JSW Energy Limited (533148) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q1 FY '22 Earnings Conference Call of JSW Energy Limited hosted by JM Financial. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Subhadip Mitra from JM Financial. Thank you, and over to you, sir.

Thank you, Margaret. Good afternoon, friends. On behalf of JM Financial, welcoming you all to the Q1 FY '22 Earnings Conference Call of JSW Energy Limited. I would now like to hand over the call to Mr. Ashwin Bajaj, Group Head Investor Relations of JSW Energy. Over to you, Ashwin.

Yes. Thank you, Subhadip, and thanks for hosting the today. Good evening, everyone. This is Ashwin Bajaj. It's my pleasure to welcome you to JSW Energy's Results Call for Q1 FY '22 as well as an update on our renewable-led growth strategy. We have with us today the management team represented by Prashant Jain, CEO of JSW Energy; and Pritesh Vinay, CFO of the company. We'll start with our opening remarks and then open it up for Q&A. So with that, over to you, Mr. Jain.

Thank you, Ashwin. Good evening, ladies and gentlemen. For the quarter gone by, there was a very robust power demand, which we observed at a growth of 16.4% during the quarter, which was primarily due to the lower base effect, which was witnessed due to the lockdown in the year gone by and which was moderating over a period of time. In the month of April, the power demand growth was at 38%, which moderated to 6.3% in the month of May and in the month of June, it was 8.6%. Again, in the month of July, the power demand has been growing at the rate of over 13%. So we believe that during the current year, we will be seeing a robust power demand growth because of the robust economic recovery and lower base which was witnessed in the year before. That was also reflected in our total net generation growth during the quarter as compared to previous year at the rate of 4%, which was also reflected in the same long-term net generation growth of 4%. The thermal generation was up by 13%, but the hydro generation was lower by 15% due to the lower availability of the water. Because of which the EBITDA was almost flat, but our profit after tax was higher by 23% if I remove the exceptional item, which is INR 92 crores higher cost, which was primarily due to the green bond which the company has issued. Adjusted for that, our profit after tax was at INR 261 crores. During the quarter, we also commenced the operation of our Karcham Wangtoo plant at higher capacity, which was approved by CEA in 2 phases. So 45-megawatt additional capacity has been operational since then. And it will be increasing to 91-megawatt in the next financial year, I mean the next season. The receivables during the quarter declined 30% year-on-year. And it went up quarter-on-quarter by INR 600 crores due to seasonality of the hydropower business because of the excess selling which we do and also the poor collection in the month of April and May due to the COVID wave 2. We are seeing that this is moderating, and it will adjust to the normal receivable cycle in one quarter. The net debt of the company went up by another INR 360 crores, primarily due to the CapEx and also the lower cash due to the higher receivables. Otherwise, the company repaid more than INR 200 crores of the debt during the quarter. The strong liquidity is also maintained. As regards to the projects which we are implementing, the SECI IX PPA has been completely signed. So now total 810-megawatt PPAs are signed with SECI. Earlier, we had signed 540-megawatt in the month of May. Now in the month of July, as I had guided last time, this 270-megawatt PPAs are signed with West Bengal and Chhattisgarh. With regards to SECI X 450-megawatt PPA, this will be signed in the current quarter as it has been outlined. Also, the 958-megawatt of the group captive PPA with JSW Steel has been signed. In addition to this, we have already got the connectivity approvals for entire SECI XI and SECI X projects. We have also placed orders for all solar modules as well as the wind turbines with the leading OEM manufacturers. So the construction is in full swing. And as we have explained, that the solar plant of 225 megawatts will be commissioned in the current financial year. And next financial year onwards, every month, 100 to 150 megawatts capacity will get commissioned in the SECI projects. So we are quite satisfied with the progress which we had outlined for our 2.5 gigawatt of the renewable power capacity. In addition to this, there are the 2 developments which are there in the renewable business. Number one, we have yesterday signed a collaboration agreement with FFI, which is a 100% subsidiary of FMG Group, which is a listed company and a large iron ore producer and exporter having close to $80 billion market cap with more than $5 billion of net income with a strong liquidity cash flow. This company has been working relentlessly for the green hydrogen and green ammonia projects for industrial application and mobility. JSW Future Energy and FFI have joined together to bring large pool of capital and industrial application and technology together to build green hydrogen and green ammonia for various industrial applications and mobility in India. If I give you some background, close to 6 million tonnes of the gray hydrogen is produced in India at this point of time, which is produced primarily from the natural gas, coal and fossil fuel. And this gray hydrogen is used for chemical sector, refineries, fertilizers, steel plants. The gray hydrogen is -- can be replaced by green hydrogen, which is produced by water electrolyzer which will be consuming green power to produce green hydrogen and green oxygen. There is a large synergy between the steel plants. And there, the hydrogen is used by electrolyzer as well as heating of the ammonia, which produces hydrogen. In all our DRI plants, in our annealing furnaces, in galvanizing lines, the hydrogen is used. Incidentally, JSW Group is already running large electrolyzers to produce gray hydrogen for various applications. This offers us an immediate application to start replacing the gray hydrogen with green hydrogen. In addition to that, there is a big application to replace fossil fuel for mobility applications. Wherein the hydrogen fuel cells can be used for in long haul locomotive running, for escalators, dumpers, trucks, cars and also ammonia can be used for running the ships. FFI has been developing all these kind of technologies and products, which together JSW and FFI will be evaluating for various applications to utilize this. Government of India and NITI Aayog have been working on a green hydrogen mission and policymaking. The comments have been invited by the industry. And very soon, a green hydrogen policy framework will be in place. The framework is outlined to be on similar lines the way the hydro power and renewable power was developed by way of creating a green hydrogen obligation framework wherein industry will be mandated to use green hydrogen to replace gray hydrogen over a period of time, and that will improve the penetration. The most important thing in this particular area is that it is a proven technology. The only thing is that the cost has to be brought down. If I give you some color, today, the gray hydrogen is produced between $1.7 to $2.5 per kg whereas the green hydrogen can be produced between $3.75 to $4.5 per kg. This cost can be bridged by bringing this technology at a large scale, improving the efficiency and reducing the power of the -- the cost of power. And these things will materialize over a period of 5 to 7 years' time period. And that's where we see a huge potential to replace this 6 million tonne market, which is going to grow to 20 million hydrogen market -- 20 million tonne hydrogen market by 2050. So there is a huge opportunity in the green hydrogen. In addition to that, this is another market for a mobility which is the future, and that's where the company is going to work along with FFI to build various projects in this area. Another development is also during the current Board meeting, the Board has given an in-principle approval to reorganize green and gray businesses, the green power and gray power business, in order to create the flexibility for the company to attract capital or the strategic investors who are making certain choices to look at only green power business or gray power business. So the Board has mandated a Board-appointed committee to appoint financial advisers, legal advisers and valuers to suggest various options and scheme, which will be considered by the Board in due course of time. With this, I would like to end my opening remarks, and I would like to offer the platform for any questions and answers if there are.

Operator, over to you for questions.

[Operator Instructions] The first question is from the line of Aniket Mittal from Motilal Oswal Financial Services.

My first question, sir, is on the green energy technologies that you're looking at. You've mentioned about the framework agreement with Fortescue. If you can give a bit more details in terms of, how do you think that this technology can become viable over a period of time? And secondly, in terms of the capital expenditure itself, is there any capital commitments that you are looking to make on this technology?

So the large scale of operations will bring down the cost, like 5 years ago, the solar power cost were more than INR 6. And today, it is less than INR 2. So the learning curve is changed based on the size of the commercial production. And that is what is going to happen in this area. This was the same story with respect to the electric vehicles. So this is a proven technology. The only thing is there are 3 components, as I mentioned. One is 60% of the cost of this green hydrogen is by power and power cost is consistently coming down. So if we are deploying certain technologies because of which the efficiency is going up, the power cost comes down. If the power cost comes down, the green hydrogen cost comes down. The second part is the electrolyzer cost, which is going to come down because of the large scale of production. The third thing is the efficiency of the electrolyzer which is right now running close to 64%, 65%, which is expected to grow to 80%. So these are the 3 elements which is going to happen with a large scale of production over a period of next 5 to 6 years' time frame, and this will be -- the green hydrogen costs will be lower than the gray hydrogen cost. Like today, the green power cost is lower than the gray power cost. Already, we have achieved that. So it's a size of the scale of operation, which is -- because of which it is going to change. So that's the thing. And with regards to the capital expenditure, just to give you approximate color, the cost of the green hydrogen electrolyzers today are in the range of $600 to $700 per kilowatt hour, which is going to go down by 80% in next 10 years' time frame based on the estimates, which is going to -- which has been done. So that's how the learning curve is being projected. And so the costs are going to be at par in the next 5 to 7 years' time frame. So until that time, these things will get mitigated by way of a RPO obligation or green power, green hydrogen obligation. Like 5 years ago, the solar power was sold at INR 5, INR 6 and there was a solar power purchase obligation, because of which there was PPA agreements which were there. Similarly, the green hydrogen purchase agreements will be coming up. And then in 5 years' time frame, these costs will be coming down. So these are with respect to the industrial application, which will be in the refinery and the fertilizer space. Then mobility area, which may be taking a little time, but we believe that the large scale operations like mining and locomotive, ship, these are the areas where it will be economically viable in probably 4 to 5 years' time frame.

And just to confirm, sir, in this agreement with Fortescue, does this involve any capital commitments right now, let's say, in the next couple of years? I understand it's still more of an assessment process that we do. But in the next couple of years, would this entail any sort of capital investment or commitments?

Yes, absolutely. It will be coming. As soon as we complete our scoping exercise, there will be -- various projects will be conceptualized and then that will be presented before the respective Boards and then Boards will be deciding to look at those opportunities and evaluating it and then considering those capital commitments. As and when the respective Boards of both the companies consider that, we will be informing to you.

Okay. Just maybe one more question to get an understanding on the current ordering pipeline on the renewable front. Sir, it's very evident that our focus has been on the wind and the hybrid side, especially in the recent bids. Just to understand, in your assessment, what is the quantum of bids that we see coming from SECI and other states on the wind and the hybrid projects over the next 15, 20 months because that will give us an idea of the opportunity that you have over there.

So I look at this way that typically the -- at 5% demand growth, you are talking about close to 9-gigawatt of the demand, which will be required to be met by the renewable sources. For that approximately 25 to 30 gigawatt of the renewable capacity is required. So that's the kind of the quantum which I see that various agencies will be coming every year.

And particularly on the [ wind and ] the hybrid front?

It's very tough for me to tell you that what -- how much will be hybrid and how much will be stand-alone, but on a consolidated basis, you can consider 25 to 30 gigawatts per year.

[Operator Instructions] The next question is from the line of Subhadip Mitra from JM Financial.

Sir, with regard to the earlier question where you mentioned that one can look at a 20 to 30 gigawatt kind of annual pipeline in terms of tenders based on tariffs. In your opinion, given that we have basic custom duty and ALMM, which will come into force from next year, would you perceive any short-term capacity constraints that can come up given that domestic solar manufacturing capacity is probably limited to 6 or 7 gigawatts?

So there are 2 ways to look at this situation. Number one is that you can still import panels but then the price of the panel will be higher and that will reflect in higher tariffs in the bids. And that is what you might have seen and observed is that the tariff which was secured before this announcement of 40% duty, the tariff of the -- in the bids was close to INR 2, rather it was INR 1.99, which went up to INR 2.43. So there is effectively 21% increase in the tariff, which has already happened. And which is reflection of that higher duty as well as there are new capacities which are coming up for manufacturing panel in India, wherein the cells can be imported where the duty on cells is lower than the panel. And also, there is an incremental cell manufacturing capability, which are also coming up, which will be on stream in production in calendar year '22 and will be importing wafer and where the duty is 0. So it's going to be a hybrid situation, where some capacity will be imported in the panel form, some capacity will be imported in the cell form and the panels are manufactured in India, and some capacity will be in the form of import of wafer, and cell and panel is manufactured in India. So because of which this blended tariff will be arrived, which is what you are seeing a 21% increase in tariff. We need to really see how the domestic capacity is ramped up. I believe that with this duty, the ramp-up in the capacity will be pretty rapid. And -- but there will be upward pressure on the tariff and the solar power in time to come.

Understood. Secondly, as you mentioned that with tariffs starting to move up, my understanding was that the reluctance from many of the DISCOMs to sign solar PSAs was because of the race to the bottom in terms of tariffs and everybody wanted to wait for the next tender which started giving maybe a slightly lower tariff. So given that now that trend has reversed, are you seeing some kind of traction in incremental PSAs getting signed?

So I believe that they will be getting signed now because that was the problem which was happening in solar PPAs. And I don't think tariff is a problem. It's the trend and fluctuation is a problem. And that's why you can see that 810-megawatt of our SECI IX PPA, 100% of the capacity is tied up and PPAs are signed and within the shortest span of time, which was not even seen in the solar bids. So it's more of the fluctuation and more of the variation. That is what has been a deterrent in signing of the solar PPA, which I believe will be signed as -- because the tariff will start moving up.

Understood. Understood. So just last point of clarity is on the SECI IX PPA signing, where you're mentioning the back-to-back PSAs with the respective DISCOMs has also been signed?

Absolutely. They have been signed and made effective.

The next question is from the line of Mohit Kumar from DAM Capital.

Congratulations on a decent set numbers and a number of the new initiatives which you have taken. So my first question is, sir, we have chartered out 10 gigawatts target till FY '20. In this particular 10 gigawatts, sir, how much is specifically captive PPA? And second, greater question is how are you pricing?

So firstly, it is not 10 gigawatts. We are talking about 20 gigawatt capacity by FY '30. Second is, it's all PPAs are tied up by a competitive bidding, whether it is captive or whether is third party and we have to participate and we are not sure whether we get it or we don't get it. So captive also, it was not our choice to get it from JSW Steel. It was a competitive bid, which was organized by JSW Steel and we participated. And we became L1 and we got it. The SECI bids also we secured because we became L1. So it is not in our hand, how do we get it.

Understood. During the quarter, sir, operation of Karcham Wangtoo, capacity went up to 1,045 megawatts. So are you selling the excess capacity in merchant market or is it under the cost-plus plan?

So these are the bilateral agreements under which we are selling and we will be signing off the PPAs in due course of time.

This 45 mega is the additional, right, it's the additional -- over and above the PPA?

Yes, you heard me right.

Yes. Last one, sir, on the hydrogen piece, is this agreement with FFI is exclusive to us? And are you willing to pursue the PLI scheme like which most likely will come up in the next 8 to 9 months, especially in the electrolyzers?

So we are not talking anything about the manufacturing.

The next question is from the line of Swarnim Maheshwari from Edelweiss.

Sir, you mentioned on the green energy side, green hydrogen side, that the mobility area is likely to take some time, maybe like about 9 to 10 years. And now on the other hand, that we are just witnessing that there is the ramp-up of the EV that we are looking at. And maybe in the next 5 to 7 years, there could be meaningful adoption towards EV. Just wanted to understand your thoughts on this one that whether both the things will coexist or the green hydrogen kind of threatens to eclipse the EV side really.

Thank you for your question. See, right now, we need to understand one part is that there is -- this is a proven and established technology, which is already prevailing to produce green hydrogen, and there is a market which is available in the country. So there are the 2 asks in the current environment. One, there has to be a policy environment for developing this technology on a mass scale for replacing the gray hydrogen. So that's one side which I have explained that the way the gray power was replaced by the green power by a policy intervention with a certain purchase obligation the same way the new policy framework is being institutionalized. And Government of India has already started the consultation and stakeholder consultation has started and probably we can see in the next 12 to 18 months' time frame, that policy will be in place. Second thing is to reduce the cost, which will be happening by increasing the size of such market because then only the commercial production and more and more investments are going to come up in this area, and that will be reducing. And that's why I said that with these 2 initiatives, in the next 5 years time frame, the green hydrogen will be at the cost parity with the gray hydrogen. So these are the 2 sides on which it will be working, and we will have to be -- this space will be evolving the way you have seen the renewable power has evolved or the way you have seen the electric cars have evolved. Electric cars were not economically viable 6 years ago. Today, they are economically viable. And you can do the commercial production and then you can sell them. Same is the renewable power. So the same way, it will be happening in the green hydrogen. In case of the mobility, it is going to take time because you need to see the hydrogen is going into the fuel cell and then fuel cell is generating electricity and then the -- it is -- that electricity is running the car, okay? Now the technology is being developed that directly from the hydrogen the car is powered or the engine is powered. Then the real efficiency will be coming up. And for that, we believe it is going to take some more time. However, for certain commercial applications as well as the long-haul mobility applications, it will be absolutely economically viable in 5 years' time frame.

Okay. So that implies what basically both the things can coexist in, say, next 5 to 7 years?

Yes. So green power and gray power are going to coexist maybe more than 10 years, 15 years also. So I don't see that everything will be switched over overnight. Even the electric cars are not going to replace the IC engine cars even for next 10, 15 years completely. But yes, the penetration is becoming much faster because the moment the cost parity comes the replacement or the transition happen very quickly. Like today, our power demand is growing every year by 5%, but the incremental power which is going to be generated by the renewable sources only. Because the cost parity has already come, but the power of whether it is produced from the gray fossil fuel or from green power, it is same, but the tariff is lower for the renewable power. So it is cheaper to do that. Only that is the transmission cost is higher because of the intermittency. So that intermittency is also being taken care by the new technological intervention which you will be seeing in next 1 or 2 quarters we will be talking about. And that also is going to change the future globally and also in India. So we are taking certain decisive steps to take care of this intermittency and solving that issue for the grid.

Got it, sir. Secondly, on this recent dollar issuance of about $700 million, just wanted to understand that what was the hedge costs and till what level are we hedged? That's first. And just [Audio Gap] for more dollars loans in times to come.

Pritesh?

Yes. Swarnim, so you know the coupon of the bond is 4.125%. It's a 10-year duration. What we've done is that we've done a call spread for the entire tenure for the entire $707 million. This was a 10 NC5 bond, right? So this is a callable bond in 5 years. So what we've done is in the first 5 years, we've covered spot to ATMF, right? And after that, there is a range. So therefore, because at the end of 5 years, there's an option for a liability management, subject to the markets and levels and spreads at that point of time. So the all-in inclusive cost in INR terms basis is about 8%. So the way to look at it is 2 things, Swarnim. First is that the parent INR loans which are all linked to bank MCLR are essentially floating rate loans, right? And given where we are with inflation coming back, it is broadly understood that the rate curve should be steepening going forward, right? So what we've essentially done is this that by doing this, a, there is a headline cost reduction because the INR loan was more than 8% that we have replaced at the current MCLR plus spread, and -- but more importantly is we locked this 8% for the next 10 years, right, in a rising rate environment. So that is the other unquantifiable benefit, so to say.

The next question is from the line of Abhineet Anand from Emkay Global.

Now this coupon that you have -- bond that you have raised, is it fair to assume that for all your RE power that you're going to put in, the average cost should be near about the same?

Abhineet, I wish I will be able to give a clearer answer on this because see, at any point of time, there are different components of -- so let me give you what are the possibilities, right? So for example, this was a BB+, right? This was not an investment grade. Now depending on the counterparties you have, SECI, for example, or any other sovereign entities as a counterparty, you can potentially have a one notch higher rating, which means a tighter coupon, right? But then the unknown is, where do you think the 10-year U.S. treasuries will be the next time when you are trying to tap into the market and what will be the credit spreads and the term premium outstanding at that point of time? So there are too many moving parts. But clearly, purely everything else remaining the same, given that here our counterparties for this particular bond were non-sovereign entities, and therefore, it was a BB+, the expectation is that if we are potentially tapping future issuances for a renewable project, especially with SECI as counterparty, they are likely to be investment-grade bonds and there the coupon should be even tighter than this, everything else remaining the same.

So put it in the perspective, had it been a SECI bid like what we have done and in the same condition, it would have been anything between 3.5% to 3.75% as against 4.125%.

Okay. Okay. And secondly, I think Prashant sir did mention that the tariffs that has increased, right, and he did mention basic customs. Isn't the basic customs duty apply from 1st of April '22?

Yes.

So the present tariff -- correct me if I'm wrong, but present tariff is more of a function because solar module prices globally have gone up because the way Chinese prices have gone up, right?

Both because you need to understand the -- when the bidding happens, after that, PPA is signed, then it becomes effective, and then you get 18 months to complete it. So if any bid is happening today, it will be -- after 3 months, it will be -- PPA will be signed and then you get 18 months to complete it. So that time, the duty will be applicable.

The next question is from the line of Apoorva Bahadur from Investec.

Sir, at the beginning of the presentation, you stated that the Board has approved green and gray power business reorganization. Could you throw some light on that as to what are the time lines expected? And what sort of outcome is likely over there?

So there will be a separation of 2 business verticals in this and then which will be examined by various advisers. So we are expecting that in the next 90 to 120 days time frame, the options will be crystallized and presented to the Board and then once Board approved, then necessary steps, which will be required to be taken will be taken, which will be various stakeholder approval, including lenders, shareholders and maybe we need to go to the NCLT to do this reorganization or restructuring of the business. So that will be step A. Step B will be then at the right point of time, we need to decide that if any strategic investor is coming into the green power or any IPO of the green power business or demerger of green power and gray power. So there are a number of options which are on the table, and we will be evaluating all those options in due course of time. For that, we are keeping first the structure ready and with all necessary approval in place. And then accordingly, all those options will be tapped.

Yes. Apoorva, if I may add to that, so additionally to what Prashant mentioned, essentially because you also asked what kind of scenarios can be likely. It will be a bit premature to comment on that because when this evaluation -- so the Board's approval is to evaluate various options to reorganize and go into the merits of each of those options, right, what are the transaction costs, what kind of approvals, et cetera. There are stamp duty, tax implications. There are compliances with Companies Act, SEBI LODR requirements, et cetera. So a very holistic view has to be taken. So all the -- all that we have got an approval at this point of time is to go ahead and start working with advisers, et cetera, to start evaluating the merits and demerits of various options. Once we've completed that exercise, as Prashant mentioned, we'll go back to the Board and present. And at that point of time is when the things that Prashant was talking about will kick in, right? So I just thought I'll make that very clear. And however, from an intent point of view, there is absolutely no ambiguity because today, if you look at our corporate structure, we have JSW Energy, and then we have Hydro as a separate 100% owned sub. We have Future Energy as a 100% sub, which is basically the vehicle at this point of time, but for all the wind and solar initiatives. So what is the most efficient way to house potentially all of them together so that if there is an opportunity to get the potential investors for all the exposure to the green assets only, one can have the flexibility to do that. So that is the broad thought process. But I just wanted to make it very clear that the approval now is to start evaluating various options and go into details of the merits of multiple options available.

Understood. And Hydro assets will sit in wind power, right?

So again, the point of giving my previous answer was that it is premature to preempt what is likely to happen. The idea is what are the pros and cons of different optionalities and is it the route the Board would want to follow, right? So I would not want to preempt the discretion of the Board at this stage by trying to second guess what is likely to happen.

Okay, sure. Just one more question on our agreement with FFI. Now I understand it's more of a long-term guidance, we are seeing the way this cost of green hydrogen goes and hopefully, it falls to the range where it becomes viable, then what sort of business model are we looking at over here for JSW Energy?

Apoorva, you are not very audible. Can you please repeat the question?

Sure, sir. I was asking about our agreement with FFI. Now once the cost of green hydrogen [Audio Gap] to the viable level, I wanted to understand what sort of a business model are we looking at for JSW Energy over here.

See, look at one thing is it will be economically viable day 1, but the thing is that whether you are able to match the price with the gray hydrogen, then there will be no production of the gray hydrogen incrementally in the country. That's what it happens. Like you were producing the renewable power. It was higher than the gray power or the thermal power, but they were economically viable, but the tariff at which PPA were being signed were INR 6, INR 5. That is what I explained that the government globally as well as in India is coming up with the green hydrogen purchase obligation in which the industry will have an obligation to purchase green hydrogen or green ammonia for various industrial applications. So there would be economic viability day 1, whatever projects are undertaking. But in 5 to 6 years' time frame, the cost of the green hydrogen will be at par with the gray hydrogen. At that point of time, all incremental capacities will be by the green hydrogen. That's what we mean.

Okay. Got it, sir. So we will be looking at reducing gray hydrogen or supplying the power -- green power which is required for producing green hydrogen?

It's a combination.

Okay. So we'll be running the electrolyzers as well?

Absolutely.

The next question is from the line of Rahul Modi from ICICI Securities.

Thank you very much for a lot of detailed answers and giving us some path ahead. Sir, just a couple of questions. Sir, when do you expect the bidding in terms of whether SECI, non-SECI because over the last 4 to 6 months, we've seen a bit of sluggish bidding -- bids coming out. So when do you expect this to take off in a meaningful way because obviously, we all want that 20 gigawatt should start getting tendered. So what is your internal thought process on that?

No, no, you are seeing a quite a bit of a good amount of bids, but the problem is on the solar side, there has been a little bit of sluggishness in terms of converting the bids into the PPA. But I believe that that is also going to ramp up over a period of time because now what SECI is doing is a very different structure is, first, they are signing the in-principle PPAs with the respective DISCOMs, and then they are coming out with the bids. So that is what is eliminating the risk of signing the PPAs. And so I believe you will see a pickup now going forward. So it's going to be very rapid.

Right. Sir, what's your thought on this recent Andhra issue. Now Andhra has been talking about reducing costs in terms of power purchase cost, but that's also come at a cost of not -- backing down of a lot of renewable power. So any thoughts on that, sir? How do you see business model of renewable energy going forward? Do you see that we'll be getting into a deemed generation kind of a thing? How will it work according to you?

I look at this way that all the power purchase agreement, they have sovereign obligation documents, which have been held at by all adjudicating authorities in this country. And so I do not see any kind of risk in any of the power purchase agreement, which has been signed at whatever tariff it has been. There had been some hiccups by certain discounts in the past. But eventually, the law of the land has prevailed, and the people are getting the requisite relief from the higher adjudicating authorities. So that is what sometimes you face the challenge in developing technology, like when you build a technology in when there is a learning curve, which is happening and the costs are coming down, then certain authorities take a different view. But the way the PPAs have been structured, they cannot be reneged. That's the point number one. The point number two is that going forward, there are the 2, 3 things which are happening. Number one, the new agreements which are being done is being done by SECI, which is a part of the Ministry of Power. That's number one, so which is changing the quality of PPA. That's number one, which is happening. Number two, there are 2 structural reforms in this country taking place and which are in the very advanced stage. Number one is the smart metering concept, which is there, which is not only metering or smart meter for tampering for the theft. It is for implementation of the prepaid meter construct, which will be implemented in next 3 to 5 years' time frame in this country. That digital meter will be enabling that power flow will automatically stop if your meter is not charged by a way of simple mobile phone SMS. So that's point number one. Point number two is another structural reform, which Government of India is now pushing the subsidy which is being announced by the state government to the DISCOM will be paid directly to the consumer. The moment this happens then DISCOM will be having enough cash flow. These 2 reforms will change entire thing. You don't even need the privatization if these 2 things are taken care of. So the entire economics is also going to change in the next 3 to 5 years' time frame in addition to the legal entity of the PPAs.

The next question is from the line of Sumit Kishore from Axis Capital.

Prashant, my first question is, after a long time, we have seen an increase in net debt of JSW. So I think you're back on the CapEx path. Could you please elaborate on how much CapEx have you spent for the Kutehr project so far? What is the project progress? When is it going to be commissioned?

Pritesh, would you like to take?

Yes, yes. I'll take that. Sumit, on the CapEx side, on a lighter note, I just want to remind everybody on the call that I remember my very first call after moving to this role in the month of October of 2020, Prashant mentioning in the earnings call that we are at the end of the deleveraging cycle. And then 2 more quarters went by, the December quarter and the March quarter, and we kept on reducing the net debt. So that was on a lighter note. So yes, we are 2 quarters behind the curve and beginning to start deleveraging. On the Kutehr project, specifically, so far, we have already spent over INR 650 crores. Construction is on in full swing, but we have already committed close to INR 1,800 crores in terms of the ordering and placement of orders, et cetera. And as we have guided to the markets, our targeted COD is September 2024. So we are reasonably and well -- we are actually working on internal targets to commission well before that. But at least September 2024 does not appear to be at any risk whatsoever at this point of time. The project construction is progressing well. A lot of -- more than 30% of the tunneling work has already happened. All the phases, all the sites are open. All the civil packages are on in full swing, the electromechanical packages are also underway. So yes, that's on the Kutehr side, Sumit.

Sure. So the CapEx really went into this project, right, during the quarter as well?

No. So we've also spent during the quarter on the renewable projects as well. So I would say it would be a mix of both because if we are saying that construction is on in full swing and the renewable sides also, we have already started spending money, especially on the solar projects. Starting from this quarter, actually, the current quarter, the second quarter as and when we report, you will start to see higher CapEx outflow because as we've mentioned in the presentation and the release as well that for the solar panels, for example, the ordering is already done, right? But we have finalized orders for the wind turbine equipment. And during this quarter, we will actually start making advance payments under the terms of the contract. So the cash outflow will start increasing materially starting from this quarter onwards.

Next quarter onwards if you can start sharing the capital work in progress numbers for both hydro, renewables so that we get a better sense on progress. My second question is, for the 958-megawatt group captive PPA signed, what is the tariff at which it was signed and who were the other bidders? And at what tariff did they bid at?

I don't know what the other bidders had bid the tariff at. JSW Steel can answer you that. And we have already disclosed our blended tariff for the entire 2.5 gigawatt of capacity.

Sorry, what is the tariff for 958 megawatt?

For the blended tariff, which we have disclosed already, INR 3.30 is the blended tariff for 2.5 gigawatts.

Okay. Okay. Sir, my third question is there is the sunset of the SGD yesterday and no new duty seems to have been announced to replace it. So how are you seeing this interim period before the April '22 basic customs duty kicks in?

So as I explained just now, there are the 3 models based on which every developer will be working. So as far as we are concerned, what projects we are undertaking, the panels are starting, we will be receiving the panel for -- shipment will be arriving in the first week of September. So all our capacity will -- whatever we are building at 225 megawatts, the entire panel will be received before December of current calendar year. So there will be no duty incidence as far as what has been announced so far. But in case there is a continuation of the Safeguard duty or anything, we will be -- it will be applicable to us. And going forward, as I have explained, there is a strategy which people are building, either they pay 40% duty if they import panel, or if they import cell and get the panels contract manufactured in India, or they import wafer and do the cell and panel manufacturing on the contract basis. So there are a lot of capacity which is getting built and you can do the contract manufacturing or we can do all 3. So there are a number of options depending upon the each developer that those strategies will be played out.

And just to reconfirm, of the 2.5 megawatt under construction, excluding the hydro projects, what would be the mix between the wind and solar now because it keeps evolving?

So in this 2.5 gigawatt, 240-megawatt is the hydro, 225-megawatt is solar, and balance all is wind, close to 2,000 megawatts is wind.

Sure. So just my very last question. I attended a session by NITI Aayog where they mentioned that coal-based power capacity in the country since it is so dominant and thermal capacity and used to step up production of blue hydrogen as they called it, and utilize the [ fixed ] investments better before directly moving on to the green hydrogen economy. So do you have any thoughts around this?

No, I'm very clear that it is going to happen faster than anybody thinking, like everybody was thinking that the thermal power capacity will keep on adding in this country, but policy framework does not permit it. Because based on the RPO obligation, even if the DISCOM wants to buy power at INR 2 and enter into a PPA, they cannot because they have an obligation to increase their RPO obligation. So the direction is very clear. Number 2, is there is no capital available, either from the lender or from the capital market to build such kind of a capacity. So the direction is very clear. It depends on individual to individual when they want to accept the reality.

Thank you. Ladies and gentlemen, due to time constraints, that was the last question for today. I now hand the conference over to Mr. Subhadip Mitra for closing comments.

Thank you. On behalf of JM Financial, I would like to thank the management for this opportunity to host the call. I would now like to hand over the call to Mr. Ashwin Bajaj for any closing comments. Over to you, sir.

Yes. Thanks, Subhadip, and thank you, everyone, for joining us. Please feel free to contact us if you have any further questions. Thanks.

Thank you. On behalf of JM Financial, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.