously a terrible market for storage because it doesn't have capacity markets, it doesn't have markets for things like voltage Regulation or other ancillary services, so there's almost no financial incentive, to do storage projects In Spain, so is Poland in the Polish market, do they have is it a capacity market? Do they have These storage projects, someone an asset owner operating a storage project, Can they get compensated for all these ancillary services?

Speaker 5

Or is it are there more just sort of like direct subsidies or something? Like what's the economic case for batteries and how that's structured in the market in Poland?

Speaker 3

I think the Holland market, we know the demand is there. The utilities with the high Demand of the renewable energy and transferring the 80 plus percent of the coal production To the more renewable energy, they absolutely invade demand of the storage. So that is the given. The second is, We do know people are active purchasing or giving pretty good values of the storage projects, including we are even in the process of setting our 1st storage deal Yes, Pollard. Going into the details of what you just discussed, the revenue streams, I think as we know the utilities and the government, they are developing the scheme as of now.

Speaker 3

And I think we expect that will be coming. Just similar as I mentioned, Italy, UK as a front, Italy will start immediately starting as early as next quarter. At Spain, you are right, but that is why if you see our deck of the pipeline, We are very cautiously developing Spain's storage market.

Speaker 5

Yes, I did. We are

Speaker 3

very committed. We are very confident that the Italy and Poland will become our 2 major stores market at least at the near term for the next 6 months or so in Europe.

Speaker 5

Okay. And then, I also just wanted to ask because, when you made the Branston You also highlighted and talked about some of the additional assets You would hang on to as IPP assets in Europe and so you've got 60 megawatts in Europe. I think 50 megawatts of that is Brandston, so I know it's a small piece of things like the remaining 10 megawatts. But if I recall Correctly, I think those were in Hungary, it might have been Poland, but you were going to and I don't think that PPAs you were going to sell at the merchant price. So I know this could jump around a bit, but I'm just curious, can you share with us what kind of gross margins you're getting from the other outside of Branston from the other IPP assets?

Speaker 5

And if you're still planning on accumulating

Speaker 3

I think we explained before that We made a little bit revision of our strategy on ITP in Hungary as of the economic situation of the country. Although the country still maintains BBB- credit rating, but We are and also we are active developing projects in the country, but we decided not to keep a big IPP portfolio in the country. So that is one part of the story. Another one is in Poland, we already started The construction of our IPP portfolio, the first under construction is a little bit less than 20 megawatts, including several projects as we are planning to build them and add them online in the Q1 next year. Okay.

Speaker 3

So that is part of the portfolio and little bit less than we predicted, but there are many different considerations why we slowed down a little bit of the IPP Construction, including, as I mentioned, Hungary, the big change on the Hungary strategy, And also on the considering all the lower CapEx and also The target portfolio in Poland, we do face a little bit challenge of the interconnection. So, once we get in interconnection approvals of our planned IPP assets, we will construct them. So, our IPP strategy in Europe continues. Also, as I mentioned, you talk about the price Other than Princeton, Princeton has a 4 year PPA that will add another 3.5 years. But In other countries, for example, in Hungary, that is one of the countries we see 2024 price will be around 35%, 40% higher as forecasted than the price today.

Speaker 3

Okay. Similar to several other countries, we see about minimum 20%, 25% tariff increase In the countries in general on a merchant basis.

Speaker 5

And does that get you to that like 70% Kind of gross margin for assets like that or is it kind of we have to think about that differently?

Speaker 3

I would think the merchant basis, the brand store with a high PPA price for the 4 years, it definitely gives us a good margin. And the in general on a merchant basis, I think the average margin should be around 50%.

Speaker 5

And that's 50, 50 or 15? 50. Okay, fantastic. Okay, thank you guys. Appreciate it.

Speaker 5

And I'll take the rest of my questions offline.

Speaker 3

Thank you, gentlemen.

Speaker 2

Thank you.

Operator

Thank you. Seeing no more questions in the queue, that concludes our call for today. Thank you everyone.

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