JSW Energy Limited (533148) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to JSW Energy Limited Q3 FY '22 Post Results Conference Call, hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Modi. Thank you and over to you, sir.

Thank you, Aman. On behalf of ICICI Securities, I welcome you all to the Q3 FY '22 earnings call of JSW Energy. We have the senior management from the company attending this call. JSW Energy has started the calendar year with great set of results, congratulations for that for the entire -- to the entire team. I will hand over the call to Mr. Ashwin Bajaj, Group Head, Investor Relation, who will introduce the management and start the call. I would like to now hand over the call to Ashwin. Thank you. Over to you, sir. All the best.

Thank you very much, Rahul, and thanks for hosting the call. Good evening, everyone. It's my pleasure to welcome you to JSW Energy's results call for Q3 FY '22, as well as an update on our renewables-led growth strategy. We have with us today Prashant Jain, our CEO and Pritesh Vinay, our CFO. We will start with opening remarks by Mr. Jain and then open the floor to Q&A. So with that, over to you, Mr. Jain.

Thank you, Ashwin. First of all, a very happy new year to each one of you. During the quarter, the power demand went up by 3.4% and first 9 months, the power demand went up by 9.6%. Of this, the generation we saw in the first 9 months, 10.8% generation was increased by thermal. Hydro was more or less flat and renewable generation was up by 14.4%, which demonstrate that the entire group is now being met more and more by renewable energy capacity, which was also reflected in terms of the capacity addition, which I will be talking little later. During the end of the quarter, 31st December 2021, the total installed capacity is 393 gigawatt. The total net capacity addition in first 9 months is 11 gigawatt, of which small capacity of net capacity of 491 megawatts was added in thermal, rest all came in renewable space, which talks about that how the incremental power demand is being met by the renewable energy. During the quarter, the average merchant tariff was INR 4.89 and first 9 month it was INR 4.7, as compared with the last year same quarter INR 2.76 and INR 2.58 last year first 9 months. We have demonstrated a very good performance in terms of the hydro generation, which was up by 13%. Net generation overall was down by 3% primarily because of 300 megawatt unit in Ratnagiri was under maintenance since 1st of September till date. It is expected to start generation by end of February. Excluding that in all business verticals thermal, hydro, the generation has been very good. We have seen a very good short-term sales also because of lower O&M costs and higher short-term sales and better operational performance in terms of the lower auxiliary power consumption and better heat rates. Our EBITDA has been highest in quarter 3 EBITDA in last 5 years at INR 882 crores and similar things has been observed in the profit after tax. In the first 9 months, we clocked more than INR 860 crores of the net profit, which is more than what we clocked in the last full year at INR 790 crores. And this performance is going to continue going forward. The receivables were down 20% at INR 1,356 crores by 20% as compared to INR 1,700 crore last year. Because of this, our net debt has come down to INR 6,000 crores lowest ever. We reduced INR 500 crores of the net debt during the quarter. Our interest cost has come down to lowest number of weighted average at 7.82% as compared to 8.24% same period last year and 8.04% last quarter current year. All this has reflected to our net debt to EBITDA to be falling sharply lowest in the industry and also for the company at 1.74x. In terms of the projects, we have been growing better than our expectation. As we discussed last time, the company has undertaken 2.5 gigawatt of the projects, which are under construction with a capital outlay of INR 15,600 crores. The first project of 225 megawatts will get commissioned in the current quarter. And quarter one next year onwards, every year, the commissioning will keep on happening. This demonstrates the execution capability of the company. We are the only company in the SECI-IX, SECI-X belt which is going into commissioning, whereas other peoples are still in a PPA signing more than various other formalities. Next year, we are expecting between 1 gigawatts to 1.3 gigawatts of the capacity commissioning and this will entail that we will be making a capital expenditure of in excess of INR 8,000 crores to INR 10,000 crores next year and every year. One more notable point, while the company has been in a CapEx mode for last 3 to 4 quarters, with a capital outlay of INR 15,000 crores and we will be getting into the commissioning of the first project in the current quarter, our net debt has been coming down. This talks about the unique positioning of the company of cash flow management and various instruments which has been deployed. Thereby, the net draw is happening at the time of the commissioning of the project, which reduces the IDC and also improves the credit rating and profile of the company. With regards to the reorganization of the business, we have already filed before NCLT, in which the Amalgamation for merger of JSW Future and Neo has been filed and it is moving as per the expected lines. We are expecting that by -- within next 6 to 9 months time frame this exercise should get completed. Our hydro project is also moving better than our expectation. We have already completed 60% of the [indiscernible] at a pace at which this project is moving, this will be the fastest ever project built in this country, any hydro project with the COVID -- 3 waves ways with various lockdown and COVID restriction, in spite of that, this will be the fastest ever project built in the country. With this, I'm happy to hand over the floor for question-and-answer. Thank you very much.

Thank you very much. [Operator Instructions] The first question is from the line of [ Vishal Biraia ] from Max Life Insurance. Please go ahead.

The CapEx that you've currently incurred of INR 1600 odd crores on the 2 hundred half thousand megawatt that is under construction. So -- and some of these projects will start commissioning from March onwards. So why is the CapEx so low? So one is that. And if you can break down this CapEx as to what is the CapEx in the SECI projects that you've incurred? What is on the captive projects and what is on Kutehr please?

Pritesh, you would like to take this question?

Yes, Vishal, thank you for your question. See -- so there is CapEx spent and there is CapEx cash outflow, right? So when we put in the presentation a spend of INR 1,640 crores, that is a cash that has been spent. Of course, this is not the total expense that has been incurred, right? Over and above this, we've got commitments of close to INR 5,200 crores. So totally, if we were to look at the commitments that we have made, right, the commitments are well close to almost close to INR 7,000 crores, which is more than 40% of 42%, 43% of the total pipeline of INR 16,000 crores. Because obviously when -- the idea is this that how do we -- the point that Prashant was also trying to make earlier that you don't spend everything upfront. For example, for the solar panels, when we place the orders, we have to open an LC that is a non-fund-based exposure, right? That doesn't entail upfront cash outflow, right? But we will be commissioning that particular project during this quarter itself and revenues will start flowing from next quarter onwards. But once the LC is becoming due, there will be opportunity to look at taking an usance another leg of usance and getting an additional 180-day credit period and all that before the actual drawdown of the term loan debt happens because then you make some interest rate arbitrage. So the idea is based a point that Prashant was also making that from a project execution, project management point of view, we are also kind of deploying what are going to be the more efficient base of squeezing the cost and ensuring that the returns get a kicker in some way shape or form. So that's how we are going about it. In terms of the breakup, you asked, I think that was the second leg of the question. So if I look at the CapEx that we have incurred, during the 9 month period, what we have incurred is actually close to INR 1,150 crores. And in this, on Kutehr alone, we would have spent about close to INR 300 crores. On SECI, both 9 and 10 projects combined, we would have spent about INR 450 crores. On the group captive, which is a 958 megawatt, we would have spent close to INR 320 crores and the balance would be for the normal CapEx that we are doing on the existing operational plans, yes. So that's a broad predictor.

Okay. And the other question is update on the pump hydro storage projects?

Sorry, update on...

Pump storage.

So I'll take that question. So as far as our pump -- hydro pump storage projects are concerned, we have already got the water allocation in 2 projects, one is in Maharastra, the 1.5 gigawatt and also in Rajasthan for 1 gigawatt. And we have already applied for environmental and forest clearances and technoeconomic feasibility report is under preparation. Once technoeconomic feasibility reports are done, they will be submitted to CEA and then post that we will start construction of the project. And in various other states in Karnataka, in And Pradesh, Telangana and Orissa and Chhattisgarh there are various other projects totaling up to 10 gigawatt, which are in advanced stage of allocation and various approvals. So we are expecting that the first project we will start construction sometime end of next financial year or early FY '23, '24.

Okay. And what would be the CapEx for this particular project that you're referring to?

Different projects will be different. It will be anywhere between INR 3 crores, INR 2.5 crores to INR 3.5 crores -- up to INR 3.75 crores per megawatt. So typically, these projects are 6 hour peaking cycle, which we designed [indiscernible] for approximately 25% PLF. But you can imagine that these will be more than twice as efficient typically, hydropower project, you build at INR 12 crores a megawatt to achieve 52% to 55% PLF. Here, you are -- we will be 25% of less than 25% of the project cost and half the PLF. So in terms of efficiency, they will be double the efficient more than double.

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

Sir, and congratulations on a good set of number. Sir, again, follow-up question on this pump hydro projects. So will we be signing PPAs for these or will these be for green hydrogen production given that it will require around the clock power?

So we have lot of opportunities and options, so on which we are working. So we will be probably -- the way we are seeing that we will be -- instead of PPAs also there will be various services which we can offer because like today, to give you example, if I'm sitting in my BKC office as a building we are connected to particular DISCOM who is supplying the electricity. But I am taking power from a DISCOM because I need power only morning 8 A.M. till evening 6 O'clock only 5 days a week. Whenever I'm not growing, I'm not paying for that, that's why I'm ready to pay on an average INR 12 tariff. Now this kind of say PPAs, if I'm a renewable power company, I cannot enter, but if I'm a renewable power company with hydro pump storage, I can supply power whenever you want in that particular time, that opportunity is available. So those are the kind of service solutions which will be the future market and that's where we are working on.

Okay. So will an open access bring power supply as well?

Yes, that's one of the opportunity that was in the green house.

Okay. Fair enough, sir. Sir then I think coming to the green hydrogen side, I think couple of quarters back we announced something of tie up of same type of [Technical Difficulty] in Australia. So have we formalized our plans? And would you like to share anything if we will be foraying into this market and what is the scale of the foray?

So we are doing right now the scoping exercise and technoeconomic feasibility is going on. We are in a final stage of discussions for all these exercise, including the techno with commercial discussion with various technology providers. And it is moving much faster pace than what we have initially expected. And the results have been very, very encouraging. I strongly believe that very soon we will be going to the board for a concrete proposal of investment into the country and probably we will be coming out fastest ever project build and very large project, which will be built for green hydrogen as well as green ammonia and further some other chemical derivatives.

Wonderful. Very good to hear that, sir. Sir, lastly, on the renewable capacity addition side, so I think as a country we have promised up to 450 gigawatts of renewable capacity by 2030. Do you see that being a [ fees ] given the current pace of ordering and all the module issues [ ALMM ] and [indiscernible] et cetera?

It's a tough question what you are asking because right now because of the 2 strategic objectives Government of India has been trying to balance. One is Made in India objective and second is green energy objective. They have been working against each other so far, which has been a bit difficult situation for the pace of the growth, but such thing can be overcome very quickly once this kind of capacities are built up and capabilities are built up in the country. And then doing 40 gigawatt, 50 gigawatt every year capacity addition is not a big deal, China has done it, India can do a little bit better than that. It's only the capability building and building such kind of a capability in India, it will take maximum 3 to 4 years' time frame. So if you are talking about 2030, yes, it is achievable. But if you are thinking that the interim capacity target which is there for up to 2024, yes, that is tough, it won't be possible.

Sir, just one more question quick question, if I may squeeze in and if you could please share your contribution of merchant power sale to EBITDA in 3Q and 9 M, that will be very helpful. Thanks a lot sir, that's all from my side.

Yes, if you -- if you -- Apoorva, if you get a chance to look at the presentation that we have put up on the website also and it could be the link to -- that should be in your inbox, there is a particular EBITDA bridge, which has given both for the quarter as well as for the 9 month. And...

Okay. [indiscernible].

Yes, you will get everything that you need, okay?

The next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund. Please go ahead.

Good evening. My question was on the receivables. There's been a sharp fall in receivables, it's is a very good thing. Do you believe that this is sustainable? And going forward, would you say that your counterparty risk would be coming down significantly because either you'll be supplying to JSW Steel or the SECI projects?

So look at last 4 years, it has been sustainable, whereas the deterioration has been happening. So we don't see any reason that why it will not be sustainable. There are the 2 reasons primarily. One is -- one is that our quality of power in terms of tariff because of which DISCOMs have incentive to pay us on time. Second is our management, the way we work and it's both entail for this. And of course, going forward, the incremental contributions will be coming from the SECI contract, so that will be also added advantage.

The next question is from the line of Murtuza Arsiwalla from Kotak Securities. Please go ahead.

[Technical Difficulty]

Murtuza, your audio is breaking, can I request you to use the handset now?

Yes, is it better now? Hello?

Yes, can you come into network area, your voice is breaking.

Is it better now?

Yes, much better.

Okay. Sir, 2 questions. One is on [Technical Difficulty] the capacity has been converted to a captive status during the quarter. Would -- is there any advantage having done that and would it require you to sort of -- at least on a normal basis dialect from stake to the consumer for the captive status and is there any advantage? And second is on the fuel cost and dynamics, given how that's moving so far it appears that energy of higher imported coal. So can you give us some indication of how much inventory -- those inventory we have and how are the -- how is that situation looking? You had some contribution coming from short-term markets, is that more sustainable [Technical Difficulty].

Sorry, Murtuza your voice has been consistently breaking and I could not understand. Pritesh, would you like to take this call if...

If I understood the first part of your question, which was slightly better audible, you were asking that -- you were referring to what CEA has done in terms of classifying [Technical Difficulty] right?

Yes.

So I could get that bit, but I didn't really [indiscernible].

So you are saying that what's the advantage of that?

Yes, is there any advantage or disadvantage in looking into [Technical Difficulty] just a clarification.

Contractual part because if I keep that in ITP status, then I will not be able to sell that power other than any DISCOM. If I want to sell in open access, for example industry there X, which is into some manufacturing activity, I want to sell that power in an open access contract, then they will have to pay open access charges and gross subsidy surcharge, which is in excess of for example, in Maharashtra, it will be in the range of INR 2.5 to INR 3, other than the capacity charge plus fuel charge. Then it becomes recurrent for anybody to do that. Instead of that, if it is a CPC status, they take 26% equity into the company and such charges are not leviable. Then they -- then it is economical for them to produce. So that's how, that's the only difference between a CPC and ITP.

Will we have to divest 26% for the captive component now or it's more nominal divestment?

It's a nominal on the...

[indiscernible].

Yes, on the -- yes, that has to be done, not on the listed company that were.

Okay. And sir, the second part of -- the second question if I'm more audible now is on imported fuel cost, they've obviously been higher, your numbers still reflect a more contained set of fuel cost. So how much low-cost inventory we have before the high imported coal prices start hitting.

We are not -- if you know about our company, our 100% of the fuel cost is pass through, including exchange, logistics and index prices. So we are insulated. And some of...

I understand that, but...

That have already moved to the job work where the counterparty is bringing coal and we are only getting the fixed cost.

The next question is from the line of Rohit Kothari from Gee Cee Holdings. Please go ahead.

Yes. Hi, Prashant. Prashant, could you throw little more light on your entire hydrogen foray? I know you're going to put it up to the board, but the hydrogen, the electrolyzer then the downward ammonia and you're going to also look at other downstream chemicals, A. The second is what is the size of electrolyze or the range of investment you are looking in this year? And the third is, we've seen one or 2 other large business houses also announcing their hydrogen foray and they have given some target cost at which they would like to produce hydrogen to make it viable because the current hydrogen ain't as viable. So where do you see the end cost of the range of cost at which this will happen? And the fourth, are you going to use any of your hydrogen for in-house group purposes or would there be a captive use with JSW Steel? This is the fourth. And this is on the hydrogen and just one more question. What is the long-term plan of the JSW Steel stock, which you own as it has appreciated. And would there be any long-term plan to liquidate a part of this to fund any of your hydrogen foray? So if you can, Prashant, throw light and once again fantastic set of numbers and a very, very focused strategy which has come out of your management and really congratulate for that.

Thank you, Rohit. So firstly that there are lot of talks which are -- which are there right now about the green hydrogen. Now the most important thing to produce hydrogen is the renewable power. So anybody who can produce power at the lowest tariff will be able to produce hydrogen at a lowest tariff. So that's one part of it. The second part of it is the locations which are important, that means if you hold certain locations where you are going to deploy the renewable technology, where you can harness most efficiently and you have a capability to deploy capital most efficiently in terms of the lowest possible gross block per megawatt, if you have lowest possible operations and maintenance cost, these 3 things will drive your capability to produce renewable power at a lowest cost. And if on top of it your cost of funding is lower, then you are the most efficient and then thereby you will be in a position to do that. The fifth important criteria which is there is that, how you are going to develop a round-the-clock solution for getting a renewable power to produce green hydrogen because renewable power will be a renewable only 30% time during the year, the average PLF will be 30%, 32%. If it is solar, it will be 26%, if it is wind, it is 32% to 35%, average is going to be 30%, 31%. So how do you deploy a round-the-clock solution? And how that round-the-clock solution is transmitted most efficiently because the PLF is less to a particular location where you are having a consumption point. Then the next piece which is also important is that -- how do -- what do you do with the byproduct, which is the oxygen which is produced from it? That also will be deciding factor on your capability to produce green hydrogen efficiently. The next piece will be the supply chain on the green hydrogen. How -- what do you do with that green hydrogen? So whether it is to be converted in ammonia, whether it is to be mixed in the natural gas, whether it is to be used in a steel plant, whether it is to be stored and then to be done into the mobility application or other industrial applications like refinery, which is being talked about. Now why I'm talking about all these strategic intents, these are the various aspects which decides what will be the cost of production for individual organizations to do that. We believe that most of the building blocks which I have mentioned out of this approximately 9, 12 building blocks, we at JSW Energy are well placed to not to wait for government policy intervention. And therefore what we are talking about we will be in a position to start constructing this project much, much earlier than other people because of our strategic advantage in all these 10, 12 blocks. And also at a lowest possible cost and lowest possible tariff. That will help us to achieve various things. I'm sorry, I have not answered point blend for individual aspect of your question because you have asked too many things, but I have tried to summarize most of the things which you have asked. So yes, we are having a lot of strategic advantages in each and every aspect, which will be driving our gross block also lower and in terms of capital allocation, as well as the cost of production and thirdly, users point of view. Now we would like to talk in detail as we will be going to the board and then approving it at -- at some point of time, which is in the very advanced stage. The second thing which you have also talked about, I'll give you some color that typically, if you want to produce 10,000 tons of hydrogen, you need close to 100 megawatt of the electrolyzer capacity. That's roughly the ballpark number. And if you want to put 100 megawatt of the electrolyzer capacity, you need close to 300 megawatt to 350 megawatt of the renewable capacity plus in addition to that, you will have to set up the various storage applications to make the power to round-the-clock. So that's the kind of a number you look at it. Then -- in order to produce approximately, say, if you are looking for a 200,000 tonnes of ammonia plant, you will be looking something like 35,000 tonnes of green hydrogen to consume that. And so that's how it is there. Then in terms of the oxygen byproduct, which will get double for every ton of the green hydrogen which you produce, you will be generating close to 5.5 to 6 x of the green hydrogen in terms of the wage as a byproduct, which you will have to dispose of and to create a value. So these are the broad numbers if I have answered your questions.

Yes, I think, yes. And Prashant, on the JSW Steel stake, what could be the long-term...

Yes, so we have already classified them as a non-strategic in nature. And so at some point of time, when we need money, we will be certainly happy to monetize them. If you see that, we have been aggressively doing the capital expenditure, in spite of that, I have INR 2,200 crores of the cash available with us. Our net debt is coming down because of the various attractive and very interesting tools which we are able to deploy, we are able to source the LCs to procure the equipment in a large capacity and then convert them into use in, which is much, much efficient way to do that. And our debt comes on to the book only after the commissioning of the project when it has started generation. So these are the various innovative tools. So at some point of time, we will certainly need more and more equity at that point of time, we will use this as a buffer.

[Operator Instructions] The next question is from the line of Anuj Upadhyay from HDFC Securities. Please go ahead.

One clarification, sir, on the capacity addition part. We have 2.5 gigawatt under construction, which would begin commissioning from the next financial year onward and probably...

This financial -- this financial year onwards, current financial.

Okay, the Phase 1. So probably it may last till say by the end of FY '24 or by the mid of FY '25. And here -- this is for the 2.5 gigawatt. But in the presentation, we have mentioned that our target is to scale this up to around 10 gigawatt by FY '25. So could you just clarify that are there any inorganic opportunity which we are having or certain other projects which are in a very advanced stage of discussion, which could come into picture in a very near term, so that the execution happens over the next 2 to 3 years kind of a period so as to make our target. And secondly, on the pump hydro storage. So any rough idea or estimates on the tariff which we are looking out to this project?

The first question to answer that, we have said that we are -- already built a portfolio of more than 20 gigawatt in terms of the resource site with us. So we are already having that and we are converting them into the projects. And so there are number of other projects which are under discussion, bilateral also and we have already planned for execution whether it is for captive use in for green hydrogen or to integrate it with the hydro pump storage and offer that as the solution and also for the SECI bids. So all these are the pipelines which are already crafted and then in due course of time, we are going to announce them. And what I can tell you is that, whatever we have planned at this point of time, we will be only accelerating that. So if we have talked about certain capacity numbers, then we will be achieving them sooner than later. And in terms of inorganic opportunities also, we have been very actively pursuing. And -- but we do want to grow either or a book or our capacity by inorganic way by compromising our returns. So you will not find us at a bidding more in SECI bids or in the acquisition race where the returns are not qualitative. For us, growth is paramount, but at a qualitative return. That's what is the most important thing. So we have been consistently talking about our free cash flow yield are on a adjusted net worth and on a proper adjusted balance PPA lies in excess of 18% to 19% for the entire portfolio or throughout the life. And that's how we have been growing and that's why we are, in spite of the difficult sector position, we have been maintaining a consistent cash flow position. So we believe we would like to retain that aspect and yet we will be able to accelerate what we have guided for.

Got it, sir. And on the tariff side, sir, or the pump storage project?

As I said, just now I had explained that these are the projects which will be going in for various solutions because if you are looking at it, if you read our company strategy little differently, we are migrating from a power company to a services and product company. Going forward, you will see us more of a company which will be offering services in terms of supplying power at a particular timing at a day time block, which you want. If you say I need only 15 minutes power during this time, I will give you. If you need a particular product like hydrogen, ammonia or some other chemical derivative, I will give you. So we are going to build -- renewable power will be a baseline for us, but we will be offering various other solutions. So going forward, you will see that strategy will be migrating from a commodity company of a simple power company entering into long-term PPAs.

[Operator Instructions] The next question is from the line of Rahul Modi. Please go ahead.

Sir, again big congrats for an excellent set of numbers. Sir, you've been obviously been quite vocal about the demand-supply mismatch being visible and we've seen that obviously in Q3, where we saw power prices touching almost $20. So how do you see, sir, the overall demand situation and obviously and how our capacities will cater to that, as you mentioned that, we are almost fully tied up. So that is one. Secondly, sir, there were some previous questions asked also on the opportunity size now. We've seen that the bids in the renewable space have been slightly erratic. When do you see the pickup over the next couple of years? How much of annual bidding do you see and retargeting how much, you obviously mentioned that IRR is very critical, but the opportunity size share from that point of view. So what is your view in that?

So look at this way that this year 9 months power demand has grown 9.6%, first 9 months, whereas similar period last year, there was a contraction of close to 4%. So if you net off at just in, you are talking about 5% demand growth and that's what is the average of last 20 years in the country. Now I don't want to talk about that, okay, now the capital cycle CapEx has revised and then everything else will be shooting for the higher consumption because of the more and more urbanization is taking place, more and more homes are getting built and more industrial CapEx is happening because of which power demand will grow. Now I continue to say that the way India has grown over a period of last 20 years and last 5 years, the same way power demand grows, then it is you are talking about 5% demand growth. Now you have seen in this year and also the last year and previous year the thermal capacity addition is not taking place, it is only the existing NTPC of some state projects, which were -- are under development and are getting commissioned. Now those state-owned and central owned utilities have also stopped constructing any thermal -- new thermal capacity. So it is safe to assume that no new thermal capacity will get -- will be added up. Existing thermal capacity may get fully utilized as part of the capacity will get retired based on various other requirement. Now the future requirement will only be met by renewable capacity and which is that my opening remark also which I said that, 95% of the additional incremental generation has been met by renewable capacity addition and 95% of the additional new capacity is also by renewable. So that means at 165,000 megawatt of the base load and 185-megawatt, 185,000 megawatt of peak load, we are talking about 9,000, 10,000 megawatt of the incremental demand, which will be met by renewable resources. Now there are certain challenges like one of the participant was asking, how do you see whether given the challenges in terms of the manufacturing capabilities and the taxation and various other thing, whether this target will be met. So yes, for a short term 2, 3 years, the capacity addition could be a problem, which could accelerate after the sufficient capability in India is built. For that period of time, you may see shortages, that's what I have been talking about. What you have seen some out of the peak power, today also average tariff is around INR 4. But in certain times, you are seeing INR 8, INR 9 is the power tariff. And that's what it is happening primarily because of sign as a situation. You have seen the thermal tenders, which has been brought from, for example Punjab, INR 4.50 ex versus the tariff for 3 months. That's the kind of a tariff which people are quoting with the domestic quote. So these are the things which are precursor to the shortage you are going to see in next couple of years, which will get mitigated when the India builds a lot of manufacturing capability in due course of time, at that point of time, adding 40, 50 gigawatt of the renewable capacity every year to meet incremental 10 gigawatt of the power demand is not going to be a challenge. But yes, everything doesn't move in a linear fashion, but this will get even out over a period of decade, that's how my take is.

Our next question is from the line of Mohit Kumar from DAM Capital. Please go ahead.

Congratulation on a very, very good quarter, sir. First question is given the bout of the rising prices in merchant price in a quarter, is there any point in having a slightly higher merchant in capacity for the next few years? And the related question is that, what is the status of RTC to bid, are you participating? And do you intend to tie up this capacity, let's say, if we decide to take long term, are you looking at the RTC bids, or it's only captive?

You are talking about RTC renewable or RTC you are talking about thermal?

I'm talking about RTC thermal process, the combination.

So I'll tell you one thing that we have the capacities which are based on the imported coal and given the prices where they are today at $165 API 4 index, it is not at all viable to produce power at that tariff. And for example, the fuel cost today, only fuel costs are in the range of INR 5, 25%. So how do you service the merchant market in this kind of environment? So this kind of a merchant market is very, very tough merchant market, that's why you don't see enough thermal capacities which are running and then domestic coal is not available for merchant market. So this is very challenging environment in terms of the merchant business. That's why we have this ideally moved out of the merchant market. We take the advantage whenever there is a very good period where we can make a good contribution at that point of time, we are doing this. But eventually, our whole idea is to integrate whatever open capacity is the long-term PPA. That's how we see.

On a long-term PPA looking are captive or so looking to participate in renewable?

We are absolutely open for captive or the DISCOM, but I don't think any DISCOM is going to enter into a long-term PPA. Other than the thermal, renewable integrated bids, we participated in one did, but unfortunately that did not see the attractive rate. And now there are more bids which are coming up for example, Indian railways have come up with it, with a bid where 150 megawatt of thermal renewable RTC bid has come. And SECI is also planning to more bids in that. So there we will be integrating our thermal plus renewable portfolio.

Understood, sir. Second question, sir, on the JSW Steel owning 26% of listed entity for Ratnagiri to be classified as group cap. I think my understanding to this concerning is correct, right? Sir, why JSW Steel is going to own 26% in the subsidiary, you can as well have it in the listed entity, right, additional stake?

So if you read the electricity act in the country, any group captive customer must own 26% equity into the company. Then only, you are qualified as a group captive customer. And then you need not to pay a cross subsidy surcharge and an additional surcharge, which is in the range of INR 2.50 to INR 3 depending upon the state.

Absolutely sir. What -- steel -- you own a number of shares in the listed entity for the Ratnagiri to -- Ratnagiri to be classified as group captive in understanding right?

That's correct, Mohit, JSW Steel already owns shares of JSW Energy. So those shares are treated as its contrary -- holding 26% equivalent for those 3 units at Ratnagiri, yes.

So why can't you replicate that in this -- for the renewals, so why does they have to hold separately?

No, they will -- so if you look at the way the assets are housed, Ratnagiri plant is directly owned by JSW Energy Limited, right?

Understood, understood.

So just to complete the question, which you've not asked, we are building a captive renewable project for JSW Steel as well. They are being housed separate [ SCV ], right? Now in that particular SCV for a captive project, JSW Steel will own 26% equity stake of that particular SCV, right, to comply with the electricity actuals that Prashant was talking about.

Understood. Lastly, on the pilot project for hydrogen. What are the kind of CapEx and what are the things you are trying to do exactly if you have identified the projects. Can you please share that?

Yes, we'll share in due course of time as I explained a lot about hydrogen project and we will let you know. And it will not be a pilot project, it will be a directly big commercial scale project.

Okay. Because I saw in the presentation, it has got some pilot projects.

No, no. It's going to be a big commercial expense.

Lastly, on the pump storage, will this capacity be used to bid for the storage tender for SECI? Is there any -- is the right understanding?

As I said that there will be a number of opportunities whether it is using the pump storage for making RTC for our own green hydrogen projects. It is a opportunity to offer the -- as a services businesses to meet, to give it to the end consumer at a time when they want and also to bid in the SECI bids. So these are the all 3 opportunities which are there. At this point of time, what I'm trying to say is that we are -- we have already got allocation. We have got project allocation, water allocation, we have started the necessary regulatory approvals and we will start construction of these projects probably end of next financial year or early FY '23, '24 by taking various approvals and we see a huge potential for these projects.

Ladies and gentlemen, due to paucity of time, we'll be able to take one last question, that is from the line of Sumit Kishore from Axis Capital. Please go ahead.

Could you please speak about the timeframe over which the reorganization of JSW into the gray and green businesses will be complete. And over the next and post that what would be a strategic direction in which you want to take this reorganization forward?

So the NCLT approval should be in place between 6 to 9 months' timeframe. And the strategic intent is that entire growth will be coming from the renewable space. So everything what we are talking about pump storage, green energy and green hydrogen, green ammonia, chemical derivatives, everything will be housed under the renewable space.

Would you be evaluating like a vertical demerger of those 2 businesses improve separate entity, listed entity?

In order to create and unlock the stakeholder value, all options are available on the table and that is the strategic intent.

Sure. So probably sometime in the next financial year, the organization will be complete?

That's true.

That would be our last question for today. I now hand the conference over to Mr. Rahul Modi for closing comments. Thank you, and over to you, sir.

Thank you, Mr. Jain. Thank you, Pritesh and the entire team for a very detailed discussion and lovely presentation. Thank you, sir and all the best. Any closing comments?

So thanks for hosting the call, and thanks everyone, for joining. Feel free to reach out if you have any follow-up questions. Thanks, and good evening. Thank you.

Thank you.

Thanks.

Thank you very much. Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference. Thank you all for joining us and you may now disconnect your lines.