ReNew Energy Global - Q2 2024
November 20, 2023
Transcript
Operator (participant)
Thank you for standing by, and welcome to the ReNew Second Quarter Fiscal Year 2024 Earnings Report. All participants are in 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 Nathan Judge of Investor Relations. Please go ahead.
Nathan Judge (Head of Investor Relations)
Yeah, thank you, Jason, and good morning, everyone, and thank you for joining us. This morning, we issued a press release announcing results for the fiscal 2024 second quarter, ending September 30, 2023. A copy of the press release and the presentation are available in the investor relations section on ReNew's website at www.renew.com. With me today are Sumant Sinha, Founder, Chairman, and CEO, Kailash Vaswani, our newly appointed CFO, and Vaishali Nigam Sinha, Co-Founder and Chairperson of Sustainability. 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 all 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.
We encourage you to review the press release we furnished in our Form 6-K 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. It's now my pleasure to hand it over to Sumant. Sumant?
Sumant Sinha (Founder, Chairman and CEO)
Yeah. Thank you, Nathan. Good morning, everyone. I'm glad to have you all on our second quarter fiscal year ended 2024 earnings call. This year has presented new opportunities for us in avenues that align seamlessly with our competitive advantages. 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 billion-INR 66 billion in adjusted EBITDA for FY 2024. 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, SJVN, SECI, NHPC, and some states have announced auctions 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, with still about four months left to go. A higher ratio of complex auctions signals a trend that distribution companies want specific electricity supply profiles, which require customized solutions. The complexity and limited development capabilities in India, among other things, have resulted in less participation by competitors. 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, PPA, with GUVNL, which is a Gujarat distribution entity, for 400 MW of capacity that we won earlier this year, and have received letters of award for another 2.9 GW that we have won. As a reminder, we do not include projects with LOAs into our portfolio until we have a contract, a signed PPA, which indicates another step up in our long-term earnings potential as the 3.1 GW of projects won receive PPAs over the next three to six months. Our assets continue to attract interest from investors and strategic partners at favorable valuations. Recently, we concluded the sale of 100 MW of solar assets, resulting in a gain.
In a little over two years, we have raised about $565 million from asset recycling, and year to date, about $93 million. 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 million, 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 PLF increased to 41.3% from approximately 33.7% in the corresponding quarter last year. Last three straight years where we have seen improved wind resource, which may portend for more normal weather going forward.
While we remain optimistic about long-term wind PLF 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 240 gigawatts during 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 2030 renewable energy targets with a 50 GW renewable energy annual auction calendar, our position as a market leader in developing wind remains differentiated.
With a shift away from vanilla wind and solar auctions, there is a tilt toward round-the-clock and complex auctions, a significant step toward 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.
Recently, we signed a PPA with GUVNL at a tariff of INR 2.71/kWh for 400 MW of solar and letters of award, secured letters of award for most of our 3.1 GW of auction wins earlier this year at attractive tariffs. 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 37.2 GW of auctions yet to be completed this year are complex power solutions.
Given our industry-leading wind EPC 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. 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 the 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 patience. We have saved shareholders, by our estimate, about $100 million 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. 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 project sitting idle, we decided to invest a small amount of capital, less than 5% of our equity, to build a transmission EPC 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 am 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.
Kailash has been with ReNew 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 billion through various sources, including about $565 million 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.
Kailash Vaswani (CFO)
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 am 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 ReNew's investment committee for some time, I fully supported the $250 million 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. 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 our portfolio 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. 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 million over the next several years at a lower interest rate, saving an average of 25-50 basis points. We have significant access to debt from diversified sources, including from PFC and REC, which is the Power Finance Corporation and the Rural Electrification Corporation, which are known to provide one of the most competitive cost of project debt in the industry. We recently signed an MOU of $8 billion 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 continues to see interest from international players seeking an offset to their carbon footprint.
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 returns on invested capital. We completed a sale of 100 MW of solar assets in the current period and raised almost $93 million through asset recycling year to date, about $565 million in aggregate. For growth beyond the current pipeline, we expect that we have operational development capability to be able to build about 2.5-3 GW of assets annually, of which we intend to recycle assets, including sale or farm downs of net interest of about 1-1.5 GW each year, which should generate the required 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 million, and the highest first half year profit after tax of $81 million to date. We saw a return to normal wind patterns during the current period, and the wind PLF during the quarter was 41.3%, compared to 32.7% in the same quarter last year. We continue to remain cautiously optimistic about recovery in the long term wind PLFs towards the long-term normal levels. Our operating capacity increased by approximately 600 MW over the last comparable quarter in the prior year, an increase of about 8%.
For the full year, we expect interest costs 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. Taxes look to be about 20%-25% higher in FY 2024, as more of our subsidiaries are turning profitable. Turning to page 12, we reported an adjusted EBITDA of $256 million for quarter 2, FY 2024. The higher EBITDA is primarily attributable to additional revenue from projects commissioned during the period, higher wind PLFs, offset by lower late payment surcharges of about $11 million, 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 2022, 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, more of our revenues come from central government and corporate customers who pay on time. Moving to page 14, we are focused on improving our liquidity and leverage. Our cash balance stood at close to $1 billion, almost $985 million, and our net debt on operating assets was $4.7 billion. Of gross debt, about 59% of our debt has a fixed interest rate.
We only have about $325 million 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 million that matures in FY 2025 and FY 2026. With that, I would like to turn it over to Vaishali to talk about our ESG initiatives.
Vaishali Nigam Sinha (Co-Founder and Chairperson Sustainability)
Thank you, Kailash. 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. ReNew has released a sustainability report for fiscal year 2022-2023, titled Driving Decarbonization. The report is aligned with GRI, SASB, and TCFD, and externally assured by DNV. Some of the key highlights of the report are: ReNew has generated clean electricity, which is 17,386 GWh, which is enough to power nearly five million Indian households. This has also helped to avoid 14 million tons of carbon emissions through its operations, which is about 0.5% of India's total emissions.
The carbon intensity of ReNew's electricity generation is about 92% less than the Indian power sector's average. ReNew saved about 318,708 kiloliters of water, about 48, 48% year-on-year increase through our robotic cleaning and condition-based monitoring systems. ReNew achieved carbon neutral status for the third consecutive year for our scope one and two greenhouse gas emissions. As mentioned earlier as well, ReNew net zero targets for 2040 were validated by SBTi, and entails reducing greenhouse gas emissions across all scopes by 29.4% by 2027, and by 90% by 2040, through clean energy procurement for operations, electrification of fossil fuel-based equipment, encouraging suppliers to set SBTi 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 million people across 500+ 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 2024. Lighting Lives, which is one of our flagship programs, is an initiative where we electrify schools with less than three 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 and going well. Climate curriculum.
We are in the process of rolling out a climate 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 reskilling in partnership with UN organizations, and we are also working on reskilling some of the salt pan workers in Gujarat to becoming now solar technicians. Nearly 60 women salt pan farmers have been trained and have secured employment. About 48 trainees have secured employment. Employee engagement is an important part of what we do. We have programs designed for and led by employees at ReNew. Our annual volunteering campaign, which is the Rice Bucket Challenge, saw about 40,000 kg of rice distributed pan India.
We have kick-started the fiscal year 2024 disclosure cycle, with the submission of CDP 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.
Sumant Sinha (Founder, Chairman and CEO)
Thank you, Vaishali. Turning to our annual guidance, I am happy to report that we have increased the bottom end of our FY 2024 adjusted EBITDA guidance by INR 2 billion to INR 62 billion-INR 66 billion, 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 this earnings presentation. We reiterate our capacity of completed guidance for this fiscal year of between 1.75-2.25 GW. Regarding our buyback, we have repurchased by now 38.6 million shares in total since February last year, which represent approximately 35% of the free float at the time of listing. We have $11 million of authorization remaining, which represents about 4%-5% of the total free float.
With that, we will be happy to take any questions. Thank you.
Operator (participant)
If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Our first question comes from Puneet Gulati from HSBC. Please go ahead.
Puneet Gulati (Director, Equity Research)
Yeah, thank you so much, and congratulations on, you know, good numbers and, good profitability as well. Our 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 or do you think it was higher than the normals?
Sumant Sinha (Founder, Chairman and CEO)
Yeah, 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 was actually significantly lower as well. And so in aggregate, Q1 and Q2 put together is lower than what should have been the case.
Puneet Gulati (Director, Equity Research)
Okay, understood. So first half is normal, but Q2 higher, Q1 lower?
Sumant Sinha (Founder, Chairman and CEO)
Yeah, first half is a little bit less than normal, but Q2 is a little bit-
Puneet Gulati (Director, Equity Research)
Okay.
Sumant Sinha (Founder, Chairman and CEO)
- higher than normal, and Q2 was lower. And so therefore, overall, we are ending up a little bit lower than the overall H1 expectations would have been.
Puneet Gulati (Director, Equity Research)
Understood. Understood. That's helpful. And secondly, can you also update on, you know, one of the acquisitions that you announced a few quarters back? What is the progress there?
Sumant Sinha (Founder, Chairman and CEO)
Yeah, I'll let Kailash to that.
Kailash Vaswani (CFO)
Yeah, Puneet. So on the acquisition that we had announced, you know, 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 that demerger took a lot of time. So, you know, that deal reached a long stop date, and we decided we didn't want it, because, you know, the entire market had sort of taken so much time for this 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.
Puneet Gulati (Director, Equity Research)
Understood. And there are no penalties that we had to pay for that?
Kailash Vaswani (CFO)
No, no penalties. There was some transaction cost which was involved, initial cost, which was less than $1 million. That, that was the total cost that, you know, we ended up incurring on it.
Puneet Gulati (Director, Equity Research)
Okay. Okay, that's clear. Okay. And secondly, Sumant, you announced in, in this year, a lot of bids have been announced, tendering has happened, some PPA has been signed. Do you have a similar number for FY 2023? What kind of, you know, bids got announced, and how much PPAs have been signed, and what is the backlog for that?
Sumant Sinha (Founder, Chairman and CEO)
From FY 2023, so, you know, Puneet, it's very hard for me to give a number because FY 2023, we actually hardly won any capacity. We just had a 3% market share last year. And, but I should tell you that our SECI 8 solar, which was the outstanding, which in fact, we haven't put anywhere in the presentation, but therefore, Nathan, you have to tell me whether I can talk about that or not.
Operator (participant)
Yeah, go ahead, Sumant.
Puneet Gulati (Director, Equity Research)
Okay. Okay.
Sumant Sinha (Founder, Chairman and CEO)
Okay. So the SECI 8, which was an outstanding 200 MW, that PPA has also got signed now. So of the 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 old PPAs are now getting converted quite rapidly, and with power demand going up-
Puneet Gulati (Director, Equity Research)
Okay.
Sumant Sinha (Founder, Chairman and CEO)
There is definitely interest among the discoms to go to SECI and try to convert some of the options into firm PPAs. But, you know, Puneet, the process is a long one because the distribution utilities have to first, of course, go to the commercial implication, then they have to go to their local regulator and get the approval of the tariff. That process itself can take a month or two. Then they come back to the SECI, and then basically go ahead and sign the PSA, after which SECI signs the PPA with us. 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, you know, a couple of bids that we won back in April, May, are now sitting with the central regulator, CERC, for approval. And you know, it's just a process issue, frankly speaking. You know, it just takes a little bit of time. 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'll see some of that getting announced.
Puneet Gulati (Director, Equity Research)
Any reasonable expectation of the 2.9 left, how many of them should you see, you know, PPAs getting signed this year itself?
Sumant Sinha (Founder, Chairman and CEO)
I would imagine that most of them should.
Puneet Gulati (Director, Equity Research)
I know it's always hard to say, but-
Sumant Sinha (Founder, Chairman and CEO)
Yeah, it's hard to say, but I think, 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 discoms also take a longer time to understand them and then be able to get their own internal approvals. And then also to that extent, regulators take longer to understand them. So the whole process of conversion of complex auctions is just a little bit longer. But, you know, the reality is that for us, really there is no urgency at all right now on some of these-
Puneet Gulati (Director, Equity Research)
Mm.
Sumant Sinha (Founder, Chairman and CEO)
because, for the capacities that we've won, these are things that we're going to construct only in FY 2026. And so, you know, we have time on our side to get them signed. Meanwhile, I should tell you that for all the projects that we've got LOAs, we've already blocked transmission capacity. So transmission capacity has been blocked. Land we have-
Puneet Gulati (Director, Equity Research)
Mm-hmm.
Sumant Sinha (Founder, Chairman and CEO)
You know, obviously we're working on that right now, but eventually we will convert them into actual, you know, sort of deals when the PPAs do get signed, as we go forward. Keep in mind that our clock to execute starts ticking only once the PPA is signed.
Puneet Gulati (Director, Equity Research)
Right. But you have land for the entire 3.5, which you won this thing?
Sumant Sinha (Founder, Chairman and CEO)
Yeah. I mean, we don't have to acquire it right now, you know, as long as we have good line of sight into where that land is. You know, in some cases, you can block the land without actually paying any real, you know, significant amount of money. But the important thing is, as long as you block the transmission capacity, then, you know, that's the most critical factor. And with the LOAs in hand, we are in fact able to block the transmission capacity. 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.
Puneet Gulati (Director, Equity Research)
Understood. That's clear. And lastly, any progress on, you know, asset recycling? Anything that you did in Q2, and what's the outlook for the second half?
Sumant Sinha (Founder, Chairman and CEO)
Yeah, Kailash, will you take that?
Kailash Vaswani (CFO)
So, yeah. So we have consummated transactions of almost around $93 million till date, and we are working on a few in the pipeline. But the timing on asset sales is, you know, really hard to say, because, you know, when the deals get done, so how much will get done in Q3 versus Q4, you know, we are working towards it.
Puneet Gulati (Director, Equity Research)
$93 million would include the Gentari acquisition and two years ago?
Kailash Vaswani (CFO)
That's right. This, it includes the two deals, or three deals rather, is the Gentari deal, the 100 MW sale to Technique Solaire, and the third one is the amount that we got from Northland for the transmission assets.
Puneet Gulati (Director, Equity Research)
Okay. Understood. That's all. Thank you so much, and all the best.
Sumant Sinha (Founder, Chairman and CEO)
Thank you.
Kailash Vaswani (CFO)
Sure.
Operator (participant)
The next question comes from Justin Clare from Roth MKM. Please go ahead.
Justin Clare (Managing Director and Senior Research Analyst)
Yep. Hi, thanks for taking our questions here. So I want to ask just about the amount of capacity here. So there's, you know, it seems a significantly larger opportunity for renewable projects here in terms of the auctions that are expected annually. So I was wondering if you just speak to the potential for bottlenecks to emerge, given the larger volume of capacity. And then, you know, maybe you could speak to your strategy in managing those potential bottlenecks.
Sumant Sinha (Founder, Chairman and CEO)
Justin, thank you so much for the question, but you know, you've asked me a question that I can spend many hours discussing with you, as you can imagine, because this is obviously central to our business. But just to give you a very quick sense of that, I think the key issues that are required for executing a project, of course, are PPAs, which, as we've discussed, there's ample opportunity for us to win capacities there. The second is transmission. And there is, you know, that is not a limiting factor right now because the government is building transmission capacity quite at quite rapid pace. 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, to roll out, and it should not become. The third is land. Land, of course, we are working on constantly, and we are always trying to look at what is the forward pipeline, and we're trying to block land for, you know, three years out, four years out projects. And, we're also obviously putting up a number of met masts in different parts of the country. We have several hundred met masts that are now up and running, to measure wind.
In solar, we have blocked, you know, by a number of mechanisms, transmission capacity in the state of Rajasthan, which allows us to execute projects even for 2-3 years beyond our existing pipeline. There is a lot of land available in Rajasthan for solar projects, so land is handled on that basis. Then, of course, there's the issue of people and organization. That is something that, you know, 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, that is high quality, and our execution capacity should be sustainably improving rather than just sort of going up on a one-time basis.
And then, of course, there is the issue of capital. And capital, I think we are looking at between a mix of internal capital and asset recycling to raise capital for funding some of these projects. So I think that's how we're looking at these five key areas. The sixth actually is supply chain. And there obviously we have, as the largest wind player in the country, very key relationships with the important OEMs, which go out and we get, you know, best terms from these wind OEMs because we are in fact the largest buyer of wind turbines in the country.
As far as solar is concerned, we, as I've discussed multiple times with all of you, that's an area where government policy is evolving and changing, and therefore we have tried to stay, 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.
Those are some of the issues that we are working on to make sure that we are able to continue to execute, you know, 2-3 GW a year, and then try to increase that, you know, in turn, in years down the road. I hope that answers your question.
Justin Clare (Managing Director and Senior Research Analyst)
Got it. Okay. Yeah, no, very, very helpful. And then I guess just on the supply chain, you know, you have your own in-house module manufacturing today. 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, you know, including the cost of the import duty, and how this might give you a relative advantage in terms of your cost structure.
Sumant Sinha (Founder, Chairman and CEO)
Yeah. Nathan, we haven't come out with those numbers right now, right? But as... Please, please, you confirm.
Nathan Judge (Head of Investor Relations)
No, not just yet, but, I mean, if you wanna give some ranges, that's fine.
Sumant Sinha (Founder, Chairman and CEO)
Okay, thank you. So, yeah, 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 the imported modules. The cost differential between what we produce in India and what is produced in China, after just for the modules, in our estimation, is about 10%-15%. And so the 40% protection is sufficient to allow us to not have that as an issue for us.
The second thing is keep in mind that from that way, we also have the approved list of models and 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, you know, 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 will be able to continue to execute projects, and people who don't, obviously will not be able to.
Our sense is that module supply next year will be in deficit because obviously, you know, while capacity is coming up, it does take time to essentially get it to a level where people have good quality and stable production in place. 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, you know, people that are working with us and so on, our cost of production is very competitive among other Indian companies. So that is really also something that we would like to benchmark ourselves to.
Justin Clare (Managing Director and Senior Research Analyst)
Okay, I appreciate it. Thank you.
Sumant Sinha (Founder, Chairman and CEO)
Thank you.
Nathan Judge (Head of Investor Relations)
Sumant, there's actually an inbound email question from Girish at Morgan Stanley that is related to that. So if I could just ask this: Basically, are we open to selling a minority stake in our solar manufacturing, and there seems to be an overcapacity coming online in India, given strong response to PLI? What are our thoughts about those?
Sumant Sinha (Founder, Chairman and CEO)
Yeah. So, no, we certainly are open. You know, we're not willing to keeping 100% of solar 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, you know, that meets our primary objective. As far as overcapacity 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've announced plans, how many of those actually rectify, we will have to monitor.
The second thing is also that a lot of the earlier capacity that have been set up are actually gonna become uncompetitive because they just won't have either the efficiency 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 capacities that are coming up. Yeah, so that's, that's, that's my response on that, Nathan.
Nathan Judge (Head of Investor Relations)
Thank you. Jason, go ahead to the next question. Thank you.
Operator (participant)
All right. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Our next question comes from-
Sumant Sinha (Founder, Chairman and CEO)
Actually, I would just add... Yeah, sorry. Yeah.
Nathan Judge (Head of Investor Relations)
Go ahead, Sumant. Go ahead and finish your thought.
Operator (participant)
Okay.
Sumant Sinha (Founder, Chairman and CEO)
Yeah. No, no. The only other 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 might -- will add to the deficit in the country next year.
Nathan Judge (Head of Investor Relations)
Go ahead, Jason. Thank you.
Operator (participant)
Our next. Thanks. Our next question comes from Nikhil Nigania from Bernstein. Please go ahead.
Nikhil Nigania (Senior Analyst, India Industrials and Infrastructure)
Yeah. 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 being maintained, but just wanted to clarify that transmission is not a bottleneck for these two assets. So when they are commissioned in Q4, power evacuation and the commissions will start happening?
Sumant Sinha (Founder, Chairman and CEO)
Yeah, Nikhil, I can categorically confirm that to you that transmission is not a bottleneck, largely because we are actually building a lot of it ourselves. The very first project, obviously in RTC, there are three different wind projects and one solar project. The first wind project was making to a substation that we ourselves are making, and that we have now commissioned, and have—that has been charged. So therefore, we're just now waiting, going through the connectivity protocols now to connect the first project into that corporate substation that we built. The second one also we are building actually, which is the Gadag substation. So therefore, obviously we have clear understanding and, you know, of 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 with them. That also looks like it's on track, so that should not lead to any problem either. I don't anticipate any transmission-related issues in commissioning these projects.
Nikhil Nigania (Senior Analyst, India Industrials and Infrastructure)
Got it. Good to hear that. I think a related question then is, is transmission, I think the point, slightly alluded to during the discussion earlier, is transmission, is being seen as a constraint in their ramping up to 30, 40 gigawatts of renewable installation? Are you seeing that as a constraint in reaching that higher renewable installation numbers per day?
Sumant Sinha (Founder, Chairman and CEO)
You know, I would say the government has been so far quite proactive in building our transmission capacity. And so, you know, I think a lot of transmission capacity exists in the country that can allow for the 50 gigawatts of commissioning. The only thing is, of course, that the transmission capacity is not necessarily areas that people would want to set up, or, you know, that it... Maybe there are some constraints in places like Rajasthan or Karnataka and so on. And there might be bottlenecks as we go forward. But when I say bottlenecks, I mean that, you know, the bottleneck will emerge after 30 gigawatts or 40 gigawatts of connectivity, rather than, you know, 10 or 15 gigawatts. So there is a lot of room to go before we actually start having constraints really, really emerge.
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, you know, what the issues are and are trying to debottleneck that.
Nikhil Nigania (Senior Analyst, India Industrials and Infrastructure)
Got it. Got it, Sumant. Thank you. And my last question then is, there was this one big tender, the RTC 2 tender, I think, for more than 2 gigawatts, which I think has been doing the rounds for quite some time. Any update that could be shared on that from [Greenidge] side?
Sumant Sinha (Founder, Chairman and CEO)
On the, I'm not sure which tender you're specifically talking about.
Nikhil Nigania (Senior Analyst, India Industrials and Infrastructure)
There was...
Sumant Sinha (Founder, Chairman and CEO)
There are two? Huh.
Nikhil Nigania (Senior Analyst, India Industrials and Infrastructure)
Yeah. The one that coal was also allowed to be blended, coal-fired generation.
Sumant Sinha (Founder, Chairman and CEO)
Ah. 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. SECI VI was the first one that happened. That is for 200 megawatts of headline capacity, which, as you know, translates to about 3.5 gigawatts of actual capacity. Then SJVN just recently did another 200 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 three such tenders in the last few months, and as you know, a number more are teed up to be coming up in the next few months.
Puneet Gulati (Director, Equity Research)
Got it. Got it. Thanks. Thank you so much. Those are my questions. Thank you.
Operator (participant)
As a reminder, if you have a question, please press star then one. Our next question comes from Angie Storozynski from Seaport. Please go ahead.
Angie Storozynski (Managing Director, Senior Equity Research Analyst)
Thank you. So just two, you know, simple questions. One, you do lots of capital recycling in existing and future projects, and so I'm just wondering if the gains that you record on that are reflected in your EBITDA? So that's number one. And number two is, when you show us EBITDA and debt projections, just wanted to make sure that this is proportional EBITDA and proportional net debt, meaning the portion of both that you keep as ReNew net of those divestitures or asset recyclings.
Sumant Sinha (Founder, Chairman and CEO)
Yeah, Kailash?
Kailash Vaswani (CFO)
Sure. Yeah. So the gains 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 it will get accounted in the subsequent period. To your second point, where we consolidate the full EBITDA, where we own 51% majority of the assets, there the full debt also gets consolidated with us into the balance sheet. So we don't consolidate on a proportional basis, because if we are in control of the asset, then the entire EBITDA and debt sort of stays with us. We take out the minority interest on account of the joint venture partner's interest in the project.
Angie Storozynski (Managing Director, Senior Equity Research Analyst)
I understand, but I'm just asking you-
Nathan Judge (Head of Investor Relations)
Clarify on our-
Angie Storozynski (Managing Director, Senior Equity Research Analyst)
Yes. Yeah.
Nathan Judge (Head of Investor Relations)
Sorry. Just to clarify, on our guidance, that you see there, that is just our net. So if you look at the debt-
Angie Storozynski (Managing Director, Senior Equity Research Analyst)
So it is net of minority interest?
Nathan Judge (Head of Investor Relations)
Yes. So those are actually net to shareholders.
Angie Storozynski (Managing Director, Senior Equity Research Analyst)
Okay. So, I mean, again-
Nathan Judge (Head of Investor Relations)
Yeah. Actually recorded-
Angie Storozynski (Managing Director, Senior Equity Research Analyst)
Yes.
Nathan Judge (Head of Investor Relations)
We would be taking out the net, the minority position in the minority interest line, but as a projection-
Angie Storozynski (Managing Director, Senior Equity Research Analyst)
Yeah.
Nathan Judge (Head of Investor Relations)
as our guidance is concerned, it's all net of what we currently own.
Angie Storozynski (Managing Director, Senior Equity Research Analyst)
Okay. That's, 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, you know, have those been a meaningful contributor to the EBITDA? 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.
Kailash Vaswani (CFO)
So, see, again, you know, there's an accounting value to it. What tends to happen is that, you know, we book costs, basis and accounting calculation on the capital expenditure also includes some margins at the EPC level. So when we consolidate them, they get knocked off. When we sell those assets, those assets are marked at a higher value in our books, because of the, you know, because we are sort of selling those assets. So to that extent, the gains are smaller, but the cash flow impact is larger.
Angie Storozynski (Managing Director, Senior Equity Research Analyst)
Okay.
Sumant Sinha (Founder, Chairman and CEO)
Independent gains are not very material.
Nathan Judge (Head of Investor Relations)
Yeah. Yeah. And also remember that most of the larger transactions were related to projects that are under construction, right? So our peak power-
Angie Storozynski (Managing Director, Senior Equity Research Analyst)
Right.
Nathan Judge (Head of Investor Relations)
and our RTC projects, right? So, and those gains would be, well, commercial gains, but accounting gains are, you know, de minimis because they haven't been actually selling of operating assets. That's where you would see gains. So, so far there's not been much.
Angie Storozynski (Managing Director, Senior Equity Research Analyst)
Okay. And then lastly, and again, by now you probably see where I'm going with this. I'm, you know, I'm trying to compare you to other renewable power developers. You know, there's been some differences in how, you know, debt and then EBITDA are shown. So, you know, you guys do project financing, and I'm just wondering if there is any reasons for you to change that stance, like, I don't know, as the balance sheet grows, would you consider balance sheet financing? Again, any changes in how you finance new build?
Kailash Vaswani (CFO)
Yeah. So again, there what happens is that, you know, obviously we have an existing portfolio, which is quite sizable. We have existing debt, which is quite sizable. So to change everything to balance sheet, it'll take time, you know, and it requires a certain type of market environment, you know, which is relatively, you know, easy money, policy type of market, where the rates are lower, in which market, you know, you can obviously get, you know, transactions done by getting borrowing balance sheet, and then repaying the debt at the opco levels. But given that, you know, market conditions are what they are, investors are very focused on getting security on specified assets.
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 more so in the Indian context, you know, 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, so seems like we'll have to sort of continue with that.
Angie Storozynski (Managing Director, Senior Equity Research Analyst)
Great. Thank you.
Operator (participant)
There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.