Adani Green Energy Limited (ADANIGREEN) Earnings Call Transcript & Summary

Yes. I think the controls of the project are such that it is close to 4 years. And it depends on availability of evacuation and other parameters. So yes, I think we have LOA and I think we are making progress towards finalizing the agreements and so on. So yes.

Got it. Just last 2 questions is bookkeeping ones. There's a big other financial liabilities number which we could see go up from INR 1,600 crores to INR 4,600 crores this quarter. Could you please clarify what is that element?

I'm going to pass on to Saurabh. Saurabh, if you can...

This is primarily on account of the CapEx-related liabilities. It is primarily related to the construction.

Got it. Understood. And one last point, this I think we discussed a bit earlier as well on the non-controlling interest, which went up this quarter. Given the news on TotalEnergies' further investing in the JV of the group, while it definitely gives confidence of Total in the company, wouldn't this number again go up in subsequent quarters with that investment?

It will keep on going up. So in a 25-year project life what happens is the debt has an amortizing structure. So the interest cost keeps on going down through the years. And for this particular portfolio, because for the JV portfolio, if you remember the 2.3 gigawatt was formed in 2020 and the assets were constructed before that. So what has happened is debt is significantly amortized for those assets. It also has slightly higher tariffs, because these are older projects. So that's why the contribution, it might seem that it is increasing, but it's basically that's how the renewable project model is built. And this will happen for other projects also in the portfolio that we have under AGEL dedicated direct PPAs.

See, two key things to note further here. We have been saying that you have to look at the RE project on EV-to-EBITDA over the life of the project. So now what is happening is as the debt is being paid, your EV-to-EBITDA is moving towards a 3 or less than 3 kind of an average EV-to-EBITDA. So that's what is happening and you are seeing the impact in terms of higher profitability for the projects which are mature. That's one.

Raj, I think you want to say debt-to-EBITDA, not EV-to-EBITDA.

Debt-to-EBITDA. Second thing, I think what is important is from an overall portfolio perspective, the three JVs or three transactions, which we have done is roughly 4,500 megawatt in terms of capacity. So on a 50 gigawatt, on a fully built-out basis, you will have this JV at 4,500 megawatt and attributable capacity there will be 2,250 megawatt on a 50 gigawatt basis. So, obviously, the EBITDA would be broadly around that in terms of attribution to Total and the profitability in long-term would also reflect that.

Thank you. The next question is from the line of Ketan from Avendus Spark. Please go ahead.

If you can share the margin realization and merchant market volumes for the quarter, number of units?

I think if you look at the merchant for the quarter, I think the market has been, We can sell our power both in DAM and GDAM markets. So for solar, I think it has been around for Q2 its around 2.59, and Q1 was 3.11. And for wind, it was a very impressive 5.81 for Q1 and 5.06 for Q2. So on a H1 basis, I think the numbers are 2.85 for solar and 5.43 for wind. And these numbers tend to improve in the next quarter and the following quarter. The last quarter was a bit unique because of very high delivery of hydropower into the grid, the numbers were a bit subdued, but that is a bit of a unique situation because of excessive monsoon. And so we're expecting the prices to recover from and go back towards what they used to be.

Understood. Sir, also, why you see prices in GDAM to be higher. I mean, there's a gap between PPA prices recovered around 2.5 [indiscernible] and prices on GDAM comes around [indiscernible]. So why is there a gap? Why is purchase bit higher than GDAM?

Sorry, we're not able to follow your question very well. There is a bit of an echo on the line.

Can you hear me now?

Slightly. But speak slowly, I think it will be helpful.

Sir, my question is on the price difference, like in merchant markets on GDAM, the realizations are at around about INR 3. And the realizations on PPAs is around INR 2.5. What explains the gap?

So I think this is obviously the near-term markets are more reflection of the current demand and supply. And the forward market in terms of 20-25 years fixed-rate will obviously have the assurances being built into in terms of pricing, the offtake, the credit which you get and the certainty, which is there developers are offerings at a lower price. These are two different markets and has different risk profile and reward profile. And that's where we have been guiding that we will have a percentage of our overall portfolio in one profile and few other in the -- few other markets for other part of the capacity. And PPAs, they will be a significant part of our capacity. So it's a question of product mix, what someone want to play. For us we are optimizing that for the maximum shareholder returns.

The next question is from the line of Nikhil Abhyankar from UTI Mutual Fund. Please go ahead.

So I wanted to understand whether -- we haven't seen you participating in utility-scale tenders for some time, but the activity has picked up a lot in the last 18 months. So should we expect you to start participating there for some of the complex projects, the pricing is very good.

I think we look at each project as an opportunity. And we want to be very clear that our strategy is twofold. We want to maximize our run rate and execution, and we want to fill our pipeline of that execution with highly accretive returns of projects. And when we look at those returns and the projects in some of these complex standards, as you mentioned, on the face of it, the pricing might look nice. We analyze them in detail and we make sure that we participate in the ones we can maximize and high-grade our portfolio. So we look at each opportunity in that way, and I want to bring your attention towards, for example, battery storage solutions. The battery prices have fallen quite rapidly in the last 6 to 9 months. And there are a lot of solutions, which we are curating and we are working on quite actively, which you will see, we will be participating both in the market and also in merchant opportunities and maximize our returns. At our utility scale and having the benefit of large scale projects availability in Khavda. We have an opportunity to use the nighttime connectivity and maximize our returns. So we look at each of these opportunities individually and we participate where we can add value. And we are participating in hybrid. We are participating in some storage-linked solutions, RTC solutions, and that will be our approach.

Understood. Sir, what exactly are your views on the battery prices? Is it structurally in a downward trend or do you think that is a short-term phenomenon?

I think there are two things. One is it has definitely benefited from what's happening internationally, especially what happened in China. So the battery prices are going to come down. But very importantly, the research work going on, on the battery chemistry to improve the number of cycles of these battery systems will also improve the unit cost of these batteries. So we should look at this in twofold. One is the material side of things, the cost side of things, and the second is, the improvement in chemistry, improvement in cathode, which will further increase the cycles and hence reduce the unit cost of a cycle for battery systems. This downward trend is going to be a long-term downward trend, and this will greatly benefit our renewable sector in India and internationally as well. So we are very excited, we feel that we will be benefiting from this trend, along with some storage projects we are commissioning and this will absolutely add extra [ sense of wins ] to our platform.

Do you think that if this downward trend in the battery prices remains or continues, say, for the next 1, 2 years, BESS will be the preferred choice over PSP and PSP won't be required at all?

No. I think you should not look at it like this. I think India requires both. And if you look at the BESS, typically their current life is what? 12 years, give or take. These battery systems deteriorate quite quickly. And if you look at the unit cost, it is still almost 2x on an LCOE basis for green power from a battery system. So PSP can be almost half the price of a battery system. And then you will have issues of battery system after 12 years. How do you dispose them off. And these pump storage projects have a lifespan of [75, 100 ] years. Pump storage has inertia, brings voltage control, can discharge 6, 7 hours straight away. So a lot of applications of these storage solutions are going to be different. We are going to maximize both, India needs both, and we will make sure that we take full advantage of that.

Sure, just a final question. This 5-gigawatt that it was a blended tender for thermal plus renewables. So are there any more such opportunities available right now?

Yes, I'm going to pass on to Raj.

So yes, this is something which is an emerging product, and we have seen a lot of interest in that from some of the DISCOMs in the country because, obviously, when one helps the other in reducing the cost and it becomes more palatable as a purchase by the DISCOMs. So that's something we're just finding lot of interest by the DISCOMs, and we expect some of these tenders to give more traction. And obviously, as a group, it is a strength, which gives us a much better value for our stakeholders, and we would be having an anchor position in some of these things that will come up.

Thank you. The next question is from the line of Vijayakumar from Avendus Spark.

Good afternoon. Am I audible?

Yes.

Yes. So my first question is on your merchant capacities like how would the funding happen for these projects, especially from the debt side? Because I believe that financial institutions will enforce or ask for a long-term PPA to fund.

Look, I think all the banking institutions we work with, they are very happy with our track record of delivery. And they have understood our numbers. They know our CapEx and our CUF we generate from these plants. This gives a lot of confidence to them when we go for merchant finance as well. And when we combine this with our existing PPAs, we are able to get a very attractive portfolio, combination of PPA and merchant, which they are very much willing and encouraging us to finance and that will continue. And as we progress, that will only grow and improve going forward. So yes, we do a 70-30 debt structure, 75-25 structure.

So who would these financial institutions be? Would it be Indian private banks? Or is it like PFC/RECs or is it like...

Both are doing and both are -- yes, so -- these opportunities are both in ECB lenders and also domestic. So everybody, pretty much.

Sure. So they are not particular about an asset not having a PPA is what you're trying to say?

Yes, I think they have confidence in the Indian market. I think they have looked at Indian market together with us for quite some time. They have seen how the market is responding, the growth of demand and the confidence they have on the merchant pricing as well. And that kind of further underpins our confidence in the market. And yes, they are with us on that.

Sure. My second question is on, say, the storage. So you mentioned you would be bidding for a storage-based tender and you are also having a pipeline of PSP projects that you would want to develop. So what is the plan to tie up on getting power to charge these capacities because if you tie up this to a PPA, you would probably end up paying INR 2.5 for getting a solar power. But off-late, we are seeing in the merchant market or the exchanges in the afternoon time, the prices are less than even INR 1. So how will this thinking be? Will you buy power to charge these storage capacities both battery and PSP from exchange or you would have to tie it up to a long-term PPA?

So I think it's a dynamic mix which someone has to continue to optimize. The best part is that we have our own capacity and the flexibility built into that when it comes to RE generation that we can do our own tie ups in terms of supplying power for battery as well as the PSPs. And in a lot of cases also augment that with exchange-based purchases within the framework. Okay. So it is what will give an additional value to overall returns which we get out of these projects. If we are able to combine some of these capabilities. In terms of tying up, we have, again, multiple products where this can be used as a storage. It can also be given as a service. It can always be combined with a peak power solution, it can be combined with an RTC solution. It can be given to DISCOM or to C&I or it can also take a market exposure. So with all these combinations, we look at this white board on a very dynamic basis and decide on the strategy, and you can see those results when we publish our data in terms of realizations which we have compared to the market are much better.

Sure. Sir, my final question is on, say, the distribution companies, their behavior. Now -- so we moved from plain vanilla solar and wind to tenders, which are like a hybrid now increasingly, it is FDRE or load matching or peak power. Now do you see there, as a country as a whole, the interest from DISCOMs is there to sign any of these PPAs without any issues. Because we are seeing certain PPAs not getting signed. And if so, would we go back to, again, plain vanilla solar and wind kind of interest from DISCOMs? How is DISCOMs behavior and intention according to you?

So see, it depends, again, the situation of every DISCOM, which has to be assessed differently. Say Maharashtra is a recent example where you see they did thermal plus solar as a scenario where they tied up large capacities. They have also done some hybrids, and they have also done some battery storage tenders. They have done some recent FDRE tie-up as well. So it depends on the DISCOMS, how they see their own power mix and how they are seeing the load curves. Obviously, different parts of load curves can be -- has to be catered based on various sources. So the product mix is something which is not necessarily a fixed product mix, which people will look at. And they will play what makes cheaper power for their own purchases. So that's the way it will move. You saw a lot of tenders which were happening in FDRE. We have not necessarily seen significant tie-ups on that just because the product, in a lot of cases, has not necessarily catered to the need of the DISCOMs. So the bids happened, but the tie-ups have been slow. At the same time over a period, we expect that some of those will get tied up. Some have got canceled in terms of tenders by SECI. Hybrids, again, had seen a slow tie-up, but now they are actually moving towards tie-up. Solar, wind has seen good amount of tie-up still and you will see some of these mixes changing. Now the recent fascination, I would say, is to call the bids around batteries, obviously because the prices are becoming attractive. So they want to look at peak solutions independently. There is some VGF scheme behind the batteries, which is also prompting some of the DISCOMs to look at that product. And we have also seen recently PSP tenders. So I think what is important is as a strategy, as a developer, I have to look at and I will be there, where the play is something which is derisked and I'm to making more bucks for the investment I do. So I think that's how it is to be seen. And that's the reason you have not seen us in some of the complex products where we saw this particular kind of thing, may have a limited shelf life in near term. But again, I'm not saying that some products will not come. It depends on the DISCOMs demand requirements.

Okay. Okay. My final question is on the recent PSP tender from MSEDCL, where the DISCOM and the regulator seem to say that around INR 8.5 or INR 8.7 the final tariff is too high and then they put a ceiling of around INR 6.5, if I'm not wrong. Like how is this economically logical and how can one deliver at INR 6.5 power from PSP with -- considering input cost of INR 2.7. I don't think -- we won the tender, but I'm just testing rationale for asking to supply from PSP at the tariff of INR 6.5. If that is the case, how can PSP projects make a good return?

So I do not want to necessarily comment on a specific situation again in which regulator and DISCOM is involved. However, what is important is PSP has its own merits, and you have seen more tenders in the market apart from a particular case. I'm sure the utility which a PSP provides to a DISCOM is valued because as Amit mentioned earlier, it is still cheaper than or significantly cheaper than what a battery-based BESS can provide you with a number. So it has a significant value there. And it is a solution, which can actually provide a longer-term power. It still will be not seen in batteries where people are tying up more than 4 hours of power. But in this case, this can be significantly higher. I think the value proposition is there. There are multiple DISCOMs, which they are clearly eying. There are 2, 3 vendors which are already there in the market for PSP as a service. We know that some DISCOMs are actually looking to even come up with a peak power tender based on PSP. So it will evolve, it's difficult to comment on a specific scenario on this call.

Okay. So my final question is on what is, in your opinion, the storage cost per unit from PSP. Just the storage cost component from PSP?

So I think some of these numbers, I think we would rather keep it for tenders. So I think -- but what we can say is that we have access to lots of 20 gigawatts scale of different PSP sites. These vary and they are fairly attractive for the market. And yes, I think this is a very big opportunity for India, for us, and we will make sure that we -- as we tie these up, we will share the numbers with you as well in due course.

Thank you. [Operator Instructions] The next question is from the line of Anuj Upadhyay from Investec Capital Services.

Yes. So the initial remark, you made a comment, stated that Adani Green has the capability or in the pipeline to add nearly around 70 gigawatt of capacity. So while we are aware of the 50 to 55 gigawatt which we had planned over Khavda and Rajasthan alongside the PSP project. Are there incremental land banks, which we have acquired are in early stage of acquiring which can accommodate the incremental 15-gigawatt capacity? Can you throw some light on this?

Yes. I think, specifically, I think, as you know, this is a business where land is going to come very, very handy and we are actively both in the process of acquiring and adding to our portfolio in Rajasthan, in Gujarat, but also we are looking at different sites in Karnataka, Andhra and Tamil Nadu as well and Madhya Pradesh for both solar and wind. We want to make sure that we have a diversified set of land banks. And we want to make sure that we tie them up. Exact details I won't be sharing on this call. I think as these rates go up as soon as we tell where we are buying. So we're not going to do that. But you have to take my word for it. We have a very strong footprint of land bank already, and we are growing that quite significantly in parallel.

Got it, sir. And last question, just a clarification. As you mentioned that the minority interest would keep going up from here. So we can expect a similar kind of an investment by Total across other projects as well whenever there is an equity requirement, we can expect such kind of an investment keep happening going ahead as well? Is my assumption correct, sir?

Yes. I think, look, I think TotalEnergies is very actively working with us in India. They're also globally having a similar -- we share the decarbonization ambition, which both companies have. And as they want to grow their portfolio, this opportunity will remain and maybe they will exercise. I don't want to speak on their behalf but -- and we welcome that, so I think...

So let me -- let me clarify that. There is -- today, there is no optionality on either side to be able to do this. It is something that at the right time both parties will discuss. And in case the Board of Adani Green agrees and says it is the right thing for Adani Green to do, it will be exercised. But there is no such optionality available in either Total or with us with respect to future JVs. While the minority interest is growing because there are under construction projects in JVs. As and when they become operational, they start generating cash. Viral had outlined earlier, Viral as well as Raj had outlined earlier how the debt repayment has meant that free cash flow available from operating assets is just higher. Therefore, the minority interest starts looking bigger. So that's the way to look at this.

I will add one more point. Whatever is the under construction assets, Total will also be investing in the relevant equity for those assets. So I think they will be investing further money for whatever is to be constructed or under construction, whatever equity requirement is there.

Thank you. [Operator Instructions] As there are no further questions. I would now like to hand over the call to the management for closing comments.

Thank you. First of all, I would like to wish you in advance a very happy Diwali. I hope you are able to take some time off in this festive season and spend time with your family and friends. And I will summarize our call today, we are really focused on 2 things and broadly what we talked about. First, making sure that we deliver on our targets. We deliver on the execution plan we have talked about not only this year but next year and beyond. And for that, we are making sure that we completely derisk our planning, procurement, construction progress and take into account any of the weather patterns, which we encounter. And second, we want to make sure that we maximize our returns, and we continue to improve our returns on a life cycle basis of our projects. Now I understand it is very difficult for you to calculate from the public numbers. But these ROE numbers, we are shooting for are always accretive to our portfolio and continue to grow. So with that, thank you, and we'll touch base later in the next call. Thank you.

Thank you, Anuj, and Investec team for organizing this call. Thanks a lot on the participants, once again for participating on the call. Please feel free to touch base if you have any further questions.

Thank you. On behalf of Investec Capital Services, that concludes this conference. Thank you for joining us, and you may disconnect your lines. Thank you.