ReNew Energy Global - Q2 2023

Transcript

Operator (participant)

Thank you for standing by, and welcome to the ReNew Energy Global Second Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Mr. Nathan Judge. Please go ahead, sir.

Nathan Judge (Head of Investor Relations)

Thank you, and good morning, everyone, and thank you very much for joining us today. On Tuesday evening, the company issued a press release announcing results for its fiscal second quarter 2023, ended September 30, 2022. A copy of the press release and the presentation are available on the investor relations section of ReNew's website at www.renewpower.in. With me today are Sumant Sinha, Founder, Chairman, and CEO; Kedar Upadhye, CFO; and Vaishali Nigam Sinha, Chief Sustainability Officer. Sumant will start the call by going through an overview of the company and recent key highlights. Kedar will then go through the results, followed by an update on ESG from Vaishali. We will wrap up the call with Sumant discussing our guidance for fiscal year 2023. After this, we will open up the call for questions.

Please note our Safe Harbor statements are contained within our press release, presentation materials, and available on our website. These statements are important and integral to all our remarks. There are risks and uncertainties that could cause our results to differ materially from those expressed or implied by forward-looking statements. We encourage you to review the press release we furnished in our Form 6-K and 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 reconciled to the most comparable IFRS measures. These reconciliations are also available on our website in the press release, presentation materials, and annual report. It is now my pleasure to hand it over to Sumant Sinha.

Sumant Sinha (Founder, Chairman, and CEO)

Yes. Thank you, Nathan. Good morning, good afternoon or good evening, everybody, depending on where you are. Let me dive right into the presentation itself. Starting on page 4 of the presentation, our core operations fundamentally remain on track. Through the first half of fiscal year 2023, we are in line with our internal targets, excluding the contribution from the 528-MW acquisition, which is in process. For the first half of the year, revenues and EBITDA grew more than 20% year-on-year, in line with robust expansion in our commissioned capacities, bringing the total to 7.7 GW of operating capacity.

The total capacity under construction currently is 5.7 gigawatts, which is targeted to be operational by end of the next fiscal year, and that brings our total portfolio size to 13.4 gigawatts currently. Our revenues from customers rose 28% year-on-year in the first half of fiscal 2023, and cash flow to equity increased by 48% in H1 from last year due to higher revenues from operating capacities and improving DSOs. We are making good progress on our accounts receivables and are seeing regular payments coming in from the state distribution companies that have the highest amount of overdues. Kedar will cover this in greater detail in his section. On to signing of new PPAs on page 5.

We signed 1 gigawatt of new PPAs this quarter, and we have also de-risked our growth as only less than 1.5% of our 13.4 gigawatt portfolio now has pending PPAs. That's less than 1.5%. The corporate PPA portfolio itself grew 41% from Q1 and is now at 1.5 gigawatts, almost 247% higher than the prior year, with many additional conversations occurring right now, which we would hope to convert to firm PPAs in the coming months. We have signed more than 400 megawatts of corporate PPAs in the quarter ended September thirtieth, and our customers include well-known companies such as Amazon, Suzuki, Mahindra, and Toyota. We believe that this shows our differentiated advantage in this business segment.

Corporate PPAs offer higher returns than plain vanilla renewable energy projects, given higher barriers of entry, our ability to partner with corporate customers and provide them energy sooner than our competitors are able to. We are currently having discussions with many corporate customers, and we do believe that ReNew will have a 4-5 GW corporate PPA portfolio by 2025. Overall, the growth environment remains bullish as renewables continue to be the lowest cost option for new power capacity in India, and this can be seen on page 6. Increasingly, our customers are seeking complex power solutions that can be delivered consistently over the full year, and we have built this expertise by offering a full suite of renewable products overlaid with digitalization and a proprietary AI technology.

We believe this is a truly differentiated offering in the renewable sector. Given the need for electricity to be delivered around the clock, we have seen increased interest in our intelligent energy solutions. We expect that over 5 GW of auctions for complex projects will occur over the next several months, with another 8 GW under discussion at SECI. There is over 100 GW opportunity by 2030. Now, keep in mind, very importantly, that 1 MW of RTC power actually requires more than 3 MW of renewable energy power. The addition of 3E, which I'll talk about, provide even greater differentiation to our offerings. Our operational expertise across the renewable energy technologies, combined with a leading digital platform, provides us capabilities that few have, and this can be seen in how few bidders are participating in the complex RE solution auction relative to the plain vanilla projects.

This continues to present opportunities for higher than average returns, and our most recent 300-megawatt hybrid win is evidence of this. In this context, I will now speak more about our new growth initiatives. We have signed definitive agreements to acquire shares of 3E, which is a leading European SaaS platform that enhances renewable energy asset performance through analytics and AI. The transaction should be completed in two stages of 40% now and 40% in 2024. 3E currently already has about 20 gigawatts of assets under management. As we see the energy complex today, efficiencies through digitization will be key to continued differentiation and higher returns as IPPs increasingly require customized products. We have tremendous confidence in the company, and have been using 3E state-of-the-art software for our own assets for the last 4 years.

The 3E platform, along with our internally developed digital capabilities, built over the years of experience, we believe will make 3E a worldwide leader in asset performance management for solar, wind, and storage assets. There are many global opportunities for this digital platform that can enhance our returns for the incremental capital that we are putting into this investment. We continue to pursue enhancing the returns on your capital that we deploy through capital recycling. We have recently entered into a partnership with Norfund, the Norwegian government's investment fund for developing countries, and with KLP, Norway's largest pension company, to co-invest in our transmission projects, and they have signed definitive agreements to invest in the very first project. Our investment in transmission projects is synergistic to our renewable energy project development and further enables higher returns from our core renewable energy business.

As we have built over 6,800 kilometers of transmission lines already over the past decade, long-distance transmission is a natural extension of our core capabilities. By taking on the execution of transmission lines that connect with our own RE projects, we are able to bring on these renewable energy projects sooner with greater predictability and allow us opportunities to capture additional revenues from our renewable energy projects in the power markets. On our initiatives on green hydrogen, you may have seen our yesterday's announcement on the signing of a framework agreement with the government of Egypt to set up a green hydrogen plant in the Suez Canal Economic Zone. As per the agreement, a final investment decision will be made over the next 12-18 months.

This project is scheduled to be implemented in phases, the first of which is a pilot phase to produce 20,000 tons of green hydrogen along with derivatives annually. In the next phase, the production of 200,000 tons per year of green hydrogen, along with derivatives, will be achieved, thereby bringing the project's total green hydrogen production capacity to 220,000 tons per year. One risk that we are frequently asked about is inflation risk to CapEx, as well as security of supply, which is discussed on page 7. We believe that we have managed this well, and there is limited risk to our CapEx budget at this point. We have locked in turbine prices, so there is essentially no material exposure on this front.

We continue to build module and cell manufacturing facilities that ensure supply at an advantage cost relative to imports for future growth. Even if module prices were to rise by 10% from today's levels, our CapEx would only change by about 3%-4%. As most of our wind turbine prices are locked in, there is essentially no material exposure on this front. We continue to expect that on new projects, we will deliver project-level equity IRRs within our targeted range of 16%-20%. If in the event that any additional new project has an expected IRR below our minimum thresholds, we will simply not proceed. We will remain disciplined with your capital. With that, I would like to turn it over to Kedar to go over the latest quarter's financials. Kedar, over to you.

Kedar Upadhye (CFO)

Thank you, Sumant. Very good morning, good afternoon, and good evening to everybody on the call. Turning to page nine, as we have highlighted many times over the past year, we have been focused on improving collections on the overdue receivables from the state distribution companies, and we are pleased to announce that we have made significant progress in this regard. The Q2 FY 2023 DSO improved over a month compared to the end of Q2 last year. As the discoms that have been late on payments, almost 50% of our receivables, have now been making up payments. Normally, there is a seasonal increase in DSO in the second quarter, but this year DSO actually improved from Q1.

The AP, the Andhra Pradesh DISCOM, which represented about 42% of our overdue receivables as on March 31, agreed in June 2022 to pay past dues over the next 12 months in equal monthly installments, and they have made about 4 payments out of 12 so far. The other states that were late have also been making payments. We continue to expect a substantial improvement in our DSO by year-end. Through November 2022, Andhra Pradesh, as I mentioned, have made 4 out of 12 payments to clear its past balances, and other states, including Madhya Pradesh, Telangana, Karnataka and Maharashtra, are also making up past due payments. In fact, we improved our cash position by $60 million in the second quarter through better collections in a quarter that normally sees higher accounts receivable balances.

It is worth emphasizing that DSO should fundamentally improve over time as an increasing percentage of our sales will be to central government and central government owned SECI, which pays its bills promptly and on time. Today, with 7.7 gigawatts operating, about 50% of our assets are with five DISCOMs that have relatively higher DSOs. As almost all of our committed projects are with SECI henceforth or with corporate customers, the exposure to these five DISCOMs will fall to about 33% by the time we complete our 13.4 gigawatt portfolio. This customer mix shift would itself represent an improvement of 55 days in our overall DSO just by itself. I'll now move to Slide 10, which provides highlights of the fiscal second quarter of 2023. We added 75 megawatts this quarter to bring the total to 7.7 gigawatts operating.

We signed another 1 GW PPA, which brings the total under construction to 5.7, most of which should be operational by end of the next year. Our revenues from customers rose 28% year-on-year in the first half, and cash flow to equity increased 48% as compared to last year due to higher revenues from operating capacities and improving DSOs. Turning to page 11, which provides a reconciliation of adjusted EBITDA in quarter two, which stands at INR 18.2 billion. The wind resource followed a different pattern this year, which, where there was more production in April and May this year relative to normal but plateaued at this level in quarter two. We would also point out that there were some impacts of timing related to carbon credit sales and other items.

We recorded revenues related to this in the second quarter of last year, but expect the majority of our carbon credit sales to get recorded in the second half of the current fiscal. If this had been taken out of 2Q of last year, EBITDA would have increased about 9% year-on-year. Turning to Slide 12, we continue to execute multiple initiatives on the financing front and repaid a $300 million bond this quarter. We had $1 billion of maturity in FY 2023, of which majority has already been repaid through various refinancing initiatives. Slide 12 also provides a source and use reconciliation statement and our funding plans.

We are in a very strong position with almost $700 million of cash on balance sheet and anticipate that we should raise a similar amount through internal cash flow, capital recycling and improvements in working capital by FY 2025. With regards to our CapEx, our internal accruals and capital recycling is more than the equity requirements of our planned 13.4 GW CapEx that we are seeking from lenders. It also gives additional capacity to grow further without any need to issue new shares, which is not in our current plan. Given our ability to finance projects with 75% debt combined with cash flow generation and capital recycling, we anticipate that we will have more cash on the balance sheet after the completion of the 13.4 gigawatts than we currently have.

With regard to interest rate risk on page 13, it is worth noting that inflation in India is under control and well below levels seen in the U.S. Long-term interest rates in India are more competitive than what is generally seen globally. We have meaningful additional borrowing dry powder available, and we believe we can fund all our growth in our current plans domestically. We are currently being offered rates for refinancing of around 8.5%-9% INR terms, which is below the average interest rates on debt maturing over the next couple of years. Our interest rate risk is also limited with fixed rates on 73% of our debt and a 100 basis point increase only impacts our FY 2023 cash flow to equity by around 2%.

Despite the increase in interest rates, we still expect to refinance the debt that is maturing at rates that are lower than our current prevailing interest rates. We have been capitalizing on the refinancing saving opportunity this year, and we are on track to refinance more than $1 billion, which also shows our ready access to affordable capital. With that, I'll turn it over to Vaishali to update everyone on our ESG initiatives. Thank you.

Vaishali Nigam Sinha (Co-Founder and Chairperson Sustainability)

Thanks, Kedar. Hello everybody, and thank you for joining us today for the earnings call. Can we go to Slide 15? This year has been an interesting year for us from an ESG perspective as we ramped up our efforts significantly and we disclosed our efforts in our sustainability report for fiscal year 2022. As our community members are important stakeholders, I'm delighted to share that we released a report at one of our CSR sites at Bikaner in the state of Rajasthan in the presence of the local community and ReNew's global board. The sustainability report is aligned to GRI standards and TCFD guidelines. Given our Nasdaq listing, it is also aligned with SASB. The report has been titled Partnering for Transition: Progressing Sustainably, Prospering Together, as we believe that this sums up our approach towards sustainability very aptly.

In line with the idea of progressing sustainably, we have restricted our carbon intensity of electricity generation to just 32.83 grams of carbon dioxide per kilowatt hours, which is 95% lower than the Indian power sector average and 94% lower than the global average. Through our clean energy operations, we have avoided 11 million tons of carbon dioxide and generated electricity, which is enough to power 4 million Indian households. We've deployed robotic dry cleaning, which has enabled us to save 216,000 kiloliters of water, which is enough to serve the daily consumption of 1.6 million Indians. With a view of partnering together with our employees, suppliers, and communities for a carbon-free future, ReNew has taken up the following initiatives.

We have de-risked our supply chain from sustainability-related risks and have released the sustainability code of conduct for suppliers, which is available on our website for you to see. Our employee strength has also grown by 38% as compared to last year, which reflects ReNew's aim to be the employer of choice. ReNew has a target of achieving 30% women via multiple initiatives such as recruiter, mentoring sessions, awareness sessions with senior experts, including our board members. Safety trainings conducted over the past year have increased by 41%. At ReNew, our mission is to contribute to addressing climate change through impactful, scalable, and market-driven solutions to create a sustainable and equitable future. We are also in the process of finalizing a decarbonization plan for our operations, which will be disclosed in the coming months.

Apart from this, ReNew has disclosed Scope 3 emissions across all applicable categories for the first time in our sustainability report. With respect to community engagement, we aim to impact over 2.5 million lives by 2030 through various community development initiatives across women empowerment, youth engagement, providing access to clean electricity, climate literacy, and all of these are in alignment with various SDGs, SDG 5, 7, 17, and a few others. ReNew is also a signatory to UNGC and UN Women's Empowerment Principles. This takes me to the last but most important aspect of partnering for transition. ReNew has always believed in the power of collaboration and is building synergistic relationships with like-minded institutions like academia, think tanks, and industry associations to serve a common purpose in the fight against climate change. Can we go to Slide 16 now?

Additionally, we have also disclosed our targets across ESG parameters. Like, we have validated, as we have been validated as carbon neutral for Scope 1 and 2 emissions for the second consecutive year. We have achieved 30% diversity at the board level. We have submitted our GHG reduction targets to SBTi for validation. We have impacted the lives of 650,000 people across 10 states and 250 villages through our social responsibility programs. We have rolled out human rights policy and approach notes on circular economy and biodiversity, which are all available on our website. We will be disclosing the progress across all these targets in the coming sustainability reports. I will now turn it back to Sumant for closing remarks and guidance.

Sumant Sinha (Founder, Chairman, and CEO)

Thank you, Vaishali. With regard to our guidance outlined on Slide 18, the core operations of the company continue to execute as expected this year. As we mentioned earlier, weather has been a headwind year to date, but we provided for this in our initial FY 2023 guidance. In addition, we continue to work on closing the acquisition we announced, which has had some delays. We are reiterating our guidance at this point with the obvious caveat that our full-year EBITDA will depend on normal weather for the remainder of the year and timely completion of the acquisition. Our FY 2023 EBITDA guidance is for between INR 66 and 69 billion, and our cash flow to equity guidance is INR 21-INR 23 billion.

On the buyback, we have repurchased about 20 million shares since we implemented the program, which leaves about $120 million of authorization remaining under the program. We continue to see considerable value in our shares with an 11% cash flow to equity yield on our current portfolio. RNW also trades at a meaningful discount to what we can sell assets for. As our shares are one of the highest return investments of scale we can make, we have been actively buying back stock when we believe it will provide the highest return opportunity. I would also like to highlight that we have been added to about 6 indices this calendar year, including the most recent, ICLN or ICLN. This not only helps average daily volume, but also increases awareness of RNW to a broader audience.

With that, let me thank you for your patience, and we will be happy, of course, to take any questions. Thank you.

Operator (participant)

If you wish to ask a question, please press star then 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then 2. If you're on a speakerphone, please pick up your handset to ask your question. We'll pause momentarily to assemble our roster. The first question will come from Julien Dumoulin-Smith with Bank of America. Please go ahead.

Morgan Reid (Equity Research Associate)

Hi, this is Morgan on for Julien Dumoulin-Smith. Thanks for taking the questions and congratulations on a nice quarter here. It seems like you've had some really healthy improvement in the DSOs this quarter. Can you talk about your expectations for how this is going to evolve through the remainder of the year? How does this increase headroom kind of maybe change your latitude for further investments? Any thoughts on that?

Nathan Judge (Head of Investor Relations)

Yeah. Kedar, why don't you take that?

Kedar Upadhye (CFO)

Yeah. Yes, as we explained, the biggest state which accounted for highest overdues was Andhra Pradesh. On the thirtieth September balance sheet, we have got 2 installments out of the 12 installments. After thirtieth September, we have got another 2 installments as on date. Till thirty-first March, which is your question, we will get 6 more. In total in this year, we'll get about 8 installments of substantial value, and that will improve the DSOs to a level which will go back almost to pre-COVID days, and that will substantially contrast with the elevated levels of the DSOs we have seen for the past several quarters. I'm a little hesitant to quote a precise number, but I'm confident the DSOs will go down to a level which is around 175 days or so.

In fact, as at October, we have already seen the DSO at 270. Naturally, this releases cash, and to your point, this allows us to invest more equity to fund future growth. All of that is part of the plan. The slide on sources and uses of financing, which we have included in our deck this quarter, which we referred to during the initial commentary, that factors in improvement in the receivables as well.

Morgan Reid (Equity Research Associate)

Great. Thank you. Then I guess, can you also talk about the co-investment that was announced this quarter and in the transmission projects and how you view these opportunities as a part of your broader capital recycling plan? Any plans to kind of continue these co-investment strategies or any comments therein?

Kedar Upadhye (CFO)

Sumant, do you want to take that question?

Sumant Sinha (Founder, Chairman, and CEO)

Yeah, sure. I'll take it. Yeah, look, Morgan, you know, we have won a few transmission projects till now, which, as I mentioned in my remarks, are very strategic for us because they link into the renewable energy projects that we are doing. Therefore help us with commissioning those projects on time and make the whole project much more predictable from a timing standpoint. Now, the investment that we've got from Norfund and the other company, KLP, is basically for partnering with us and to take a 49% stake in the first of those projects, with a view that eventually they will continue to partner with us for other projects as well.

We do have a broader understanding with them for coming into more of our transmission projects, and as we win them and we get them to the point, the expectation would be for us to continue to get them to come in as co-investors along with us right at the beginning itself. As far as recycling of assets is concerned, as we have stated in the past, that is going to be core to our strategy going forward. We do see recycling of assets as being a very important way for us to derive better value from our own capital invested in those projects, and also get capital out, which we can then reinvest to further grow our portfolio.

It also allows us the opportunity of tweaking our portfolio in ways that we think eventually might be better for us from a capital hold standpoint in the longer run. Capital recycling is a fundamental part of our overall strategy. In transmission, as we've said, we've just started off that business, and right off the bat, we've got very high-quality partners to come along with us. For our existing other renewable energy assets, we continue to be in conversations with a number of different investors. As you know, for our first RTC project, we have got Mitsui as a partner with a 49% stake, and we anticipate that we will be selling more assets potentially both to them as well as to other investors as we go forward.

Morgan Reid (Equity Research Associate)

Great. Thank you. I'll take the rest offline.

Operator (participant)

The next question will come from Justin Clare with Roth Capital. Please go ahead.

Justin Clare (Managing Director and Senior Research Analyst)

Yeah. Hi. Thanks for taking our questions. First off here, you signed 1 gigawatt of PPAs just all in the last quarter here. Pretty significant amount of progress there. Wondering, you know, have you seen a meaningful change in the demand for power and an acceleration in your ability to get these PPAs signed? I was wondering just, you know, how broad-based is the demand? Then, you know, how should we think about the time it takes to go from winning at an auction to getting a PPA signed, you know, given the current environment?

Sumant Sinha (Founder, Chairman, and CEO)

Yeah, Justin-

Sumant here.

Look, in the 1 gigawatt, there are 400 megawatts worth of corporate PPAs, which we had talked about. 600 megawatts were PPAs that were LOIs that we had earlier, which have now got converted into PPAs. Those are the 1 giga, that's how the 1 gigawatt shows up. Fundamentally, I think your question is around the momentum that we are seeing in the market right now, in terms of power demand, and therefore the frequency of bids and therefore accretion to our portfolio. I think that, you know, power demand, as you know, in India has been growing very robustly, at about 6% per year right now.

There has been, I would say, a fairly significant shortage of power in India over the last many months. As we look forward, that is likely to continue to be the case. Therefore, distribution utilities and corporates are both looking to procure new sources of energy. Renewables being the cheapest source of electricity right now becomes the obvious candidate. Now, SECI is now coming out with a number of auctions. In fact, there have been a couple of auctions that we have submitted first on bids for. These are all the round-the-clock power type of projects, so they're more complicated projects. Those bids will be happening very soon in the next month or so.

Behind that also we see a lot of other bids that have now been teed up by SECI, working in conjunction with the states, with the DISCOMs. We talked about the fact that we do see imminently about 5 gigawatts of RTC auctions coming to the market. Some of those, as I said, we've already submitted first on bids for. Some are coming up very soon. Behind that, there's another 8 gigawatts of RTC auctions that'll be coming up. Our sense is that power demand is now beginning to translate into bidding activity. Now the bids that are happening, SECI is doing those, with a fairly clear identification of the off-taker rather than do the bid and then go and find the off-taker.

Therefore, we expect that the process from bidding to signing of PPAs will go relatively more smoothly than it has in the past. The past, of course, as we all know, was disrupted by the COVID situation. That is now all getting normalized. We do expect these bids to translate relatively soon into PPAs. Typically, it used to take three months earlier, pre-COVID, and we expect that it'll come back to that same time frame. Then as you know, we have two years to construct the projects once the PPAs are signed. Any bids that happen now in the remainder of this financial year of FY 2023 will need to be built out by financial year 2025. That's really where we are right now.

Justin Clare (Managing Director and Senior Research Analyst)

Okay, got it. I guess just along the lines of the demand that you're seeing, are you seeing any upward pressure on PPA prices, whether they are in the corporate market or at auctions? You know, is this demand being translated into those PPAs moving upward?

Sumant Sinha (Founder, Chairman, and CEO)

You know, Justin, what has happened is because there is more uncertainty on the commodity price side and interest rates have gone up, obviously those are being passed on in the form of higher tariffs. Therefore, tariffs in general have gone up in the market, reflecting the higher input costs, because obviously we are passing those on to end customers. I think that's really what is happening. I think the specific question of returns on these bids really is a function of the competitive intensity, which is a function of the nature of the bid, and the potential off-takers. For example, in the corporate PPA market, as we've said, you know, a lot depends on the kind of solutioning you can provide.

We do see fewer bidders there. In the round-the-clock power solutions that are getting bid out by SECI, we again see fewer bidders there, because these are harder to execute, more complex, larger sized projects, which all of those play to our advantages. In all of these, therefore, we expect to see IRRs that should be certainly within our range of 16%-20%. I don't want to give you whether it's higher end or lower end of that because obviously these bids still need to happen. I can just say that we expect to very comfortably be within our overall IRR range for a lot of these bids that are coming up. Yes, power prices have gone up because of input prices having gone up.

Justin Clare (Managing Director and Senior Research Analyst)

Right. Okay. Great. That's really helpful. Just based on, you know, where you are in the various stages of the projects that you're developing, I was wondering if you could just speak to any notable hurdles that remain to commissioning the 13.4 gigawatts that you're planning, you know, by the end of fiscal 2024. You know, how are you feeling about how you're positioned with your access to solar panels, given the ramp-up of your manufacturing? How are you feeling about the wind supply chain as well?

Sumant Sinha (Founder, Chairman, and CEO)

Yeah. Look, as far as supply chain is concerned, in fact, I'll just answer your question more broadly as well, looking at some of the other aspects also. Supply chain, clearly, as I said, in wind, we have pretty much procured all the turbines for the megawatts that we have to commission. When I say procured, I mean that we've locked in the supply. Of course, the turbines will get delivered at the time that we require to get them installed, closer to the time we need to get them installed. But fundamentally, all the turbines have been locked in. As far as solar modules is concerned, a number of these projects are grandfathered with respect to customs duties.

Those, for those projects we're allowed to import, and so therefore we have locked in those as well. For the ones that we've won subsequent to April of last year, for those, of course, we were going to be expecting to have our own supplies of modules, and that is something that we will start getting from the first part of the module plant that we're commissioning in around the Q1 or Q2 timeframe of next year. Even modules, module supply is pretty much locked in as well. We don't anticipate any equipment issues or any equipment supply issues causing delays in the construction of these projects. As far as financing is concerned, I'll let Kedar answer that question.

I think fundamentally, work is going on apace right now. At this point, you know, there might be the usual implementation issues that we have in India around right-of-way problems and so on. Those, of course, we'll have to solve as and when they come up. Our expectation is that based on all the work that we've done so far and the work that we continue to do at sites and including land acquisition and so on, that we will be able to commission the vast majority of the 13.4 gigawatts by the end of next financial year. We are on track for getting that done. Kedar, if you wanna just talk about the financing piece as well.

Kedar Upadhye (CFO)

Yeah, sure, Sumant. Sure. Yeah. I think financing is the access and affordability of capital is quite smooth these days. We have taken a target to churn the debt portfolio more in favor of Indian rupees. Sometime back, we were almost two-thirds in dollar terms, you know, and now we are almost half. Half of the portfolio is in Indian rupees and half is in dollars. Most of the term sheets that we're getting for refinancing are in the range of 8.5%-9% on a rupee basis, and that's really helping us to build natural hedge. Domestic access to capital as we said have improved. There are a couple of government-backed institutions which are coming forward to lend to companies like us. That is also helping.

All in all, good on financing.

Justin Clare (Managing Director and Senior Research Analyst)

Okay, great.

Sumant Sinha (Founder, Chairman, and CEO)

Yeah.

Nathan Judge (Head of Investor Relations)

All right. Thanks very much, all.

Sumant Sinha (Founder, Chairman, and CEO)

For the 13.4 gigawatts. Yeah, go ahead. Sorry.

Operator (participant)

The next question will come from.

Sumant Sinha (Founder, Chairman, and CEO)

I was just saying that. Yeah.

Operator (participant)

Go ahead, sir.

Sumant Sinha (Founder, Chairman, and CEO)

Sorry, go ahead. No, no, I'm fine. Go ahead.

Nathan Judge (Head of Investor Relations)

Yeah, go ahead, Sha, cause the next question.

Operator (participant)

The next question will come from Nikhil Nigania with Bernstein. Please go ahead.

Nikhil Nigania (Director)

Hi. Thanks for taking the question. My first question is on hedging practices. If you could give some clarity on the mix of swaps versus options in terms of the debt, dollar debt exposure, and is it for the entire duration of the debt? Also, if it's an option, till what exchange rate is hedged there?

Nathan Judge (Head of Investor Relations)

Yeah, Kedar, why don't you-

Kedar Upadhye (CFO)

Nikhil, we use a mix of instruments. In our view, when we back-tested the effectiveness of hedging practices, that was proven to be quite appropriate for us. Once in a while, if the depreciation of the rupee is sudden in a particular quarter, we have to take an accounting charge, which is non-cash. From a commercial logic, the mix of plain forwards and at-the-money forwards and cross-currency swaps is proven to be useful for us. I can give you offline in terms of the kind of rates that we have been able to lock in, but almost half of the hedges are in terms of plain forwards, where we lock in the current rate with a premium on a year-on-year basis.

Balance is spread into ATMF options. As I said, some of these are at 90 or between 90-95.

Nikhil Nigania (Director)

Understood, Kedar. That's helpful. The second question was then regarding the Round-the-Clock project, which is under construction. There was some update that the debt has been locked. If you could give some sense of what was the borrowing cost at which it has been aligned, and does the IRR guidance still hold for that project?

Kedar Upadhye (CFO)

Yeah, yeah. The IRR guidance still holds for that. That was a large loan, almost $1 billion, and we had a consortium of more than 10 banks, and that was a USD SOFR-linked loan, approximately 9% or so, Nikhil. We are still quite in the range of IRRs that we target towards for these kind of projects.

Sumant Sinha (Founder, Chairman, and CEO)

I should add, Kedar, that obviously with the farm down to Mitsui, the IRR has actually become even sort of a lot better.

Nikhil Nigania (Director)

Understood. Just one follow-up question on that. The 9% is dollar interest rate, right?

Kedar Upadhye (CFO)

Yeah, dollar and it's SOFR plus spread plus the hedging cost. 9% is all in fully loaded cost of interest.

Nikhil Nigania (Director)

All in. Got it. Helpful. That's what I wanted.

Kedar Upadhye (CFO)

Yes.

Nikhil Nigania (Director)

The last question is regarding storage opportunities. Many competitors have been exploring pumped storage opportunities. Just wanted to understand ReNew's views and if any plans around that.

Sumant Sinha (Founder, Chairman, and CEO)

Yeah. You know, pumped hydro is a very long gestation business. I would say the first pumped hydro projects coming up would probably be in 2025, and that only just will be one, and then the others might take a little bit longer. Having said that, we do believe that pumped hydro has a role to play in some of the applications in the country. We are looking at pumped hydro opportunities. As I said, it's a long gestation business, and therefore it'll take time for those kinds of projects to come on stream. Our view continues to be also that the batteries will have a very important role to play from a storage standpoint. Eventually that is, you know, going to get deployed at scale as well.

Of course, over the last year or so battery prices have gone up, but our sense is that of course now with commodity prices easing, and with government policies hopefully turning a little bit more supportive, we should be able to see battery prices come down and make them much more competitive, with respect to the shorter to medium term storage activities. So I think both batteries and pumped hydro have different roles to play. Batteries of course, as I said, can be deployed much faster and in a much more modular manner, therefore give more flexibility, and are less, in some ways less grid intensive or transmission intensive. In fact, in many things allow you to use the transmission lines more favorably. Pumped hydro is a little bit different because you have to move the power across long distances potentially.

Therefore longer term our view still remains that batteries will prevail. I don't think it's an either or. You'll probably have both happening to some extent. We are looking at pumped hydro as well. Correct. That's it for me. Thank you so much. Those are all the questions I have.

Operator (participant)

The next question will come from Puneet Gulati with HSBC. Please go ahead.

Puneet Gulati (Director)

Yeah, thank you for the opportunity. My first question is with respect to the wind PLF, which has surprised again this quarter. I remember, you know, last year was a similar event, and you had said that you will reevaluate your wind projections. Can you comment on where are you in terms of, you know, the re-estimating the projections there?

Sumant Sinha (Founder, Chairman, and CEO)

Yeah, Puneet. You know, we had said, you're absolutely right that we had said that we wait for this wind, the high wind season to finish and then consider doing a reevaluation depending on the outcome. I do agree with you that wind has been not on track this year as well. Although every year for the last three years, the delta from the long term mean has continued to narrow. That at least has been happening, but it has not reverted back to what we have assumed has been the mean.

What we will do over the next few months is that we will work with an external agency to relook at all the long-term assessments of our wind projects and try to arrive at see whether in fact any change needs to be made in those forecasts or not. That is something that we are starting that process now, and I think over the next few months we should have some initial news coming in on that, and we'll of course then be happy to share that with all of you.

Meanwhile, I would say that we have taking into account the performance of the wind over the last three years we have become. I think a lot more. I would not say a lot more, but certainly we've become a lot more mindful of looking at the near term performance of wind over the last few years when we are making our longer term forecasts. We are becoming a little bit more careful about the long term forecast. That correction to future projects that takes into account the last three years we are making. If finally the last three years is seen more as an aberration to the long term mean, then so much the better. We'll just be more conservative on wind forecasts going forward.

Of course, if it is in fact a change to what we had thought was the long term mean, then our future bids at least will be more on track. That's really where we are.

Puneet Gulati (Director)

Got it. My second question is on the acquisition, the half a gigawatt acquisition. What's driving the delays and now you've also segregated your EBITDA estimate between the acquisition and the organic. Is there a risk that the acquisition can get pushed into FY 2024 versus 2023?

Sumant Sinha (Founder, Chairman, and CEO)

Kedar?

Kedar Upadhye (CFO)

Yeah, yeah. Puneet, we are currently, you know, in the process of integrating this acquisition. This is through a slump sale route, and slump sale route means that you essentially acquire all the underlying assets for land and the PPA and everything, and that's little longer than the company acquisition. There are, you know, obviously you have to circumvent state level issues, regulatory matters, and that is taking a little bit time. At this stage, it's difficult for us to tell you exactly and precisely what we will end up with in the current year. That's why we have helped you segregate that particular item. There might be some risk, but the quantum and the magnitude will be better placed to tell you by February call.

That's the reason we are saying that the guidance is subject to completion of that acquisition. However, I should just add only that, the lock box date of this acquisition is April, which means once the acquisition is consummated, the cash is secure. The only question is, you know, the recognition in P&L from a revenue standpoint vis-a-vis recognition in balance sheet as a reduction in the capital expenditure. That's the only thing I wanted to add to it, that lock box date is in April. The economic

Puneet Gulati (Director)

Okay.

Kedar Upadhye (CFO)

Interest is secured. The only thing is the accounting, whether in P&L or balance sheet.

Puneet Gulati (Director)

Got it. That's useful. My last one is on the, you know, project. Sumant said that, you know, he will give up projects where, you know, you won't make below 16%-20% IRRs. Does that mean that, you know, there are some projects or do you see some projects which have that kind of risk in your portfolio, projects where there are low tariffs of 2.18, 2.35? Do you foresee a point where you will, you know, just forfeit those projects from your portfolio?

Sumant Sinha (Founder, Chairman, and CEO)

No, Puneet, let me clarify. What I meant to say was not for our existing portfolio, but for any future bids that we might participate in. If we feel that the tariff is coming to a level that we are not gonna make the returns that we typically target, which is 16% to 20%, then we will walk away from those bids. We will not go ahead and win those bids in that case. For things that are already there in our portfolio that we've already won in the past, where we've already signed PPAs.

Puneet Gulati (Director)

Yeah.

Sumant Sinha (Founder, Chairman, and CEO)

First of all, by and large, I would say that most of our projects are within the defined range. We don't anticipate any issues. Even if there were issues, you know, having signed the PPA, it would now be difficult for us to walk away, and we will probably not be looking at doing that. It, you know, in the very sort of if there's some untoward situation which is sort of unforeseeable, one might consider doing that, but you'd have to be very mindful of all the consequences of relationship with SECI and with the, you know, reputation issues and so on. That's not something that we would do lightly once the PPA is signed.

Yes, at the bidding process itself, of course, if a project don't meet our hurdle rates, then we will not go ahead and win those projects. On that respect, we are gonna be very disciplined, and we have been very disciplined over the last many years, and it actually held us in good stead. In fact, if you probably while our market share is the largest in terms of bid wins over the last several years, if you also see the percentage of losses of bids not won, you'll find that we're probably also among the highest.

Puneet Gulati (Director)

Projects like, you know, 975 megawatts Rajasthan four, where you have INR 2.18 tariff, you still think you can make 16% to 20% IRRs there? Because some of the peers seems to be giving up those kind of projects with low tariffs. If you can comment on that as well.

Sumant Sinha (Founder, Chairman, and CEO)

No. You know, in those projects, as I said, in one-off projects there may be situations, and I don't remember the specific project that you're alluding to, exactly what the numbers there are. It could very well be that in one-off projects here and there, finally by the time you execute the project the IRR ends up being lower. That is possible. By and large, as I said, we are able to deliver what we bid towards, and we only bid towards 16% to 20%. And we therefore, in the vast majority of cases, end up delivering that much or even higher sometimes. For example, the RTC project is a case in point. Post the farm down, we are likely to make more than 20% equity IRRs on that project.

From an execution standpoint, it does tend to go this way or that way, depending on certain movements in commodity prices or interest rates or the execution issue. As I said, all of our projects are bid and won at between 16% and 20%, and the vast majority of our projects stay within that range post-execution as well.

Puneet Gulati (Director)

Okay.

Nathan Judge (Head of Investor Relations)

Puneet, this is Nathan. Just quickly to add to that. You know, as Sumant mentioned earlier in his comments that we continue to have a lot of conversations with investors as it relates to capital recycling. That broadly across the portfolio has opportunity to improve any particular project's IRRs.

Puneet Gulati (Director)

Yeah. Understood. If I can squeeze in just one last one. You know, you alluded that projects before April 2021 are now grandfathered. Is that clear now from the government's perspective that there's not a change in law but more grandfathering?

Sumant Sinha (Founder, Chairman, and CEO)

For projects that are bid out before April one, whether it is grandfathering or change in law, Kedar, do you have a sense of that?

Kedar Upadhye (CFO)

No, I could come back on the specific point, Sumant. We'll take it offline and we'll come back to you.

Puneet Gulati (Director)

Yeah. Okay, great. That's all from my side. Thank you and all the best.

Operator (participant)

The next question will come from Lav Sharma with Lombard Odier. Please go ahead. Pardon me, Mr. Sharma, your line is open. The next question will come from Amit Bhinde with Morgan Stanley. Please go ahead.

Amit Bhinde (Equity Analyst)

Hello, sir. I just wanted to get your view on the offshore wind opportunity that's coming up. There was a news that bids would be, tender would be put out for 4 gigawatt in Tamil Nadu. How are you looking at that opportunity? What is the preparedness that we have for such a project?

Sumant Sinha (Founder, Chairman, and CEO)

Yeah, you know, look, I think offshore, it's not clear at this point when the bid will come and in what form it will come. I think of course MNRE is working in the direction of trying to come up with something on the offshore wind side, but they haven't yet come out with anything formal from even a discussion standpoint. It's hard to comment on exactly what the timing will be and what the contours of a bid might be. Having said that, MNRE is also looking to allocate certain blocks of the ocean floor for blocking for the future. That is something that is likely to come out more imminently.

We certainly do intend to participate in those auctions for the seabed as well. Of course, eventually, whenever an offshore wind does come out, we'll of course be very active participants in that. There are in fact a number of potential partners that we've been talking to who've been talking to us for partnering on those kinds of bids as and when they come. I think we probably bid for those in collaboration with or partnership with somebody who has specific experience with offshore wind in some other geography.

I should tell you that, when the last time when MNRE was looking at some of these things in 2018, at that time, we had very actively done a lot of work, and we had partnered with, at that time, a couple of, one European and one Japanese company, to do the bid. Of course, that never progressed, so, you know, we did not go ahead as well. As and when the bid comes up, we'll of course participate very actively.

Amit Bhinde (Equity Analyst)

Right. That's great to know. Sir, one more on the land availability, I just wanted to understand now what kind of land availability do we have beyond the 13.4 gigawatt commissioning? So do we have sufficient land availability or do we have to look for new land acquisitions, site selections, et cetera?

Sumant Sinha (Founder, Chairman, and CEO)

You know, we keep evaluating and making sure that we have a pipeline of development assets that go over and above the PPAs that we already have in hand. It's not just land acquisition, it's also a question of getting transmission and connectivity. That is equally critical. We work on both in conjunction. In certain cases, if you can get the transmission connectivity, then you actually don't need to get the land bought in that area simply because you already blocked the connectivity out of that area. You know, the strategies could be different to lock in development pipelines for future.

At any given point in time, I can't give an exact number because that varies of course, but certainly we would typically have a development pipeline in the process, which is typically 2-3 years beyond what our contracted portfolio is. If today our contracted portfolio is 13.4 gigawatts, typically we would have a development pipeline that would be at least another 2-3 years out. It's really at the basis of that development pipeline that we then bid for future projects beyond the contracted capacity that we already have in hand. That's a very active program. We have not talked about that in the past, but that is something that we work on constantly because in some ways that is what gives us the right to keep growing our business.

Therefore, there is a lot of effort and a lot of focus that we have in that area. We also of course commit development capital to make sure that we continue to either block the land or the transmission connectivity as appropriate.

Amit Bhinde (Equity Analyst)

Got that. That was informative. Thanks.

Operator (participant)

There are no further questions at this time. This will conclude our conference for today. Thank you for your participation. You may now disconnect.