ReNew Energy Global - Q3 2024

Transcript

Operator (participant)

Thank you for standing by, and welcome to the ReNew third quarter fiscal year 2024 earnings report. All participants are 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 Nathan Judge, Investor Relations. Please go ahead.

Nathan Judge (Head of Investor Relations)

Thank you, Betsy, and good morning, everyone, and thank you for joining us. This morning, the company issued a press release announcing results for its fiscal 2024 third quarter, ended December 31st, 2023. A copy of the press release and the presentation are available on the Investor Relations section on ReNew's website at www.renew.com. With me this morning are Sumant Sinha, Founder, Chairman, and CEO; Kailash Vaswani, our CFO; and Vaishali Nigam Sinha, Co-founder and Chairperson, Sustainability. Prepared remarks? We will open 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 our remarks.

There are risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements, so we encourage you to review the press release furnishe in Form 6-K and the presentation on our website for a more complete description. Also contained in our presentation materials and annual report are certain non-IFRS measures that we reconciled to the most comparable IFRS measure, and these reconciliations are also available on our website in the press release presentation materials and our annual report. It is now my pleasure to hand it over to Sumant.

Sumant Sinha (Founder, Chairman and CEO)

Yeah, hi. Thank you, Nathan. Good morning and good evening to everybody on this call, and glad to have you on our third quarter fiscal year ended 2024 earnings call. The calendar year 2023 marked a significant milestone for the Indian renewable energy sector, as well as for us. India, now the world's most populous nation, has experienced a surge in power demand, necessitating the need for more power. In April of 2023, the Ministry of New and Renewable Energy ramped up the auction calendar significantly in a bid to achieve the country's 500 GW target for renewable energy installations. The government's commitment has now transpired into action, and a record number of auctions have been conducted so far during the year.

So far in fiscal 2024, we have seen more than 40 GW of auctions being conducted, which is a significant increase over last year when about 12 GW of capacity was auctioned. Not only this, we are also tracking another 70 GW of central and state tenders expected to be auctioned over the next few months. As India intensifies its Made in India initiatives to become a global manufacturing hub more broadly, the imperative for securing reliable power becomes even more pronounced. This expansion of the addressable renewable energy market has provided developers such as us the most favorable environment in the renewable energy sector that we have seen yet. As the number of auctions has increased significantly, competition has tailed off a little bit, leading to the discovery of higher tariffs.

The subscription rate for new auctions has declined significantly this fiscal year and was the lowest on record this past quarter, often less than 100% of the capacity being auctioned for complex projects, resulting in auctions clearing pretty much at the initial bid offer. Year to date, we have seen an increase in tariffs and, in particular, in wind auctions, which increased 14% year-on-year. Our differentiated ability to do wind makes us stand out in a market where there are far fewer developers with this ability. We note that even with the increase in tariffs, renewable energy continues to be the lowest cost source for new electricity supply in the country, considerably cheaper than the primary competitive alternate, which is coal power.

Beyond the rise in tariffs, we saw several other factors that are supporting better returns, such as a record fall in the cost of solar modules, stable FX, adequate domestic debt financing, and a significant reduction in receivable days. The year which started with a litany of challenges has become one of the most favorable markets for ReNew in our history. As we approach the onset of fiscal year 2025, we eagerly anticipate leveraging the new opportunities that have arisen during the year, especially in complex firm power such as the round-the-clock power and peak power projects that are currently under construction. This demand for complex projects is clearly evident in the rising percentage of such projects and such auctions. This fiscal year, complex projects represented about 38% of total capacity being auctioned, significantly more than the 8% of the total amount last year.

This is set to increase further to 44% of the tenders that we expect to be auctioned over the next several months. We continue to see higher returns in complex auctions, and a greater share of our wins are in this subset. ReNew has clear competitive advantages in complex auctions, and as a result, our market share in these auctions is better than any of our peers. Firstly, modeling these projects is not easy. Further, executing complex projects requires expertise in developing wind, integrating multiple sources of power through the use of digital tools, as well as robust project management, something that most players in the sector lack. Our in-house wind EPC capability, our in-house digital labs, and our ability to access the cheapest source of capital do ensure superior returns on our projects. The year is set to be a milestone year for us.

As on the execution front, the year will see a significant increase in our operating portfolio, as most of the under-construction pipeline will become operational, providing top-line and bottom-line growth. Now, turning to highlights for the quarter on page 4, we are increasing the bottom end of our Adjusted EBITDA guidance range to INR 63 billion-INR 66 billion. Amidst a record-breaking year for megawatt installations, we expect that about 1.75-1.95 gigawatts will be generating revenue by the end of fiscal year 2024. Beyond the currently commissioned 825 megawatts, we have erected 425 megawatts of wind turbines and another 620 megawatts of solar module installations. Our strategy of asset recycling continues to provide us with cost-effective capital for expansion. Last month, we signed a deal for the sale of a 300-megawatt solar asset commissioned two years ago, and we anticipate receiving proceeds of approximately $82 million by year-end.

The asset was valued at $199 million. This transaction will further bolster the substantial sum raised through asset recycling thus far and, at the same time, enhance the returns on capital deployed on projects. We expect that we will realize a gain of about $30-$34 million as a gain in our Q4/2024 EBITDA. Do note that our FY2024 adjusted EBITDA guidance of INR 63-66 billion does not include this gain. Our growth trajectory remains robust as we won an additional 3.6 gigawatts of RE projects during the quarter in a period when tariffs are rising, costs are falling, and competition is near record lows, which underscores our ability to secure growth at attractive returns.

We point this out because last year, when all these factors were unfavorable and returns for new projects were much lower, our market share was a mere 3%, well below our normal market share of 10% or thereabouts. Comparing it to this year, in an environment where returns are much higher, we have won about 15% of all auctions. We believe, and that is on top of a bigger base, we believe that this illustrates our commitment to capital discipline rather than just market share. We are pleased also to report that our DSOs, our Days Sales Outstanding, have fallen below 100 days and stood at 86 days at the end of the quarter, marking a significant improvement of 92 days within the span of a year and an even greater improvement from the peak of 272 days only a couple of years ago.

Prioritization of timely collection of payables remains paramount for us as it fortifies our competitive stance in the market and has released nearly $200 million of cash for growth. We believe that DSOs will continue to improve over time. Furthermore, there has been a notable enhancement in wind PLF this year. For the quarter, the 17% wind PLF was a meaningful improvement over the 14.7% PLF in the prior comparable quarter, and year to date, the wind PLF was at 29.2%, better than the wind PLF of 27.3% last year. While the uptrend in wind PLF is encouraging and there is increasing evidence that wind speeds are recovering towards long-term normal levels in the long term, our guidance does not take this into consideration in an effort to remain conservative. I am proud to say that we were profitable for the trailing 12-month period with a profit of $44 million.

We recognize that many investors consider profitability as a key investment decision metric, and these results should increase ReNew's attractiveness to a broader universe of investors. While our cash flow from operations has always been positive and growing, we believe that we are now at the scale needed to be profitable consistently on an annual basis and be able to showcase the full value of our platform. We reported cash from operations of $616 million for the nine-month period ended December 31, 2023, compared to $595 million for the prior period. Our profit after tax was $43 million for the nine-month period this year, compared to a loss in the prior comparable period and improvement of almost, actually, $100 million. Turning to page 5, electricity demand growth and the macroeconomic environment continues to favor RE development in India.

Firstly, the auction markets continue to propel a larger number of auctions and better tariffs. Over 40 GW of auctions have already been completed year to date, and various state and central agencies are working towards another 70 GW, likely to be completed over the next few months. Not only this, the share of complex projects went from 8% last year to about 38% this year, signaling a persistent shift towards complex projects. Further, the tariffs continue to trend upwards as there was less competition. Amongst the tenders that we are tracking, we expect the share of complex projects to go up even further owing to the need for firm power in the country.

Secondly, costs to construct RE continues to improve as solar module prices that make up 40%-50% of the total cost to construct a solar farm have fallen by around 55% from the prior quarter to hit historical lows of about $0.11 per watt-peak. So let me say that again. They've fallen to hit $0.11 per watt-peak. In addition, supply-related challenges that constrained us last year were resolved as our own manufacturing facility came online during the year. We would note that the cost of sales has broadly mirrored the decline seen in module prices, making our manufacturing costs competitive with imports after considering the BCD or import duties. Turning to page 6, our patient and selective approach in auctions has ensured that we are able to deliver superior returns on our projects.

With over 40 GW of projects auctioned in the current year, there have been several auctions that were undersubscribed. Lower competition in auctions enables us to lock in superior tariffs, and we saw subscription levels lower than 100% in auctions for complex projects. Our in-house EPC and an integrated supply chain that ensures delivering large projects on time enable us to bid competitively, securing higher returns. Our digital and AI platform, bundled with our experience in developing complex solutions, provides us with a significant advantage over others. While we don't pursue market share, our market share has gone up by almost 5 times compared to the prior fiscal year. From having only a 3% market share last year, when returns were much lower, to about 15% market share this fiscal year with projects that are projected to have significantly higher returns.

We will continue to be disciplined in our approach to growth and pursue the highest return opportunities in the market. Turning to page 7, our core strength lies in our ability to execute projects on time and on budget, and deliver initially expected returns. The on-ground progress remains strong as we have erected about 1.9 GW of assets on the ground. Of this total, 825 MW of projects have already received COD approvals. In addition, we have erected 424 MW of wind turbines and installed 620 MW of solar modules. During this period, we have also installed a 150 MWh battery storage facility for our peak power project. In addition, we also commissioned 276 km of transmission during the quarter.

We are beginning to see real constraints emerging in getting access to interconnection hubs, and this new business for us is beginning to provide considerable competitive advantages in bidding for new projects. With that, I would like to turn it over to Kailash to go over the latest financials.

Kailash Vaswani (CFO)

Thank you, Sumant. Turning to page 9, interest from domestic lenders for our project continues to be strong. Recently, we were able to refinance a $325 million bond in the domestic market with an interest rate that was around 200 basis points lower than the landed interest rate on that bond. Through the refinancing, we were once again able to demonstrate how we have been able to provide long-term finance to our projects with interest rates sub 9%. In India, the spread for Indian RE debt has compressed significantly as the sector has matured.

While we stay focused on domestic debt markets given their low cost versus USD green bond market, we have seen yields on our own USD bonds improve by about 200 basis points in little over the last 4 months. It is also worth noting that the average spread on our bonds is about the same level as it was at the beginning of the Fed tightening cycle back in 2022. Turning to page 10, our asset recycling program continues to see strong interest from international investors as well as domestic players. Last month, sorry, we signed an agreement for the sale of a 300-MW solar asset and expect about $82 million of net proceeds by the year-end, which is the fiscal year-end.

The proceeds from this asset sale are expected to be reinvested in projects that, in the current strong bidding market, where project costs to run rate EBITDA are in the range of 6.5x-7.5x EBITDA, should have even higher returns than the one just sold. Subject to the rate at which we can raise growth capital from asset recycling, we should be able to grow 1-1.5 GW net of asset recycling without having to issue any new shares. Asset recycling effectively provides us with long-term growth capital at the cheapest possible cost of equity and thereby enabling us to grow while enhancing returns on capital. Turning to page 11, we reported profit after tax for the nine-month period ended 31st December 2023 of $43 million as compared to a loss of approximately $60 million in the prior year.

This was driven primarily by higher revenues and savings in finance costs. During the quarter, we saw significant improvement in wind PLF as compared to the prior comparable quarter. The wind PLF during the quarter was 17% compared to 14.7% in the same quarter last year, bolstering our confidence about the recovery in the long-term wind PLF towards normalized levels. Though our guidance expects wind speeds will be the same as last year, our operating capacity increased by 940 MW over the last comparable quarter in the prior year and increased of about 12%. We reported an adjusted EBITDA of $150 million for quarter 3 FY24 and increased of about 8%. The higher EBITDA is primarily attributable to additional revenue from projects commissioned during the period. This was partially offset by higher operating costs in line with the increasing capacity.

Turning to page 12, our Days Sales Outstanding now stands at only 86 days, an improvement of about 92 days from a year earlier. Our focus towards ensuring timely cash collection and pursuing discounts to resolve issues is now paying its dividend. During the year, we have been able to release about $82 million of cash flows in the current fiscal FY24 by timely collection of current dues as well as recovery for the older ones. Turning to page 13, our balance sheet continues to expand and improve. Our cash balance stood at over $1.1 billion, excluding the $325 million, which was repaid in January of this year. Our project-level net debt was about $5.4 billion. During January of this year, we refinanced our $325 million bond, maturing in April 2024, saving 200 basis points and extending the maturity to 15 years.

Based on the current level of interest rates, we continue to evaluate opportunities wherein we are able to refinance debt at lower interest rates than the coupon on that debt. This year, in addition to the $8 billion MOU that we signed with PFC and REC, we have signed an additional MOU with ADB for about $5.3 billion of debt financing, bringing the total amount of access to capital to over $13 billion. These MOUs enable us in creating multiple avenues through which we can access debt at competitive rates and reduce the interest rate burden on our profit and loss account. With that, I would like to turn it over to Vaishali to talk about our ESG initiatives.

Vaishali Sinha (Co-Founder)

Thanks, Kailash. Turning to page 15, building on the positive momentum of the past quarter, sharing an update on some of the key ESG ratings and awards we have achieved.

We received a score of 79.25 in Refinitiv, which is an increase from our earlier score of 77 in fiscal year 2021-22. This is best among all electric utilities and IPP corporates in India for fiscal year 2022-23 and second among electric utilities and peers globally. We were also recognized as one of the top-performing companies by Sustainalytics, both as regional and industry leaders. We continue to maintain our CDP climate change rating to B, which is the management band, which is higher than the Asia regional average of C, and same as the renewable power generation sector average of B. In S&P CSA, our score has increased from to 53 from 41. We received multiple awards, including the prestigious Terra Carta Seal for actively leading the charge to create a climate and nature-positive future.

We also received the World Economic Forum Lighthouse for the second time for our leadership in Fourth Industrial Revolution technologies and highest category of recognition, which is Resilient, by CII Climate Action Programme, which is CAP 2.0. Social responsibility continues to remain integral to our business. Since 2014, we have influenced lives of over 1 million people across 500 villages across India, spanning over 10 states. On the right-hand side of the deck are some of the key programs, which also include employee participation. Under Lighting Lives Program, the electrification of 60 schools is under progress in partnership with HSBC. The climate curriculum was rolled out to 9,000 students. Project Surya, which is implemented in partnership with UNEP. Nearly 210 women have completed their training as renewable energy technicians who earlier used to work in the very hard salt farming area in Gujarat.

The ninth edition of Gift Warmth Campaign 2023 has benefited around 200,000 people. Back to you. Thank you.

Sumant Sinha (Founder, Chairman and CEO)

Yes, thank you, Vaishali. Turning to our annual guidance, we are raising the bottom end of our FY24 guidance range by 2% and now expect FY24 Adjusted EBITDA of INR 63 billion-INR 66 billion. As we said earlier, this excludes gains on sale of assets. On construction, we expect that about 1.75 GW-1.95 GW will be generating revenue by the end of the year. As some of our projects have received COD extensions, this presents an opportunity to sell power on the exchange at prices often substantially higher than the PPA tariff. With regards to our FY25 guidance, we anticipate sharing our outlook with investors during our fourth quarter FY24 earnings call.

We would remind investors that we sold 400 MW of assets this year that would have otherwise contributed around INR 2 billion in FY25, although the EBITDA contribution from the asset sale proceeds will be even greater in future years as the capital is redeployed. Lastly, we also anticipate being conservative on our weather assumptions in our FY25 guidance. While the weather trends have been better this year versus the prior several years, we are also focused on delivering on our promises to investors. With that, we will be happy to answer any questions. Thank you.

Operator (participant)

Thank you. If you wish to ask a question, please press star 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 are on a speakerphone, please pick up the handset to ask your question.

The first question comes from Nikhil Nigania with Bernstein. Please go ahead.

Nikhil Nigania (Director and Senior Analyst)

Hi. Thank you for taking my question and good set of numbers. My first question is on the competitive intensity. Good to see it come down, but I would be keen to understand what is driving it. Is it the sheer quantum of options, or is there some other reason why the competitive intensity has come down in the options?

Sumant Sinha (Founder, Chairman and CEO)

Yeah, Nikhil, hi. So look, I think you kind of posed the answer on the question itself. See, last year, as we said, about 12 GW of options happened. This year, that number is 40 GW. And so I would say that most of our competitors have pretty full pipelines right now, as do we. And because there are so many options happening, you can always win the next one.

And so I think for all of those reasons, the competitive intensity on any given project, on any given auction, has come down quite markedly.

Nikhil Nigania (Director and Senior Analyst)

Got it, Sumant. The second point then I had is on the module price crash, which would benefit us. So I wanted to understand how much of the pipeline is the module price lost, and for how much of the balance part will be able to gain from these low module prices?

Sumant Sinha (Founder, Chairman and CEO)

So you should assume that everything that we've been buying in the last three months and beyond will be benefiting from these lower prices.

Therefore, actually, if I were to take a step back, our decision to postpone execution of projects in the last financial year was actually because module prices at that time were $0.26-$0.28, was actually quite on the money because over the course of the last 12 months, module prices have fallen so much. So we are able to now commission these solar projects at tariffs, at costs that are significantly lower, 20%-30% lower in some cases compared to what they would have been had we done them earlier. So yes, from this point, from the last, I would say, 3-4 months, in fact, even, all the modules that we are buying now are with lower module prices.

Nikhil Nigania (Director and Senior Analyst)

So would it be fair to assume most of the capacity coming up in FY25 should benefit from this? Yes, absolutely. Got it.

But then, Sumant, there's a related point then. So ReNew's own module manufacturing plant, then how is that faring, and how is that being able to compete against this $0.11 watt-peak module prices?

Sumant Sinha (Founder, Chairman and CEO)

Because as you know, there is, first of all, a 40% import duty. So that takes that $0.11 up to whatever close to $0.155. And that is not very dissimilar to what the cost is if you import modules, pay the 25% BCD on a much lower number. The imported price of cells is close to about $0.055. So 25% on that is maybe $0.015, a little bit less than that. So it gets you the cells at about $0.07 here in India. And then the conversion price takes you up to about $0.15-$0.16.

So you're pretty much at the same level as you would be if you were buying modules from China. Now, also keep in mind the fact that ALMM was supposed to come in from this year, 1st April. So any projects that were not grandfathered will have to buy domestic modules going forward. And therefore. And are you also looking to. Modules from China or imported modules will not be there?

Nikhil Nigania (Director and Senior Analyst)

Got it. Are you also looking to export some modules like some peers are?

Sumant Sinha (Founder, Chairman and CEO)

Listen, our first priority is to supply modules to ourselves. So we will look at first doing that. And secondly, to the extent that we have any overflow modules, which we probably will have some amount this year, we will certainly look at selling that in whichever market gives us the best returns.

Now, keep in mind one more thing, that we'll also have our cell plant getting commissioned fairly soon. And that allows us to sell into the domestic DCR market, where also the tariffs are higher because those require cells made in India as well. And so therefore, we could do either of the two. We could sell projects with cells made in India into the DCR market at a higher tariff, or we could sell overseas. Now, we haven't to be honest with you, we are not sort of giving any sort of guidance on that right now because obviously, we want to prioritize our own requirements first.

Nikhil Nigania (Director and Senior Analyst)

Understood, Sumant. And maybe one last question from my side is then on the pipeline side, I saw some delay in the RTC project, got to see part of it commissioned. But I wanted to understand what is the reason.

And B, is transmission incrementally becoming a bottleneck, as you seem to be hinting in the presentation, for commissioning of future renewable capacity in India?

Sumant Sinha (Founder, Chairman and CEO)

So yes, I think one of the things that has happened this year is that because the amount of renewables is now crossing certain levels, the grid manager, which is really the Central Electricity Authority, has decided to really become a lot more careful about giving connectivity approvals and commissioning approvals to new renewable energy projects. So these processes of commissioning, therefore, are taking longer than they were taking earlier.

That is why you'll perhaps see that the amount of commissioning this year in the RE sector is, at this point of the year, lower than what would have been expected for the industry as a whole, largely because of these new connectivity and commissioning requirements that are sought to be now kept as a higher standard by the grid managers. And I think that's fair. It's a perfectly legitimate thing for them to do. But what that has meant is that the earlier process, where once the project was ready, we could turn it on and get it connected to the grid within a matter of 2-3 days, that process now is taking a lot longer. It's taking as long as 4-6 weeks now. And that, in some ways, is delaying the commissioning of new projects for everybody, not just for us.

The second thing that is happening is that the connectivity approvals into the grid, and I may be getting a little technical here, are also taking a lot longer than they used to take earlier because now, especially for these complex projects, which are getting commissioned for the first time or getting connected to the grid for the first time, the grid managers want us to meet very high standards, which require very extensive modeling of how the whole plant would actually operate under very many different circumstances and situations. And that, by the way, is also a very big learning for us because we have now gone through this process both for RTC and for Peak Power. And therefore, we are the only company that has gone through this process of what does this connectivity process actually imply and entail.

It chalked that up to another sort of strength that we now have on these complex projects. We've gone through that. Frankly, it's taken us almost 3-4 months to get some of these connectivity approvals, which used to take literally a month earlier. All of that has actually caused some delays in connections to the grids. That is why you see that we are now, over the next month or so, going to be connecting a lot of projects into the grid.

Nathan Judge (Head of Investor Relations)

Now, Sumant, you may want to.

Nikhil Nigania (Director and Senior Analyst)

Thank you so much.

Nathan Judge (Head of Investor Relations)

Talk about the yeah. Sumant, you may also want to talk a little bit about the opportunity to presale some of the power while we're waiting for those CODs.

Sumant Sinha (Founder, Chairman and CEO)

Yeah.

So, what's happening? One of the things that is happening is that because now this commissioning timeline has got extended, what we are being allowed to do is to sell the moment the plant is ready. We can sell the power into the merchant market while we await commissioning, the final commissioning approvals. And because that process can be up to a couple of months long, for those couple of months, we are able to therefore get the merchant tariff rather than the PPA tariff. And that, as you know, in a number of cases, is almost double the PPA tariff. So for the new projects that we are commissioning, we are actually able to rely, given this new process that has now been imposed, as I said, for good reasons.

But that is also therefore allowing us to generate higher profitability for a certain period of time by selling into the merchant market.

Nikhil Nigania (Director and Senior Analyst)

Understood. Very clear. Thank you so much for answering my questions.

Operator (participant)

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

Justin Clare (Managing Director and Senior Research Analyst)

Yeah, hi. Thanks for taking our questions. So first off here, you indicated that you expect to sign the PPAs for the 5.9 GW of capacity that you've won at auction year to date in fiscal 2024 in fiscal 2025. And then the commissioning for those projects is expected in, I think, FY2026 to 2029. I was wondering if you could give us just a little bit better sense as to when those projects might be completed. Can we expect it to be even over those years, or is it likely to be more of the capacity in fiscal 2026 and 2027?

And then how should we think about the timelines for projects after you sign a PPA? And is there more time available if it's a complex project?

Sumant Sinha (Founder, Chairman and CEO)

Yeah, Justin. Hello. So first of all, on your first question of when should these projects be commissioned, it partly depends on when the PPAs are signed because, as you know, the clock starts ticking from that point on. And typically, for complex projects, we have 2 years and we used to execute projects. But it also, to some extent, depends on when the transmission substations will get ready because obviously, we assume that based on the availability that is provided to us by the transmission operator, that certain substations will come up at certain points in time. So we make those assumptions, and we can get connectivity into those substations. Now, substations don't always necessarily come up on the time specified.

Some of them do get delayed. And some of them, in fact, are going to be getting ready beyond the two-year time period that we are given to commission the project, in which case the timeline for us does get extended to be aligned with the commissioning timeline of the transmission substation. So it's a little bit variable, therefore. And I hesitate to give you an answer on this. What we will do, however, Justin, is over the next few months, as we think through this a little bit more and as we get more clarity on the PPA signing dates, we will be able to get a firmer estimate. And we will try to share that with you perhaps in the next earnings call a few months down the road. So that was really. Yeah. Yeah. Yeah.

Nathan Judge (Head of Investor Relations)

Just remember, Justin, that those are not in our guidance or projections, right? So as Sumant rightly mentioned, as we sign those PPAs, then we'll have more confidence in the delivery schedules, etc. And we'll provide more granularity around that.

Justin Clare (Managing Director and Senior Research Analyst)

Right. Right. Okay. Okay. Thanks. Then so I guess just given the increase in the auctions that we've seen, significantly more volume here, how are you thinking about your annual capacity to build? I think in the past, you've talked about 2.5-3 gigawatts a year. Is that the number that we should be thinking about today, or is it possible that you would look to increase that number given the opportunity?

Sumant Sinha (Founder, Chairman and CEO)

Yeah. So the amount of megawatts that we can execute in a year is dependent on a few different factors. Of course, the availability of PPAs is one of those.

But it also depends, as you know, on capital availability and funding capability, execution capability, and so on. So I would say that 2.5-3 gigawatts is still a fair number to assume. And of course, in a given year, it may be more than that or a little bit less than that, depending on when is transmission coming up, what are the CODs like for different projects, and so on. So there will be some variability around that. But that is a fair assumption to make. I think also what will happen, Justin, is that as we see the number of bids continue to stay at a high level and the attractiveness of those bids continue to be fairly good, we will try to see how we can ramp up our execution capability over time.

But that is something that, as I said, we'll have to really do some work on. I think for the time being, making that assumption that the number that you talked about, I think, is a fair assumption to make.

Justin Clare (Managing Director and Senior Research Analyst)

Okay. Got it. Appreciate it. Thank you.

Operator (participant)

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

Puneet Gulati (Director of Equity Research)

Yeah. Thank you so much for the opportunity, and congrats on good performance. My first question is on your CapEx guidance. Given the fall in module prices, are you inclined to lower your CapEx guidance, or should we assume this is a still a realistic number?

Sumant Sinha (Founder, Chairman and CEO)

Kailash, would you want to take that?

Kailash Vaswani (CFO)

Sure, Sumant. Yeah, Puneet. So while we are likely to see some benefits accruing from that, we haven't factored that into the guidance yet because we would like to actually realize those benefits before we pick it in.

Puneet Gulati (Director of Equity Research)

Okay. And any indication of how much could that benefit be?

Kailash Vaswani (CFO)

So that benefit, depending on where the prices stay while we are executing on these projects, could vary in a range. And we can work it out, and we can share with you based on certain assumptions. Okay. And has the CapEx for the entire balance remaining capacity tied up, or will that also be tied up over a period of time? So for the large part of the capacity which is currently in execution, which is the Peak Power, the RTC project, and the pipeline that we are executing of solar and wind projects on B2B and SECI projects, that is largely tied up, which would be a total of somewhere in the range of around 10.5-11 gigawatts. For capacity beyond that, it's yet to be tied up.

Puneet Gulati (Director of Equity Research)

Sorry.

10.5 GW. You mean 2 GW additional over the 8.5, right? That's what you meant.

Kailash Vaswani (CFO)

Yeah. So whatever we are currently constructing is tied up. Whatever is to be constructed in FY25, for that, we are in the process of tying it up right now.

Puneet Gulati (Director of Equity Research)

Okay. And did I hear it right that in this quarter alone, you might be commissioning more than 1 GW?

Kailash Vaswani (CFO)

Yeah. Because as Sumant mentioned earlier, all the capacity is fully erected and ready for commissioning. It's just waiting for some approvals. And once we get that, then it will be commissioned. So of the 1.9, 800 is already commissioned, and another 1 GW is ready for commissioning. It will be commissioned in the next few weeks.

Puneet Gulati (Director of Equity Research)

Understood.

Nathan Judge (Head of Investor Relations)

And Puneet, just again, as a reminder yeah, just Puneet, as a reminder, about 1.9 gigawatts will actually be generating revenue by year-end, fiscal year 2024.

Puneet Gulati (Director of Equity Research)

Yeah. Understood. And secondly, you won 5.9 gigawatt of additional projects year to date. Of these, how much PPAs have been signed so far?

Kailash Vaswani (CFO)

Right now, Puneet, 400 megawatt PPA is signed. That is the project with MS. And the rest of it is currently under discussion. Yeah.

Puneet Gulati (Director of Equity Research)

Understood. And this is the total capacity, or is it the contracted capacity?

Kailash Vaswani (CFO)

So this will be the RE portion of the capacity. In some cases where it is RTC2, for example, or hybrid-type projects, then the contracted capacity would be lesser to that extent.

Puneet Gulati (Director of Equity Research)

Understood. Understood. That's helpful.

And lastly, if you can give some color on what's happening on the ALMM front and the ministry has put it in abeyance, what does it mean for you?

Sumant Sinha (Founder, Chairman and CEO)

So. Sumant? Puneet, hi. Yeah. So look, I think the government is still sort of thinking through exactly what the ALMM strategy needs to be. We had come out with an original circular which said basically that there were going to be certain exceptions. But we have now taken it back. And they're still sort of mulling around what exactly they would like to have because there are obviously competing interests here. So I think, look, we just have to be patient and wait for them to finally decide what they want to do. So I can't give you any guidance, unfortunately, on it. But as of now, ALMM is supposed to come in from 1st April.

Kailash Vaswani (CFO)

Okay.

Sumant Sinha (Founder, Chairman and CEO)

So in case no further announcement comes from the ministry, ALMM will get effective from 1st April? That's right. But the reality is that there will be something that will come out soon. So I think we just have to wait for it. But look, obviously, as both a developer and as a manufacturer, we are closely in touch with the government on this whole issue. Now, if they allow some relaxation of ALMM, to that extent, our IPP business will gain. And to the extent that they don't allow that relaxation, to that extent, our manufacturing side will gain. So I think we are pretty hedged on this situation at this point in time.

Puneet Gulati (Director of Equity Research)

Okay. And then lastly, if I may, the solar PLF this quarter is a little lower versus the last year, same period. Is there an issue on the irradiation side this time?

Kailash Vaswani (CFO)

No, Puneet, I don't think we can come to any conclusions from just one quarter. I think we have to look at the whole year before we can come to any point of view. So I think one quarter, you have these variations, frankly.

Puneet Gulati (Director of Equity Research)

Okay. Okay. Fair enough. That's all from me, sir. Thank you so much. Yeah.

Operator (participant)

Once again, if you wish to ask a question, please press star, then 1 on your telephone, and wait for your name to be announced. The next question comes from Maheep Mandloi with Mizuho. Please go ahead.

Maheep Mandloi (Director of Clean Energy Equity Research)

Hey. Good evening, everyone. Good morning, Kailash. Thanks for the questions. Just quick housekeeping on the guidance increase for FY24. Could you just confirm that that's mainly due to the merchant sale before final commissioning you talked about, right? Or is there anything else on the guidance increase here?

Sumant Sinha (Founder, Chairman and CEO)

So on the guidance increase. Yeah.

Yeah. Yeah. I'm just yeah. So on the guidance increase, really, as we're getting closer to the end of the fiscal year, obviously, there's more visibility on what we are tracking against and given the experience that we are having on the resource side and on the expense side, both, which is helping us revise the guidance as close to the reality which will actually pan out. So that is what's driven the increase in the guidance, not really anything to do with merchant sales as of now.

Maheep Mandloi (Director of Clean Energy Equity Research)

Got it. And any idea how to think about the incremental liquidity generation from selling power in the emerging markets next year?

Sumant Sinha (Founder, Chairman and CEO)

I'm sorry. Can you say that again? The line is a bit not very clear. Hello?

Maheep Mandloi (Director of Clean Energy Equity Research)

Hi. Can you hear me?

Kailash Vaswani (CFO)

Yeah. The line is not really good, unfortunately.

Nathan Judge (Head of Investor Relations)

Yeah. Yeah. Go ahead, Maheep.

Maheep Mandloi (Director of Clean Energy Equity Research)

Sorry. Yeah.

So no, any guidance on how to think about the incremental liquidity from selling power in the merchant market next year?

Sumant Sinha (Founder, Chairman and CEO)

So guidance on merchant market next year. Is that the question, Maheep?

Maheep Mandloi (Director of Clean Energy Equity Research)

Yeah. The incremental liquidity generation. You kind of talked about the opportunity to sell in the merchant markets, right? So just trying to think through how does that impact the operations in Q4 or next year.

Sumant Sinha (Founder, Chairman and CEO)

Yeah. So look, I think that to the extent that so first of all, as you know, we keep our exposure to merchants somewhat within the 10%-15% level of our total portfolio.

Now, what's happening is that some of these opportunities where we are able to intermittently sort of or initially for two or three months sell power into the merchant market before we sell it into the PPA, those are opportunities that we are trying to capitalize on wherever they occur. But since we haven't yet given you guidance for what the base case would be for next year, it's very hard to sort of give you a sense of what the extra revenue might be out of merchants for next year. I think we'll just put all that together and then give you guys some sense of all of that, as we'd said in the June call when we do the full year results.

Nathan Judge (Head of Investor Relations)

And Maheep, just. And I'd appreciate you adding a little bit to that as well.

One thing that we obviously are flagging is that as we give guidance, we will want to start the year with conservative expectations, right? So what we're saying is that there could be a significant opportunity, but we will likely take a more conservative view with our initial guidance there.

Maheep Mandloi (Director of Clean Energy Equity Research)

Gotcha. And then one question on the manufacturing front. Your line's right now, Mono PERC, if I'm not wrong, right, in India. And we keep hearing increased oversupply on the TOPCon side growing in Asia. So any thoughts on that competitive pressure, even when ALMM comes into effect in next year? Would that require you to upgrade your lines or any thoughts on the technology here?

Sumant Sinha (Founder, Chairman and CEO)

Yeah. So look, the situation is that the module lines require relatively little change to move them from Mono PERC to TOPCon, okay?

And it's something that can be fairly quickly done without significant CapEx. So that is something that we will be looking at doing over the course of the coming year. As far as our cell line is concerned, that cell line right now is a Mono PERC cell line. And our sense is, of course, that Mono PERC will continue for some more time. And so to that extent, we will continue to operate this line as a Mono PERC line. Keep in mind, it's also only 2.5 GW of cells versus 6.5 GW of modules. And as the market moves more to TOPCon, then we will consider adding if we decide to add more cell lines, which we have to wait and see, then those we could move towards TOPCon.

At this point, we will continue to operate the Mono PERC line of 2.5 GW of cells. The modules, we'll keep 2.5 to accommodate the Mono PERC line. The balance, we will move, as I said, at negligible cost to TOPCon.

Maheep Mandloi (Director of Clean Energy Equity Research)

Yeah. I appreciate the call, Anunay. I'll take the rest of it. Thank you.

Operator (participant)

That does conclude our Q&A session, and we'll conclude our conference for today. Thank you for participating. You may now disconnect.