Ladies and gentlemen, good day and welcome to JSW Energy Limited's Q3 FY 2022 post-results conference call, hosted by ICICI Securities. As a reminder, all participant lines will be in a listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. 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 2022 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, to the entire team. I will hand over the call to Mr. Ashwin Bajaj, Group Head, Investor Relations, 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 2022, 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. 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%. First nine months, the power demand went up by 9.6%. Of this, the generation we saw in the first nine 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 growth is now being met more and more by renewable energy capacity, which was also reflected in terms of the capacity addition, which I'll be talking little later. During the end of the quarter, 31st December 2021, the total installed capacity is 393 GW.
The total net capacity addition in first nine months is 11 GW, of which net capacity of 491 MW 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 nine months it was INR 4.07. As compared to the last year's same quarter, INR 2.76 and INR 2.58 last year's first nine 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 our 300 MW unit in Ratnagiri was under maintenance since first 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 raw material 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 three EBITDA in last five years at INR 882 crores. Similar thing has been observed in the profit after tax. In the first nine 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. 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 crore, lowest ever. We reduced INR 500 crore 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 in the 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 GW of the projects which are under construction with a capital outlay of INR 15,600 crore.
The first project of 225 MW will get commissioned in the current quarter. 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 9, SECI 10 grid which is going into commissioning, whereas other people are still in a PPA signing mode and various other formalities. Next year we are expecting between 1-1.3 GW of the capacity commissioning, and this will entail that we will be making a capital expenditure of in excess of INR 8,000 crore-INR 10,000 crore next year and every year.
One more notable point, while the company has been in a CapEx mode for last 3Q-4Q a capital outlay of INR 15,000 crore, 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 have been deployed. Thereby the debt drawdown 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 Energy and JSW Neo Energy has been filed. It is moving as per the expected lines.
We are expecting that within the next six-nine months timeframe, this exercise should get completed. Our hydro project is also moving better than our expectation. We have already completed 60% of the tunneling. 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's 3 waves, with various lockdowns and COVID restrictions, in spite of that, this will be the fastest ever project built in the country. With this, I am happy to hand over the floor for questions and answers. Thank you very much.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Vishal Biraia from Max Life Insurance. Please go ahead.
Hello. Thank you. The CapEx that you've currently incurred of INR 1,600-odd crores on the 2,500 MW that is under construction. Some of these projects will start commissioning from March onwards. Why is the CapEx so low? One is that, 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. Thank you.
Pritesh, would you like to take this question?
Vishal Biraia, thank you for your question. See, so there is CapEx spent and there is CapEx cash outflow, right? When we put in the presentation a spend of INR 1,640 crore, that is the 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 crore. Totally, if I were to look at the commitments that we have made, right, the commitments are close to almost INR 7,000 crore, which is more than 40% of 42%-43% of the total pipeline of INR 16,000 crore. Because obviously, when the idea is this, that how do we.
The point that Prashant was also trying to make earlier, you know, 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 a upfront cash outgo, right? You know, we will be commissioning that particular project during this quarter itself, and revenues will start flowing from next quarter onwards. Once the LC is, you know, becoming due, there'll be opportunity to look at, you know, 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, you know?
The idea is this, the point that Prashant was also making that from a project execution, project management, point of view, we are also kind of, you know, deploying, what are going to be the more efficient ways of, squeezing, you know, the costs, and ensuring that the returns get a kicker in some way, shape or form, you know. 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. If I look at, you know, this, CapEx that we have incurred during the nine-month period, what we have incurred is actually close to INR 1,150 crores.
In this, on Kutehr alone, we would have spent about close to INR 300 crore. On SECI, both 9 and 10 projects combined, we would have spent about INR 450 crore. On the group captive, which is a 958 MW, we would have spent close to INR 320 crore, and the balance would be for the normal CapEx that we are doing on the existing operational plants. Yeah. That's the broad breakup.
Okay. The other question is update on the pumped hydro storage projects.
Sorry, update on?
Uh, pumped-
I'll take that question. As far as our pumped hydro storage projects are concerned, we have already got the water allocation in two projects. One is in Maharashtra for 1.5 GW and also in Rajasthan for 1 GW. We have already applied for environmental and forest clearances, and techno-economic feasibility report is under preparation. Once techno-economic feasibility reports are done, they will be submitted to CEA and then post that we will start construction of the projects. In various other states in Karnataka, in Andhra Pradesh, Telangana and Orissa and Chhattisgarh, there are various other projects totaling up to 10 GW, which are in advanced stage of allocation and various approvals. We are expecting that the first project we will start construction sometime end of next financial year or early FY 2023-24.
Okay. 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 2.5 crore-INR 3.5 crore, or up to INR 3.75 crore per MW. Typically these projects are six-hour peaking cycle, which we design, which entails approximately 25% PLF. You can imagine that it will be more than, you know, twice as efficient. Typically a hydropower project you build at INR 12 crore a megawatt, you achieve 50%-55% PLF. Here you are, you will be 25% of or less than 25% of that project cost and half the PLF. In terms of efficiency, they will be doubly efficient, more than double.
Thank you very much. I think that concludes it. Thank you.
Thank you. The next question is from the line of Apoorva Bahadur from Investec. Please go ahead.
Thank you so much for the opportunity, sir, and congratulations on good set of numbers. Again, follow-up question on this pumped hydro projects. Will we be signing PPAs for these or will these be for green hydrogen production given that it will require around-the-clock power?
We have a lot of opportunities and options on which we are working. 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 8:00 A.M. till 6:00 P.M. only five days a week. Whenever I'm not drawing I'm not paying for that. That's why I'm ready to pay on an average INR 12 tariff. Now this kind of PPA if I am a renewable power company I cannot enter.
If I am a renewable power company with hydro pump storage, I can supply power whenever you want in that particular time. That opportunity is available. Those are the kind of a service solutions which will be the future market, and that's where we are working on.
Okay. We are looking at open access green power supply as well.
Yeah, that's one of the possibility other than the green hydrogen.
Okay, fair enough, sir. I think coming to the green hydrogen side, I think couple of quarters back we announced something, a tie-up, what was I thinking? Some company in Australia. Have you formalized plans and would you like to share anything if we will be foraying into this market and what is gonna be the scale of the foraying?
We are doing right now the scoping exercise and techno-economic feasibility is going on. We are in a final stage of discussions for all these exercise, including the techno and commercial discussions with various technology providers. It is moving much faster pace than what we had initially expected. 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 the 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.
Oh, wonderful. Very good to hear that, sir. Sir, lastly, on the renewable capacity addition side. I think as a country, we have promised up to 450 GW of renewable capacity by 2030. Do you see that being achieved given the current pace of ordering and all the module issues, ALMM, BCD, etc.?
It's a tough question what you are asking, because right now because of the, you know, two strategic objectives Government of India has been trying to balance. One is Make in India objective and second is green energy objective. They have been, you know, working against each other so far, which has been a bit difficult situation for the pace of the growth. Such thing can be overcome very quickly once this kind of a capacities are built up, and capabilities are built up in the country. Then doing 40-50 GW every year capacity addition is not a big deal. China has done it, India can do even bit better than that.
It's only the capability building and building such kind of a capability in India, it will take maximum three-four years timeframe. If you are talking about 2030, yes, it is achievable. 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.
Sure, sir. Just one more question, quick question, if I may squeeze in. That is if you could please share your contribution of merchant power sale to EBITDA in Q2 and 9M. That'll be very helpful. Thanks a lot. That's all from my end.
Yeah, Apoorva, if you get a chance to look at the presentation that we have put up, you know, on the website also, and the link to that should be in your inbox. There is a particular EBITDA bridge, you know, which is given both for the quarter as well as for the nine months.
Okay. Sorry, I missed that.
Yeah. You'll get everything that we need. Yeah.
Thank you. Thank you, sir.
Yeah. Yeah.
Thank you. The next question is on 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 a very good thing. Do you believe that this is sustainable? Going forward, would you say that the counterparty risk would be coming down significantly because either you'll be supplying to JSW Steel or the SECI projects?
Look at last four years, it has been sustainable, whereas the deterioration has been happening. We don't see any reason why it will not be sustainable. There are two reasons. Primarily, one is that our quality of power in terms of tariff, because of which, discoms have an incentive to pay us on time. Second is our management, the way we work, and so both entail for this. Of course, going forward, the incremental contributions will be coming from the SECI contracts, so that will be also an added advantage.
Okay, sir. That was my question. Thank you very much and good luck.
Thank you. The next question is from the line of Murtuza Arsiwalla from Kotak Securities. Please go ahead.
I have two questions from-
Murtuza, your audio is breaking. Can I request you use the handset now?
Yeah. Is it better now? Hello?
Yes. Can you come in the network area please? Your voice is breaking.
One second. Is it better now?
Yeah, much better.
Okay. Two questions. One is on the
Yeah.
We have been converted to a captive status during the quarter. You know, is there any advantage to having done that? Would it require you to sort of, at least on an open access basis direct from state to the consumer, for the captive status? Is there any advantage? Second is on the fuel cost and margin dynamics. Given, you know, how this is moving so far, it appears that you're not getting the hit of higher imported coal. Can you give us some indications of, you know, how much inventory, your cost inventory you have and how is that situation looking? You know, you had some contribution coming from the short-term markets. Is that more sustainable for a few quarters or things are not looking as precise?
Sorry, Murtuza, your voice has been consistently breaking and I could not understand. Pritesh, would you like to take this call if you see-
Murtuza, if I understood the first part of your question, which is slightly better audible, you were asking that, you were referring to what CEA has done in terms of classifying unit to-
Yes. Yes.
Targeting IPP to CPP, right?
Yes.
I could get that bit, but I didn't really realize.
I will take that.
The second question on that.
You are saying that what's the advantage of that?
Yes. Is there any advantage or disadvantage in doing it? What is such a classification?
The contractual part, because if I keep that in IPP status, then I will not be able to sell that power other than any discount.
Okay.
If I want to sell in open access, for example, industry is 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 cross subsidy surcharge, which is in excess of, for example, in Maharashtra, it will be in the range of INR 2.5-INR 3, other than the capacity charge plus fuel charge. It becomes a deterrent for anybody to do that. Instead of that, if it is a CPP status, they take 26% equity into the company, and such charges are not leviable. It is economical for them to produce. That's the only difference between a CPP and IPP.
Right. Will we have to then divest 26% for the captive component now, or it's more nominal divestment?
It's a nominal on the.
Yeah.
Yeah, that has to be there. Not on the listed company that way.
Okay, okay. Sir, the second question, if I'm more audible now, is, you know, on imported fuel costs. They've obviously been higher. Your numbers still reflect a more contained set of fuel costs. So how much, you know, low cost inventory we have before the high-
Sorry about that.
Imported coal prices started to.
No, no. We are not. If you know about our company, our 100% of the fuel cost is pass through.
Right.
Including exchange, logistics, and index prices. We are insulated.
Right.
Some of our
I understand that.
contracts have already moved to the job work where
Okay.
The counterparty is bringing coal, and we are only getting the fixed cost.
Okay. Okay. Fair enough, sir. Thank you so much.
Thank you. The next question is from the line of Rohit Kothari from GeeCee Holdings. Please go ahead.
Hi. Yeah. Hi, Prashant. Prashant, could you throw a little more light on your entire hydrogen foray? I know you're gonna put it up to the board, but the hydrogen, the electrolyzer, then the downstream ammonia and if you're going to also look at other downstream chemicals. The second is what is the size of electrolyzer or the range of investment you are looking in this sphere. The third is, you know, we've seen one or two 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 isn't as viable.
Where do you see the end cost or the range of cost at which you know this will happen? 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. This is on the hydrogen. 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 forays? If you can, Prashant, throw light.
Once again, fantastic set of numbers and a very focused strategy which has come out of your management and really congratulate for that.
Thank you, Rohit. Firstly, that, you know, there are a lot of talks which are there right now about the green hydrogen. Now, the most important thing to produce hydrogen is the renewable power. Anybody who can produce power at the lowest tariff will be able to produce hydrogen at a lowest tariff. 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 costs, these three things will drive your capability to produce renewable power at a lowest cost.
If on top of it, your cost of funding is lowest, 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 available only 30% of the 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 30%-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.
The next piece, which is also important is, that what do you do with the by-product, 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. 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 am 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. 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 blank question 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. Yes, we are having a lot of strategic advantages in each and every aspect, which will be driving our cost block also lower and in terms of capital allocation as well as the cost of production, and thirdly, user's point of view. Now, we would like to talk in detail as we will be going to the board and then approving it 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 MW of the electrolyzer capacity. That's roughly the ballpark number. If you want to put 100 MW of the electrolyzer capacity, you need close to 300-350 MW of the renewable capacity, plus in addition to that, you will have to set up the various storage applications to make the power round the clock. That's the kind of numbers you look at it. In order to produce approximately, say if you are looking for a 200,000 tons of ammonia plant, you will be looking something like 35,000 tons of green hydrogen to consume that.
That's how it is there. In terms of the oxygen by-product which will get developed, for every ton of the green hydrogen which you produce, you will be generating close to 5.5-6 times of the green hydrogen in terms of the weight, as a by-product, which you will have to dispose of and to create a value. These are the broad numbers, if I have answered your questions.
Yeah, Prashant on the JSW Steel stake.
Yeah.
What could be the long-term?
So, we have already classified them as a non-strategic in nature. 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 crore 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, you know, the LCs to procure the equipment in a large capacity and then convert them into usance, which is much more efficient way to do that. Our debt comes onto the books only after the commissioning of the project when it starts generation. These are the various innovative tools.
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.
Got it. Thanks. Thanks, Prashant.
Thank you. A reminder to our participants, please press star and one if you wish to ask a question. The next question is from the line of Anuj Upadhyay from HDFC Securities. Please go ahead.
Thanks for the opportunity, sir. One clarification, sir, on the capacity addition part. We have 2.5 GW under construction, which could begin commissioning from the next financial year onwards and probably.
This financial year onwards. Current financial.
Okay, the phase I. Probably it may last till, say, you know, by the end of FY 2024 or by the mid of FY 2025. Here, this is for the 2.5 GW. But in the presentation we have mentioned that our target is to scale this up to around 10 GW by FY 2025. Could you just, you know, clarify that are there any inorganic opportunity which we are eyeing or certain other projects which are in a very advanced stage of discussion which could, you know, come into picture in a very near term so that the execution happens over next two-three years kind of a period so as to meet the target? Secondly, on the pumped hydro storage.
Any rough idea or estimates on the tariff which we are looking out through this project?
The first question to answer that, as we have said that we are already built a portfolio of more than 20 GW in terms of the resource site with us. We are already having that and we are converting them into the projects. There are a number of other projects which are under discussion, bilateral also, and we have already planned for execution, whether it is for captive use for green hydrogen or to integrate it with the pumped hydro storage and offer that as a solution and also for the SECI bids. All these are the pipelines which are already crafted and then in due course of time we are going to announce them. What I can tell you is that whatever we have planned at this point of time, we will be only accelerating that.
If we have talked about certain capacity numbers, then we will be achieving them sooner than later. In terms of the inorganic opportunities also, we have been very actively pursuing and But we don't want to grow either our book or our capacity by a inorganic way by compromising our returns. You will not find us at a bidding war in SECI bids or in the acquisition rates where the returns are not qualitative. For us, growth is paramount, but at a qualitative return. That's what is the most important thing. We have been consistently talking about our free cash flow yield are on a adjusted net worth and on a proper adjusted balance. PPA life is in excess of 18%-19% for the entire portfolio for throughout the life.
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. 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. On the tariff side, sir, for the pumped storage project.
As I said just now, I had explained that these are the projects which will be going in for various solutions. Because, you know, 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 a hydrogen, ammonia or some other chemical derivative, I will give you. We are going to build renewable power will be a baseline for us, but we will be offering various other solutions.
Going forward, you will see that strategy will be migrating from a commodity company or a simple power company entering into long-term PPAs.
Fair enough, sir. Thanks for the opportunity.
Thank you. Anyone who wish to ask a question at this time, then please press star and one. The next question is from the line of Rahul Modi. Please go ahead.
Thank you, sir. Again, you know, big congrats for an excellent set of numbers. Sir, you've been obviously quite vocal about you know, the demand supply mismatch being visible. We've seen that obviously in Q3, where we saw power prices touching almost INR 20. How do you see sir, the overall demand situation and you know, obviously and how our capacities you know, will cater to that? As you mentioned that we are almost fully tied up. That is one. Secondly, sir, you know, there were some previous questions asked also on the opportunity size. Now, you know, we've seen that the bids in the renewable space have been slightly you know, erratic.
When do you see the pickup over the next couple of years? How much of annual bidding do you see, and, you know, retargeting how much? You obviously mentioned that IRR is very critical, but the opportunity size share from that point of view. What is your view on that?
Look at this way that this year nine months power demand has grown, 9.6%, first 9 months. Whereas similar period last year, there was a contraction of close to 4%. If you net off adjusted, you are talking about 5% demand growth. 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 this power demand will grow.
Now, I continue to say that the way India has grown over a period of last 20 years and last five 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 or some state projects are under development and are getting commissioned. Now, those state-owned and central-owned utilities have also stopped constructing any new thermal capacity. It is safe to assume that no new thermal capacity will get added. Existing thermal capacity may get fully utilized, and part of the capacity will get retired based on various other requirements.
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. That means at a 165,000 MW of the base load and 185,000 MW of peak load, you are talking about 9,000-10,000 MW of the incremental demand, which will be met by renewable resources.
Now, there are certain challenges, like one of the, you know, participant was asking, "How do you see whether given the challenges in terms of, the manufacturing capabilities and the taxation and various other things, whether this target will be met?" Yes, for a short term, two, three years, the capacity addition could be a problem which could accelerate after the, you know, the sufficient capacity 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 bout of the peak power. Today also, you know, average tariff is around INR 4. But in certain times you are seeing INR 8, INR 9 is the power tariff. That's what it is happening primarily because of such kind of a situation.
You have seen the thermal tenders which has been brought from, for example, Punjab, INR 4.50 ex-bus is the tariff for three months. That's the kind of a tariff which people are quoting with a domestic coal. 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 India builds a lot of manufacturing capability in due course of time. At that point of time, adding 40-50 GW of the renewable capacity every year to meet incremental 10 GW of the power demand is not going to be a challenge. 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.
Great. Thank you and all the best.
Thank you. Our next question is from the line of Mohit Kumar from DAM Capital. Please go ahead.
Hi. Congratulations on a very, very good quarter, sir. First question is, given the bout of, you know, the rise in prices in merchant prices in the quarter, is there any point in having a slightly higher merchant, you know, capacity for us for the next few years? The related question is that what is the status of RTC to bid? Are you participating? Do you intend to tie up this capacity, let's say, if you decide to tie up for the long term? Are you looking at the RTC bids or it's only captive?
You are talking about RTC in renewable or RTC you are talking about thermal?
Oh, I'm talking about RTC thermal plus renewables, yeah. The combination.
I'll tell you one thing, that we have the capacities which are based on the imported coal. Given the prices where they are today at $165 API 4 index, it is not at all viable to produce power at that tariff. For example, the fuel cost today, only fuel costs are in the range of INR 5.25. How do you service the merchant market in this kind of environment? 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. This is very challenging environment in terms of the merchant business. That's why we have decisively 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 it. Eventually, our whole idea is to integrate whatever open capacity is with the long-term PPA. That's how we see.
Under long-term PPA looking at captive or also we can participate in the renewable-
We are absolutely open for captive and/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 bid, but unfortunately that did not see the attractive rate. Now there are more bids which are coming up. For example, Indian Railways have come up with a bid where, you know, 150 MW of a thermal renewable RTC bid has come. SECI is also planning two more bids in that. There we will be integrating our thermal plus renewable portfolio.
Understood, sir. Second question is, sir, on the JSW Steel owning 26% the listed entity for Ratnagiri to be classified as group captive. I think my understanding is correct, right? Then why JSW Steel is going to own 26% in the subsidiary? You can as well have it in the listed entity, right? Additional stake.
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-INR 3, depending upon the state.
Absolutely, sir. JSW Steel owns 26% a number of shares in the listed entity for the Ratnagiri to be classified as group captive. Is my understanding right?
That's correct, Mohit. JSW Steel already owns shares of JSW Energy. Those shares are treated as its contra you know, holding the 26% equivalent for those three units at Ratnagiri. Yeah.
Why can't they just replicate that in this, for the renewables? Why does they have to hold separately?
No, they will. If you look at the way the assets are housed, Ratnagiri plant is directly owned by JSW Energy Limited.
Okay.
Standalone.
Understood.
Right. 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 in those separate SPVs, right? Now, in that particular SPV for a captive project, JSW Steel will own 26% equity stake of that particular SPV, right, to comply with the Electricity Act rules that Prashant was talking about.
Understood. Last one, 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, you know, identified the projects, can you please share that?
Yeah, we'll share in due course of time, as I explained a lot about hydrogen project. We will let you know. It will not be a pilot project, it will be a directly big commercial scale project.
Okay. Because, sir, I find the presentation it was about some pilot projects.
No, no. It is, it's going to be a big commercial scale project.
Lastly, on the pumped storage, will this capacity be used to bid for the storage tender for SECI? Is the right understanding?
As I said that there will be a number of opportunities, whether it is using the pumped storage for making RTC for our own green hydrogen projects. It is an opportunity to offer the power as a service businesses to meet, to give it to the end consumer at a time when they want, and also to bid in the SECI bids. These are all three opportunities which are there. At this point of time, what I'm trying to say is that 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 2023, 2024, by taking various approvals. We see a huge potential for these projects.
Thank you. 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.
Good evening. Thanks for the opportunity. Could you please speak about the timeframe over which the reorganization of JSW into the gray and green businesses will be complete? Over the next and post that, what would be the strategic direction in which you want to take this reorganization forward?
The NCLT approval should be in place between 6-9 months timeframe. Strategic intent is that entire growth will be coming from the renewable space. Everything what we are talking about, pumped 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 two businesses into separate entities, listed entities?
In order to create and unlock the stakeholder value, all options are available on the table, and that is the strategic intent.
Sure. Probably sometime in the next financial year the reorganization will be complete.
That's true.
Thank you so much.
Thank you.
Thank you. 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 a lovely presentation. Thank you, sir, and all the best. Any closing comment?
Thanks Rahul 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.