ACME Solar Holdings Limited (ACMESOLAR.BO) Earnings Call Transcript & Summary

See, Dhruv, you are right on the numbers in terms of the structural. But how it works is the regulation, basically, it's a regulated sector, right? So, you are right in terms of the, let's say, supply-demand maths. And of course, there will be an impact of battery, which you rightly said it will be adjusted. But the thing is there is a difference between curtailment and payment. So, in terms of our revenue, because of the regulations, there is no impact because this was made keeping in mind the must-run status of renewables, keeping in mind that the revenue need to be paid because nobody is at fault here in terms of the developers. So, there will be no revenue impact. Of course, on the net -- and the states also -- and the buyer will get whatever units they are getting because it's at the central grid. It is not a one-to-one correlation between the supply and demand. If it was a one-to-one correlation, and we were not on the national grid, let's say, it was a C&I thing, which is the buyer is curtailing us, that is not the case. It is a grid stability thing. So even despite this supply/demand, there will be no impact on the revenues.

No, the other thing I think you should know, Dhruv, that the government is adding -- government and state -- central government and state both are adding large amount of the batteries. And these batteries, what they are doing is, as you rightly said, 12 gigawatts, even if you add 25 gigawatt of solar, if you add enough battery technically, it is 6, 7 gigawatt of round-the-clock power. So, what most of the states are doing, they started with 2 hours of battery, they now 4 hours of battery. Now they are talking of 8 hours, 10 hours of battery as the battery prices have come down. So, you will see that more or less they get optimized. And the government is also thinking this by giving them this VGF. So from the central government, instead of building additional transmission capacity, they found out that giving this VGF is for the battery will -- what will happen is it will also create additional capacity from existing grid.

So, in terms of the 2 facts, the Power Grid is also building the ancillary batteries on a large scale. They have come up with a tender for -- in South, they are building their battery. Power Grid also has a plan to put batteries. And NEP has a 300 gigawatt hour plan by 2030 for the battery. So of course, everybody is aware of this issue. But as far as we -- our payment is concerned, that is not at risk.

Sure. No, sir, just extending -- sorry to just extend this a bit. I understand the batteries will happen in this, but the only risk that we see, at least from a few years' perspective is that the bids that we have seen in batteries are extremely -- probably it's for an external guide seems extremely -- some of the players have bid extremely low. And given how the battery prices have changed, some of these bids might not actually convert to physical assets. And that realization will happen over a period of time and the states will then rebid and all those things will happen. So, this creates a timing gap, probably, I don't know, 2 years, 3 years or probably it can be lower. So during the timing gap, can this be a thing -- I understand you are assured because of your payment and there is a difference between dispatch and your payment. But if the quantum keeps on increasing, do you have a pushback from the system that this is too much now, we can't handle this. So just trying to understand how the system works.

No, of course, of course. It's a very valid problem, which -- see, there is a lot of discussion going on about converting the existing solar into battery and freeing up the existing connectivity, which is there at ISTS. So, there are various solutions for reducing the peak supply of solar power because we have around 52 gigawatts of CTU-connected renewable today. And this 52 gigawatt of solar and wind, out of which wind is only 10 gigawatts, can be converted into peak power in the existing construct of the PPA. So, there are some low-hanging fruits in terms of solving this problem, which everybody is mindful of. So, there is -- and in terms of the bids, there is a large capacity coming up from credible developers in terms of the FDRE, in terms of the peak power. If you even adjust the state-level bids, which are there, and that is mostly at STU. The state-level bids where you are seeing excessive competition, they are mostly at STU. And they are not at CTU. We are talking mostly about CTU here, right? Because our playing field is CTU. So there, you have not seen those kind of bids and those kind of irrational competition because that has happened at the state level where there is a VGF. And so there is -- you should separate the 2, the credibility of the developers doing the CTU projects, the power grid, which is highly credible and the developers which are doing not stand-alone batteries, but battery come solar, which will require extensive connectivity, extensive land purchase. So, the issues you are seeing is mostly on the STU level bids at the state substations. And plus, the government is mindful of the CTU level issue, which they are trying to solve.

Got it. And just one quick question is on Slide 7, you mentioned about connectivity inventory for upcoming bids. So, this is over and above the LOA bids you have, right? I mean, for the future bids that you will be placing, this is connectivity for that.

Yes, yes. You're correct.

The next question comes from the line of Nikhil Abhyankar from UTI AMC.

Yes. So, a couple of questions. So first related to the BESS system. So, what are we exactly targeting? Will we look to cater to both the morning and the evening peaks? Will we be able to do any terms more than once through the system?

Yes, yes, we can do that both. It depends on -- because what we are trying to get is we are trying to get arbitrage of the cheap power versus the peak power. So, if the morning arbitrage, for example, in the morning time, solar time, we charge the battery, we will be able to do in the evening. Even the nighttime, especially between 12:00 o'clock to 2:00 o'clock, again, the power cost goes down, we can charge it and do it in the morning. So, we are flexible. Our batteries, actually, they are designed to work for 2 cycles.

And this guidance of INR 170-odd crores was based on 1 turn of more than 1 turn?

Yes, it is based on. If you do 2, it will be double.

Sure. And sir, just a continuation to that, will this early commission for BESS system impact our IRRs for which the BESS is being procured? I mean, the life of that system is considered to be around 11, 12-odd years. So early replacement will it impact the project itself, the project IRR?

No, no, it is not. In fact, today's modern batteries, they are actually designed for 18 to 20 years. And in fact, they are designed for 1.6 cycles a day. 1.6 cycle a day means someday 2 cycles, someday, 1 cycle. In our business model, normally, we have kept is 12 to 13 years of replacement of the battery. So technically, we are not affected for 1 year, 1.5 years of this operation.

And in terms of the battery replacement, when we talk, it is a cell replacement only, the associated infrastructure does not need to be replaced. And secondly, when we are realizing revenue early, we are making a good IRR on that particular CapEx. So that will also add up to the utilization because this is good EBITDA for the CapEx done.

And just on the under construction portfolio. So, can you just give us the time lines in terms of tech capacity, which you expect to get commissioned say, in next 2 years '27 and '28 and the related CapEx as well?

So yes, like we said, 1.5 gigawatts is likely to happen by FY '27, right? And in addition to that, around 2 gigawatt hour of battery, which is, of course -- so these are the best is part of it. So 1.5 gigawatt by FY '27 and 1.1 gigawatt by FY '28. So, let's say, we have around 2.6 gigawatt of signed PPAs, right? Because let us track the signed PPAs because as and when PPA gets signed, we can upgrade this thing. So, let's simplify things. So, FY '27, 1.5 gigawatt, FY '28, 1.1 gigawatt. And in terms of CapEx, CapEx is around INR 12,000 crores for this FY '27 till capacity, and you can say around INR 10,000 crores for the 1.1 in FY '28.

And this includes the BESS cost as well?

This includes the BESS cost as well, yes.

Okay. And sir, on the unsigned PPA projects portfolio, do you expect any movement or I mean, not really?

No, no, we do expect a movement. We have tried our best to accommodate the status also in the presentation. We have said that in the near term, 770 megawatts of additional PPA signing in addition to what we have done of 450 megawatts. So, we expect those to move for reasons we mentioned earlier during the call in terms of the attractiveness of -- because of the ISTS waiver, which is currently going on, the timeliness of land purchase and every availability which the supply side has. So, we expect the movement and also because of the less bids which are coming off a similar sort of construct. So, we expect these PPAs to move and last states to buy.

Okay. And just a final question. of the current under construction portfolio, can you give us how much DCR modules will you require in the next few years?

We don't need any DCR.

The next question comes from the line of Yogesh Patil from Dolat Capital.

I have a couple of questions. Questions related to again connectivity. Till date, we have 6.1 gigawatt kind of capacity is under PPA. If you could give us how much of this capacity is having a GNA approvals and temporary GNA approvals at this stage? And correct me if I'm wrong, correct understanding that all of our PPA signed capacity has a full GNA access?

Yes, yes. So basically, you get in-principle approval, then you get a final approval. That is at the, you can say, pre-build-out stage, right? So, we have got the connectivity approval for the whole capacity where PPA is signed. And this GNA, whether it is a short term or a long term, is operationalized when the system is built, right? So, when your system is fully built, you get a long-term GNA. And in terms of, let's say, if there is any element which is not complete, you can get a short-term GNA and you can supply power. So, this connectivity agreement operationalization is signed when the -- it is built out. So right now, we have connectivity, full connectivity allotted for the PPA signed and unsigned both, like we said, and we have excess inventory of around 7 gigawatts of additional connectivity. This GNA, of course, we have dates for each and every substation within the time lines we are targeting. And that is why we have -- given the current schedule of those transmission lines, we have scheduled the CODs. And also, in terms of a regulatory point that if there is a delay due to any element of the transmission line, there is an automatic extension given in the PPAs for that sort of delay, which compensates. And we also track. We also track on a monthly basis actual site visits to that CTU substation, where are they in terms of the actual progress of that transmission link. And of course, if there is a delay at the end, we adjust our CapEx to save on the IDC. So, in our existing ongoing projects, we are fully tracking that, and we have synced up our transmission -- our commissioning dates as per that.

Yes. So, the second question need a small understanding on procurement of the equipment for the project. At the time of entering into the contract with the equipment supplier from India or China, do you sign the contract generally in case of Indian rupee terms or U.S. dollar terms?

So with all the Indian suppliers, and it includes the Chinese suppliers who are based in India, like the turbine suppliers, the transformer suppliers, the inverter suppliers, there are actually quite a lot of Chinese suppliers who have manufacturing or assembly in India. So, they are all done in rupees. I can give you examples of a lot of these suppliers who are Chinese, but based in India, so they are all rupee. Most of that is rupee. The only bit which is done in dollars is the batteries. Batteries and cell by the module supplier, not by us. So, the only thing which is done is the batteries. And in some cases, we have tried and bought, you can say, GIS, which is again bought out from India, again, from a Chinese supplier, but they have -- they are billing it from India. So only batteries is in dollars, rest is all in rupee.

Okay. And the last one, do you sign the fixed price contract with the equipment supplier or a flexible price contract? I mean the solar module raw material prices goes up, goes down, who takes the losses or the profits of this contract?

So, we have realized over a period of time that signing these flexible contracts have not much value because the -- sometimes because of the regulatory changes or any change, these prices are difficult to hold even if you take, you can say, a CPBG or any sort of regulatory mechanism, it is difficult for anybody to service. So, we always sign a fixed price contract with no linkages. And these are all short-term contracts wherein the supply starts from, let's say, maximum couple of months, including the shipping time. So -- and we try and sign with the large suppliers who have such kind of monthly capacities, such that, they are able to service a large volume within a month of production. So, we don't sign flexible contracts.

The next question comes from the line of Sourabh Arya from Oaklane Capital.

Congrats on good set of numbers. A couple of clarifications. The first one is the green-shoe, which we have won with NHPC. So just want to understand this was not part of the last year presentation -- I mean to say last quarter presentation. So, is it like a new thing one should consider?

Right, right, Sourabh. So, you're right, it was not part of our presentation because see, green-shoe is something which is -- which happens later than the original allotment. Our PPA, as you know, got signed for the original allotment quite a long while back. So, we had no clarity on the signing of this PPA till the time the regulator, the NHPC told us that they are seeing the demand for this power considering the connectivities we have, considering the availability of supplying power we have. And then very short term, we were able to get this signed. So -- and this happened between the last quarter and this quarter. So that is why we are updating because till the time we don't take greenshoe projects until they fructify because that is something which is tentative. So that is the reason they were not part of our last presentation.

But then let's say, you are already building this project, and it had a scheduled time line of June '27. So, would this be accommodated at same place in terms of connectivity, land and everything? So how can the planning be so quick within a span of 12 months or something, which is just one?

So see, as we have told you, we have got connectivity for even 7 gigawatts post this -- post the allotted this thing. So, we have -- we are not treating the under construction projects and the PPA signed projects as far as the land and transmission line are concerned because they are long lead items. And connectivity, of course, without connectivity, you can't hope to be in business, even bidding is not advisable. So we have land transmission line, right, which is going on. And also, we have, let's say, long lead items also like a power transformer order because we are very confident that these things will happen. If this PPA does not get signed, the other PPA can get signed. So, when we plan a project, we plan a particular set of sites, which we keep on developing. Of course, we don't order batteries, we don't order modules and we don't order -- we don't take any financing till then we push through our equity. So -- and this is not certain. These are all sites which are developed. When we are telling you that 770 megawatt of PPA will also get signed, right? So, for those sites also, we have the land and transmission line because -- see, because of this transmission waiver thing, you need to do that. If you don't do that, you will not get a customer for your PPA because the customer wants the power before the June '27 or before June '28 because these are the time lines. Post June '28, everybody is equal, right? Because there is no differentiation in terms of the transmission waiver, and it reduces the attractiveness of the CTU connected projects. So, it is important to do that, and we have been doing that.

Sure. And if you could break up the 770 megawatts, which is further PPA signing you are expecting, is it -- does it pertain to old projects or new project?

So yes, the 770 megawatt is a mix of old and new projects. And of course, like I said just before this, it's a function of the preparedness. When a state is looking at the -- of course, he looks at his own requirement in terms of peak power. So, all these have a peak power element. And also, they have a high peak power element. Basically, they look at the mix of how much peak power are you able to supply, how much wind power also sometimes they have peculiar requirements depending on each state to state, depending on their power profile. So, it's a mix of old and new projects. And of course, it's based on their requirement and also the time lines in which we are able to supply and the readiness because see, a lot of states have procured power, which are not coming on time because of the connectivity delays, because of the land delays. So, they are really trying to see whether you can deliver that power within the time line because everybody is very conscious about these time lines now. So, this is a mix of old and new. We have not disclosed the exact thing because we would like to disclose once the PPA gets signed. But of course, they are in advanced stages of regulatory approvals.

The next question comes from the line of Pradyumna Choudhary from JM Financial Group.

Just one question regarding the project cost, like in your PPT as well and in your opening remarks, you spoke about the equipment currently being ordered within the budgeted cost. So, what really do we mean like by this budgeted cost? Like what sort of target IRRs or the budgeted project IRRs are we assuming that would help us get more sense of the kind of prices we are bidding for?

Sure, sure, sure. So, we take care of high-teen returns. That is the threshold we have that we don't bid for anything lower than 16% return. I think we mentioned that in the past also. So high-teen returns is our threshold. And when we look at for us, let's say, a 1.5% movement is a very significant movement in IRR. So, when we say there is no impact, it is less than that usually. And in terms of the CapEx, so like we said, we have changed our strategy basis, let's say, preponing the batteries to utilize that CapEx we are not -- we are able to order batteries at a short time because we have connectivities which are operational and which can take batteries. See, nobody will be able to keep batteries for more than 6 months because they degrade, right? And because there is a CapEx involved, there is interest during construction. So only a developer who has -- who can make them operational will be able to get those batteries. So that is why these returns are not impacted because we are able to get those batteries because there is so much capacity established in the world, primarily China, which -- so there are very few guys who are able to take deliveries, let's say, in March, April, May, right? That is how world works, right, in terms of what actually can you take. There may be somebody who is willing to give them an order for next year, but they will not put a price for that guy.

All right. But, like my concern relates more to the fact that the tariffs have already been decided. And I'm assuming the batteries or the solar modules are ordered towards the end of the project CapEx, right? So there, how are we really protecting ourselves -- even there, we are within the budget and especially for where 50% of the remaining -- like you said that, 50% we've already ordered and for the remaining 50%, it's still yet to be ordered. So, what are plans for the remaining 50%?

Right, right, right, Pradyumna. So why do we say that we are within budget is because see, the policy change, there is a policy change in China, right? So, post that policy change in April, we have April delivery, which is happening at a price which is, you can say, much less than the budgeted cost, which is a high-teen returns. So that is why we are saying that we are within budgeted cost because the marginal delivery we are taking in April, basis the April price post the regulations is also well within the range. And 50%, of course, we have procured where we are installing them. That is well within the range also. So that is -- on that basis, we are saying that we are well within the budget.

Understood. And on the PPAs, I believe now around 800 megawatts to 2,000 megawatts is what we don't have near-term visibility, right, like where we are yet to sign the PPAs and there's no near-term visibility. So, what sort of time lines are we looking there? Especially when you say that we have a near-term visibility for, say, around 750 megawatts. So, by near term, you're meaning the next 3, 6 months, is that what is reasonable to assume? And what about the remaining months? Again, the reason -- if you can just repeat the reason you gave for us expecting acceleration in PPA signings. I didn't -- I know you answered to one of the previous participants, but I didn't really understand it. So, if you can just repeat the reason as well?

No problem. No problem. I completely understand your query. So, in terms of the beyond 770 megawatts, right, there is a very -- when we say near term, we basically say that when there is a buyer approval. Basically, the first thing you need in a PPA discussion is the buyer approval, whether they are okay to take that offering or not. So, we have buyer approval for this much capacity. We don't have written buyer approval for the rest of it. That is why we did not say near-term number. But there is a very good chance of those PPAs also getting signed in the next quarter only, right, which is around 700 megawatts more other than 770 megawatts. And why did we not put it? Because there is no written buyer approval we have, right? And there are differences in how each state procure power. Somebody takes a prior regulator approval, somebody takes a post-signing approval. So, there are various stages in a PPA implementation. The PPA gets signed, somebody takes a prior approval, which is good for us because it includes definitiveness. Somebody takes a post facto approval, that is also fine. We have to go along with it. So that 750 megawatts more of FDRE hybrid PPA, that is again at a very advanced stage. And there -- and also, there is a time line difference between each state. So we have not put it because we only want to put it where we have a buyer consent, but there is a 700 megawatt more of PPA, which is under advanced discussion, but I don't have a written thing to write. So that is why we did not write it.

Understood. And the reason you were saying that overall in the industry, we are expecting the PPA signings to accelerate, could you just repeat that again?

Yes, yes. So, the reason primarily is that these set of players who have won these bids, right? Of course, they are serious players. And they have made -- because see, they have made significant investments on getting connectivities, on offering earnest money deposit, performance bank guarantees, and they have got huge fixed cost in terms of teams. So, most of the players who have won these bids, 42 gigawatt of bids are quite serious about building those projects in 2026, '27 and '28. And this is the period which gets you ISTS waiver as a buyer. Basically, you are aware that ISTS waiver is expiring on the central grid in '26 in phases. So the states find it and states which don't have a good renewable at their own state. They don't have flexibility to build state connected projects because they are expensive because the sunlight is not there. So those states, particularly, will be very keen to buy these CTU connected projects, which have a transmission waiver element built in. And who can supply to them. Nobody where the bid happens today will be able to supply with the ISTS waiver in hand, right? Because the bid cycle itself is very long. They take 90 days to do an auction and then there is an LOA, there is -- and there is, of course, the element of buying the Chinese cells or Indian cells also, which makes the price slightly costlier. And of course, it will take time. So, because of the preparedness of the supply side, and also on the demand side, this ISTS waiver expiring, these 2 are making an attractive win-win proposition. The only hitch which was coming was there are concurrent offerings of similar kind outstanding from various bidding agencies, which is making the choice difficult for these buyers. So that is the reason the PPAs were taking time because it was actually done let's say, on a stand-alone basis by all 4 agencies, which created a sort of glut of supply of these PPAs, which leads to delay. So as people choose what they want to buy and the suppliers also customize their offerings and choose what they want to sell, how it will be attractive to the buyer. I think it will clear. And of course, the power demand in last year also plays on people's mind that how do I see the power demand coming up. So, some of these -- and of course, there are elections every state every year, we have some election, which also delay these things. So -- and there is a cycle itself, which takes time. So, we are expecting these things to happen because of the preparedness and also because of the regulatory ISTS waiver thing.

And usually the ISTS waiver, how much on a per -- like in terms of the tariff can cost additional once for the projects commissioning post '28?

So see, there is -- each state has a different sort of charges depending on how much their transmission infrastructure is utilized currently. So, on a -- let's say, if there is no rebate, the power -- it could go to up to INR 1, more than INR 1 if there is no rebate.

For solar, actually, this will be at a different. So, for example, if it is only solar, it may go up to INR 1.31, INR 1.40. If it is solar plus battery, it can come down to INR 0.80. If it is FDRE, it can further come down to INR 0.30, INR 40. That's why you will see more and more power is round-the-clock power or FDRE to reduce the impact of the FDREs to reduce the impact of ISTS waiver in future.

It's very substantial. For each state, we have seen, it is very substantial because NHPC and SECI and all these agencies are very mindful that can you give it before '27, '28, and it is very important. We have not seen a state who does not care about it.

All right. And my last question is regarding the under construction projects. So are we -- like, of course, our execution has been brilliant. But on the grid construction, are the grids also corresponding grids, are they coming up on time? Or are we expecting certain delays over the next couple of years, the projects that we've planned to launch commission?

See, there was -- it's a very, very hotly reviewed project thing at all levels. So, in terms of the planning of these transmission projects, there are a lot of changes which have happened over the last few years. They have given a, let's say, earlier, they used to plan it in 18 months. Now they are giving a 24- to 30-month period to the transmission period. They are planning it early. They are coming up. So, this gives a lot of time for these guys to come up on the committed time and not getting extended. So of course, there -- what we are seeing is we have kept a buffer of a quarter delay in all our planning. So -- and of course, this can happen because depending on what are they upgrading, right? In some cases, they are building a transmission line. In some cases, there is no transmission line. So, if there is a transmission line, there could be, let's say, a 1 quarter delay because of RoW issues and other things. But if there is a local installation of, you can say, infrastructure, electrical infrastructure only, then the delay is very much unlikely because these are a local execution. But by and large, we track the various cycles of these transmission infrastructure, and we don't see a delay in where there is no transmission line. But where a transmission line, a 3-month delay can be there. And we keep on monitoring our CapEx as per that. If we foresee that it could extend, we defer that CapEx. And also, we can take the strategy of -- we have already done that, right? To hedge that risk, we had called batteries at the operational substations. We have broken the plant into 2, right? The batteries at the operational substations where there is no risk at all and then the modules at those plants where the new infrastructure is coming up. So, you can take multiple ways to solve this problem because this is beyond our hands.

Ladies and gentlemen, due to time constraint, that was the last question for today. I now hand the conference over to the management for closing comments. Thank you, and over to you, sir.

I would like to thank you. Thanks to all of you that you had a very, very important question you asked us, and I hope my team must have given you the inputs. If there is any further input, we will be very happy to provide. We can assure you that, we are working on the technology. We are working on the execution. We are working with the government on the policy advocacy, and we are also working on the regulatory framework. So as a company, we believe we are not only just doing execution. We are also creating a policy framework for entire industry, and we are also doing something on the technology side. I think I must have shared with you in my last presentation that we are already testing perovskite technology. And we believe that, that will be very useful in the coming years. So, we have already started that will give the industry as well as ACME as an input to see that the -- whether the technology moves from the current silicon-based to perovskite based. We are also doing robotic installation. That is one of the challenge in this industry. If you want to increase from 1 gigawatt or 2 gigawatt per year to 5 gigawatt per year, one of the biggest challenge in the industry was how to install 5 gigawatt, 6 gigawatt of modules manually. So, this year, we are doing automation of that. We have created a very special innovative -- very special team only focusing on the future technology, which can help us to install without the manpower. So that's a robot -- we are doing that automation and implementing robotic. That's the second thing we are doing. Third thing, we have applied for the patent on the 2, 3 areas. That is also one of the significant improvement by our R&D team, where we will be working on the optimization of the battery, renewable wind, so we can provide almost like a baseload power to the baseload power, similar like nuclear or similar like this one and much cheaper than thermal or nuclear. So those are the areas ACME always is known to work on. And I can assure you, we'll be continuously working and taking it forward. Thank you.

Thank you. On behalf of ACME Solar Holdings and Motilal Oswal Financial Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.