Ladies and gentlemen, good day, and welcome to the JSW Energy Limited Q2 FY 2022 earnings conference call hosted by DAM Capital Advisors Limited. As a reminder, all participant lines will be in the 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. Mohit Kumar from DAM Capital Advisors Limited. Thank you, and over to you, sir.
Thank you, Faizan. On behalf of DAM Capital, I welcome you all to the Q2 FY 2022 earnings call of JSW Energy. From the management, we have Mr. Prashant Jain, Joint Managing Director and CEO; Mr. Pritesh Vinay, CFO; and Mr. Ashwin Bajaj, Group Head, Investor Relations. We'll start with brief opening remarks followed by Q&A. I would now hand over the call to Ashwin. Over to you, sir.
Yeah. Thank you, Mohit, and thanks for hosting the call today. Good evening, everyone. This is Ashwin Bajaj, and it's my pleasure to welcome you to our Q2 FY 2022 call. As Mohit introduced, we have Prashant Jain and Pritesh Vinay on the call. Hand it over to Prashant for his opening remarks, and then we'll take questions. Over to you.
Thank you, Ashwin. Power demand in quarter two was up by 9.9%. Similarly, we saw in quarter one, power demand up was at 16.4%. In the entire H1, we saw 13% power demand growth. First time we saw peak power demand touching 200 GW in the month of July. In the first 27 days in October this year, power demand is up by 3.3%, which is year-on-year. If you look at FY 2019, it is 14.4% up. We are seeing a robust trend in the power demand, and that is also reflected in the day-ahead market in the merchant. During the quarter, the merchant volume was up by 22% for the country at 6,000 million units.
For JSW Energy, the overall net generation increased by 2% during the quarter. Total thermal generation was up by 4%, whereas the hydro generation was down by 1%. In terms of the long-term sales, it was flat at 6,200 million units, whereas the short-term sales in the merchant market was up by 116% at 236 million units. The similar trend was continuing in the month of October also. The first 25 days, we were the largest seller of the power in the entire merchant market. During the quarter, our EBITDA was up by 10% at INR 1,080 crores, which was primarily due to the higher short-term sales as well as the recoveries in late payment surcharges.
Our profit after tax was at INR 339 crore, but if it is adjusted, PAT is four hundred and fourteen crore. The PBT saw the robust growth of 24% at INR 604 crore. Our receivables saw the downward trajectory. Year-on-year, 19% down and quarter-on-quarter, 7% down. Our net debt was also lower by 1% during the quarter at INR 6,500 crore with a weighted average interest cost of 8.04%. Now, as far as the growth of the company is concerned, all the renewable projects are moving on track for 2.5 GW. We have completed more than 50% tunneling for 10 km in our Kutehr project ahead of the schedule.
The pace at which this project is being built, if everything comes true, it will be the fastest-ever project built in the country for any hydropower plant. With respect to the solar and wind plants, we have already ordered all the equipment and construction work is going on for our 225 MW solar power plant. We have already started receiving solar panels, and they are being installed at this point of time. The commissioning of the project will start from the Q4 of this financial year. For our green hydrogen project, the scoping work has already started with, in terms of the technology selection, working with OEMs, with also the partners who will be sourcing hydrogen for steel production or consumption of ammonia per se.
We believe that with this, once this scoping exercise is complete, we will be ready with the pilot project sooner than later. We have also started taking concrete steps in terms of the intermittency solutions, as we discussed last time. In line with that and in developing a large pipeline of intermittency solution, the first 1,500 MW of the hydro pumped storage project MoU was signed with Government of Maharashtra. Similar, some other projects are also being developed. JSW Energy will be moving in lithium-ion battery storage solution as well as hydro pumped storage solution to provide an integrated solution to a round-the-clock green power. Also, company has already appointed the legal advisor, tax advisor, the financial advisor for reorganizing our gray and green energy business.
We are expecting in a couple of weeks a final scheme will be presented before the board, and then once the board approves it, then the implementation of the scheme will start to unlock the value. With this, I would like to open the floor for the question and answer session, and I take this opportunity before closing my remarks to wish you and your family a very Happy Diwali in advance. Thank you.
Thank you very much. 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. Reminder to the participants, anyone who wishes to ask a question may press star and one at this time. Reminder to the participants, anyone who wishes to ask a question may press star and one. The first question is from the line of Mohit Kumar from DAM Capital Advisors. Please go ahead.
Yes. Good evening, sir. So firstly, on the reorganization of gray and green, what are the timelines you're looking at? What are the steps, you know, after board approves, we as an investor will get to know, you know, more about it. And the related question is this hydrogen thing will be part of green. What are the projects you're looking at in the next 12-24 months, which you believe can be, you know, which can become where you can start some work?
I'll take the second question, and I'll ask Pritesh to answer the first question. As part of the reorganization of the business, whether it is renewable generation by hydro, solar, wind, also the intermittency solution by lithium-ion battery storage or hydro pumped storage, the green hydrogen, green ammonia initiatives, all this will be part of the total green business. The only gray power business will be having only the thermal business which is right now Ratnagiri, Vijayanagar and Barmer. This is how the reorganization will be happening. Any other future venture also, which is with respect to either the generation or any other specific initiative with respect to the which is ESG compliant and green, will be a part of the entire green vertical. Pritesh, would you like to
Yeah.
Answer on the timelines?
Yeah, sure, Prashant. Mohit, you know, if you just take a step back and you look at the way our corporate structure is today, you know, we have, of course, thermal business in the parent company. We have another wholly owned subsidiary, which is a Barmer entity, which is a thermal asset. We have a separate JV, which is a transmission asset. We have Hydro as a 100% sub, which in turn has a sub of Kutehr project. We have currently this entity called JSW Future Energy, which was earlier called JSW Solar, which is basically the vehicle for all our wind and solar initiatives so far, you know, into this.
Last time when we had shared that, the whole purpose of reorganization was to have one vehicle, within, you know, just one step below, JSW Energy, which will house all the green initiatives. As Prashant rightly clarified, that not only from the generation point of view, but all the new energy initiatives, both on storage as well as, hydrogen point of view. You know, I would not be able to preempt, and answer specifically what you have asked.
Typically, as is the norm with these kind of things, the idea is to see that what is going to be the most efficient way from, you know, income tax, stamp duty, Companies Act, other regulatory approvals, etc., point of view, in order to do it in the most efficient manner. Typically, there will be elements which will involve a scheme of arrangement through an NCLT process, etc., you know. I can give a very generic response, but as Prashant was saying that, you know, the advisors have already presented options which the, you know, the board has kind of taken cognizance of.
Hopefully, in due course, you know, we should be able to go back to the board with a full proposal after making sure that all the i's are dotted and t's are crossed. Post which, we will be making due disclosures to the stock exchanges.
Sir, one clarification. Have you signed a PPA for the Kutehr project with the Haryana?
That is still under finalization, Mohit. We hope to get to that line, you know, the crossing line, hopefully sooner rather than later. It's a procedural matter, not a principal issue.
Understood, sir. Sir, one more question as far as the merchant capacity is concerned, our merchant capacity, do you expect that capacity to reduce with the new steel plant, you know, up and running from JSW Steel?
Right now, our 13% of the total capacity is open, and we are happy to have 13% open capacity as we are speaking. But yes, we as a long-term strategy, as and when we find out the opportunities to tie it up, we will be certainly doing it.
Understood, sir. Thank you and all the best.
Thank you.
Thank you. Participants who ask a question, you may press star and one. The next question is from the line of Apoorva Bahadur from Investec. Please go ahead.
Yeah. Hi, sir. Thank you so much for the opportunity. So you said that proposed separation of gray and green businesses, all the ESG compliant businesses will remain in green. Now, should I read this that this sort of also will enable us to foray into gray businesses if need presents itself, particularly, say, for example, the Barmer expansion, which was sort of a pending issue?
As of now, our stated strategy is that, you know, we are concentrating only on the renewable power business, and that's what we would like to hold on. If at some point of time, if two companies are separated and an umbilical cord is disconnected, then I will not be in a position to comment about that at that point of time.
Sure, sir. Makes sense. Secondly, on this, basically government allowing this, private coal mine for some sale of coal to third parties, does that help us in Barmer in any way or no sale possible from there?
Yeah, it makes sense and it helps. It is permitted in law now to make a sale. We are working with the respective government authorities to look at that.
What would be the quantum if and when that sale commences?
As of now, 3 million tons of lignite can be sold as per the environment clearance. That's the opportunity. It is subjected to the various approvals and if the Government of Rajasthan agrees.
Okay. Just one last question from my side, and that is on the battery storage part. Do we see any opportunities crystallizing as of now? Are we participating in any of the government tenders?
I see a large opportunity which will crystallize in time to come. Right now some tenders are being, you know, crystallized and they will be coming into play. But at this point of time, you know, the costs are pretty high and these will be the exploratory tenders. But for the meaningful capacities to come, it will take at least two years. With that, we will be seeing a lot of storage application, but I see more potential on hydro pumped storage as compared to the battery storage solution because of the shelf life and also the environment friendly nature. Third is cost competitiveness. Once a hydro pumped storage project is built, the life is 100 years, whereas the battery storage system life is only six to seven years.
There are only a number of cycles which can be used for the charging and discharging for a lithium, so the cost becomes high for them.
Okay. In that case, the MoU with Maharashtra, which we have signed, what type of timelines can we expect for a possible execution?
These are the projects which will be built for the grid. Like, there will be very sticky projects which will be coming. This project is not for Government of Maharashtra. We have signed a MoU for allocation of project. Now we are taking environment clearances and various land acquisition which is, have been started. Over a period of time, these kind of projects will be seeing the light of the day. Because once the large capacity of the renewable capacity is coming up, then intermittency solution needs to be solved.
Makes sense. Capital cost would be similar to normal hydro project?
No.
Lower.
Maybe 20%-25% of that.
All right. Okay. Thank you so much, sir.
Thank you. Reminder to the participants. Anyone who wishes to ask a question may press star and one. The next question is from the line of Sumit Kishore from Axis Capital. Please go ahead.
Good evening. Thanks for the opportunity. My first question is regarding the you know, JSW Energy's you know, leading position as a seller in the merchant market. You know, what proportion of your power is getting sold on the exchanges and what is in bilateral contracts?
We have been selling, you know, a large volume. Like if last quarter, if you see, there was a total merchant market of 6,000 million units, and we sold close to 235 million units to 236 million units. Which was only 4% of the total size. In the month of October, we sold more than the volume what we have sold in the last quarter itself. In terms of the individual IPP, we were the largest.
Okay. This was what the portion was on exchanges? Just to understand.
100% on the exchanges. We sold 100% on exchange. During the good vibrant market, we sell 100% of our capacity and sometimes our plants run at 104%, 105% capacity also.
Mm-hmm.
In October month was a good month for us.
Given that long duration contracts are likely to get introduced on exchanges soon now, the regulator has paved the way, would you think that, you know, bilateral market would be something of the past for you now because LDC would provide an option on the exchanges, for you know, a few months to a year?
I don't think you will be seeing in time to come the merchant market only. Over a period of time, once this all capacities gets crystallized, it will be only a long-term market in India. I absolutely differ from some of the theories which are being floated around that the PPAs will be over permanently, and then it will be only a merchant market. I think this all has happened because of certain overcapacity which came up without any PPAs during 2005-2008 timeframe, where people conceptualized the projects based on the merchant market. A lot of funding happened for those projects and people came up with those projects.
Now, those projects have been tied up over a period of time, and now balance some of the capacity will get tied up, whichever is pending, because most of the projects which were under construction, they died down and they are sitting in NCLT as a bad debt at this point of time. Some of the projects which are operating, they will, their capacities are getting tied up. Like if you look at JSW Energy was having 55% tied up capacity and 45% was merchant. Today we are only 13% merchant, and we will also tie up. Now for last five years, no capacity has been built on merchant, and right now also nobody is building it. Once this all capacity gets built up and gets tied up, then there will be no merchant market in this country.
It will be only the long-term market. Who is going to set up for 25 years a merchant market, a power plant, will make an investment today and then wait for a merchant to decide? No lender funds, no person puts an equity. It's all myth which is being created by some people.
The share of the short-term market, which is 11%-12% of the overall market, in your opinion, will still remain in this range. You know-
It will also get tied up. Everything, because given a choice, you talk to any seller in the market, he wants to tie up his capacity if there is a long-term buyer. All these people will be tying up. Like, look at the situation. 2 years ago, Pilot Scheme auction was done by Government of India. There was no taker at INR 3.25. All PPAs were signed once this October crisis happened. Once the shortage happened, look at this situation. Every year, only 10 GW capacity has been adding up in this country, which is renewable, which is equivalent to 2 GW. Actual power demand has been growing 9-10 GW. Last 5-7 years timeframe, around 35,000-40,000 overcapacity was absorbed. This was the capacity which was floating in the merchant market.
Now, once you are seeing this kind of economic recovery, first, this all open capacity will get absorbed. They will get the coal linkages, they will get the coal from the commercial mining or the mines which are going to source the coal from the captive mines, which is Government of India has allowed. With that basis, people will try to tie up this capacity. Once they tie up this capacity, merchant market will dry up and no new investment is coming based on the merchant. That's the only point.
Why aren't we seeing 25-year long-term PPA or auctions happening to absorb that capacity now for the last couple of years also? We've not really heard of any 25-year PPA getting signed.
Sorry, your line is bad. I could not hear you.
There's a lot of echo, Sumit. I don't know if you're on speaker. Can you just speak on the handset please, so that we can hear you clearly? Thank you.
Is it better now?
Yes.
Sorry for that. I was saying that in the past 12 months, we are yet to see any states asking for 25-year PPAs. You basically suggesting in the next 12-24 months there will be multiple states coming out with requirement for 25-year PPA?
See, once the shortages start happening, the people will sign up for it. I believe the shortages, we have just seen the tip of the iceberg, what happened in the month of October. Because there was no investment has taken place in the power sector.
Right.
It's not about the coal shortage which we have seen. It's about the load which has come up on the thermal power plant. Look, we have 100 GW of the renewable capacity, which is operating at 19% CF as a nationwide, which means you are talking about 19 GW of actual supply, which is being done by renewable power. 45 GW of the hydropower plant, which is running at 49 to 50% PLF, which gives you another 21 to 22 GW. Effectively, out of 225 GW of the thermal power plant, approximately 45 GW is out of function because of gas non-availability as well as the thermal power plants, which are with the state government not having enough coal. From where the 200 GW of the peak power demand will be met.
Now the coal crisis has happened because the demand has really come up and coal prices in the import market went up substantially. The power plants which were dependent on the imported coal stopped operations because it was not viable for them to import coal at INR 8 a unit power and supply in the market. That's what some of the power plants stopped. Once they stopped, one side the generation was going down, another side the domestic coal requirement was going up. Thirdly, there is 65 to 70 GW of the captive power, which is generated based on the imported coal by the industry. The big large refineries, the large steel plants, cement plants, they import coal. They started switching over to domestic coal. The more and more pressure came on the domestic coal.
Coal India has been increasing production this year as compared to last year. The pressure was on Coal India because captive guys and the imported guys, everybody moved over there. The actual problem is there is not enough capacity.
Got it. Moving over to the quarterly results itself, just two questions there. The close to INR 150 crores in the September quarter, you know, maybe just some composition of this other income, how much is treasury income? What is the total liquid cash balance, including liquid investments on the balance sheet? Second one on tax. The tax rate seems to be high and if there's something that we need to take note of.
I'll ask Pritesh to take this.
Yeah. Sumit, sorry, we lost you for a few seconds during the first part of your question. I got the other two parts. One is on the other income and on the tax rate. What was the first part of your question?
Cash, cash equivalents, liquid investments on the balance sheet, and what is the composition of that other income? Is it all treasury income?
Yeah, sure. I get it. See, so the cash balance at the end of the quarter was about INR 1,777 crore, right? That's also mentioned in the presentation. If you look at the tax rate, you're right, the tax rate is appearing higher. The way to look at it is this, that there are two things that are happening. One is hydro business, of course, is seasonal, where the earnings are front-loaded because of seasonality and hydrology in the first half of the year, and it reverses in the second half of the year.
What has happened in the hydro business is that if you recall our disclosures of the Q1, we had done a $700 million US bond issue in the month of May. Because of that, when the proceeds came, we prepaid the existing rupee term loans, and there were one-time charges which had to be booked on account of the prepayment charges as well as the absorption of the unamortized cost of that loan. That was an amount of about INR 92 crores that was hit in the Q1. As a result of that, what is happening is this, the effective tax rate at the hydro entity is going up because Karcham is already under 80IA.
you know, one was not able to get a tax shield on account of this provision that was done, or the one-time hit that was done, in the books of hydro. that is going to normalize during the course of the year. if I were to kind of, you know, help you think through this, that end of the day, what should be the effective tax rate on a consolidated basis looking like? What is going to happen is this, that if you see the last few years on an average on a consolidated basis, our effective tax rate is in the ballpark of about 25% plus minus something any given year. We should be largely in that range for the whole year as well.
Okay. Okay.
I hope I've been able to explain that tax part. The other part of the question that you asked is the composition of the other income, right?
Yes.
Now, in the other income, there are essentially two components which are material. One is, you know, we won this case from the Supreme Court on account of the LPS charge at MSEDCL because of which we have got, you know, INR 57 crore of income has been booked on account of that. This is basically an old case which was around, you know, the rate at which the LPS needs to be paid, where there was a difference of view between MSEDCL versus, you know, what the PPA held. We had already won it in appeal, but the MSEDCL had gone in appeal against Supreme Court, and Supreme Court has adjudicated upon that. That is one.
The second component is there was a higher dividend income this time from JSW Steel because of the shares that we own in JSW Steel. Of the roughly INR 89 crore is explained in the other income on account of this. These are the two largest. Yeah.
Okay. Largely the other income of INR 150 crores is explained by these 2 items.
Largely, correct. Because when you're talking 150, I'm assuming you're talking the half year, right?
No. September quarter is INR 1,499.
Correct. You're right.
Yeah.
Exactly.
Thank you so much. Thanks for answering my question.
Yeah.
Thank you. Reminder to the participants. Anyone who wishes to ask a question may press star and one. The next question is from the line of Subhadip Mitra from JM Financial. Please go ahead.
Good evening, and thank you for the opportunity. My first question is with regard to the domestic coal supply crisis that we have seen, and at least the recent data seems to show that coal supply seems to be finally in place and demand is flattening. Probably the plant coal stock-up is starting to happen. In your view, do you think we are over the hump and we may see this coal supply crisis tapering off going ahead?
Not at all. Because this is not a coal crisis. This is what I just explained. This is a power capacity crisis.
Understood.
Demand has moderated because of the festival season, number one. Number two, there is a lot of import-based power plants which started because some of the states agreed to buy the power at a higher tariff from those power plants, so they started with a higher fuel cost. They started then increasing the supply. That's the primary reason. These two are the primary reason because of which you have seen the moderation. As soon as the demand starts again picking up, you need more and more capacity. See, right now also, like, this year also you are seeing what kind of a capacity. You will be ending up seeing 10 GW of the renewable capacity, effectively 2.5 GW. Power demand is up by 10,000 MW.
From where every year power demand is growing, from where the capacity will come up?
Point accepted.
It's not about coal.
It's more of a demand issue than a coal issue. That's your point. Is that right?
It's not the coal issue. It's the capacity issue.
Exactly. Fair point. Secondly, with regard to the international coal price trajectory, any sense of, you know, whether you see that, flattening out going ahead?
Thermal coal prices have already started coming down. On the 15th of October, the API4 index was $280. Today, it is $140. It has just become 50% in the last 14 days, and the thermal coal prices are coming down.
Okay. Another point being, you know, we've seen a power crisis in China as well. From what we read at least in the international media is that will also have a cascading effect in terms of module supplies and, you know, module production as well as costs. Just wanted to get your sense on, you know, how do you see the module pricing and supply panning out?
It's very tough call for me to tell you that what will be the trajectory and what has happened is that in the last six months, seven months, the module prices have gone up from $0.18 to $0.29 as we are speaking. That's where we have been always very, very concerned about the kind of a predatory competitive bidding what some of the people have been resorting and making the bids at INR 2, INR 2.40 in order to just make the book, and which are not at all sustainable. That's precisely the point that the bid happens, but the people don't execute the project. That's where the shortage is coming overall.
Eventually, the Government of India has initiated to build a large capacity in the country and then, under the new PLI scheme, close to 10 GW of the new polysilicon to the module capacity will be built up. I believe that 10 GW of capacity will be up and running in next 24 to 36 months of time. Post that, we will see a lot of stabilization because India can produce at a pithead very low-cost thermal power, and with that power, the low-cost polysilicon can be produced, and then we will be out of this problem. I believe that this 10 GW capacity will go up to 30 to 40 GW, and then that's the capacity we need. Some of the large players themselves are individually contemplating 10 GW each.
With this first PLI scheme, I believe that the path has been, you know, chosen. In next three, four years, we will have large capacities in the country. Till that time, we will have to bear with this price variation, which will be overcome in due course.
Thank you. This was really helpful. Lastly, you know, as you were mentioning, you know, earlier that the current crisis, let's say, on the power supply side and the way merchant prices have been going up should induce DISCOMs to start coming back to the medium-term or long-term PPA market. In your discussions with, you know, various DISCOMs, do you see any move by the DISCOMs in planning their medium-term or long-term power?
I feel that the PPAs will start happening for whatever residual capacity is there. No new incremental capacity will be coming from thermal side. All incremental capacity will be coming only from the renewable side. That is completely PPA tied up. No new project is being built without PPA. Even the funding doesn't happen. Only the existing open capacity is there, which will be certainly tied up in next couple of years timeframe.
Understood. Thank you for answering my question. Very helpful.
Thank you. The next question is from the line of Anuj Upadhyay from HDFC Securities. Please go ahead.
Yeah, thanks for the opportunity, sir. Sorry if you have already answered this question. I joined a bit late. Just want to know, did we participated in the recent price hike in the spot market, the rally which we saw in the starting from the last week of September and through the mid of October and benefited from this? And how things are actually panning out now? Do we have? I mean, the international coal prices are still viable. We imported and sold in the current market on this front. Secondly, can you please elaborate a bit on the MoU which we have signed with the Government of Maharashtra for 5 GW wind and 1.5 GW of hydro pumped storage?
We were having good coal inventory at a very low cost. We could take the advantage of this, you know, good environment in September and October. Right now the demand is subdued, but post-festival, I believe the demand once again is going to go up. Imported fuel-based power plant are the best place to capitalize on the merchant market because that's where the minimum supply side constraints are there. As the imported fuel price moderate, it is further helpful for a company like JSW Energy.
With regards to the MoU, what we have signed, that we, as we have been explaining, securing the resources, which are particular locations where we would like to build the power projects in due course of time, because in India, the most difficult part is to acquire the land and get the right of way and connectivity, and that's what we have been building. So we have been doing this in various states, Rajasthan, Tamil Nadu, Karnataka. Now we have done the similar kind of a thing in Maharashtra also. The pumped storage project is the allocation of a particular site which we have identified, and where we will be building 1,500 MW of hydro pumped storage. Right now we have started working on environment clearance and land acquisition per se.
Over a period of time, we will build this project and which will be supplied to SECI for the grid intermittency problems. Like right now you are seeing that a new RFQ has been floated for storage solution, which is 4,000 MWh. Like that, there will be the grid-based solutions which will be coming, and where grid will be supplying power in certain off-peak time and taking power in the peak time. That's how the grid will get stabilized. Round the clock solutions will be coming. Because the grid-based solutions are economically viable. Individual project solution is not economically viable. That's how we are building these kind of projects.
Got it, sir. Any view on the timeline for the execution or on the tariff side for these two things?
Yeah, it will take time. You will see that as and when the bids come, we will be able to participate. Because, you know, once you have the resources, you can turn around very quickly. Execution doesn't take time. The real time takes place in getting the resource, getting the land, getting the connectivity, getting the clearances. That takes more time. Execution takes no time. Bids keep on coming. First win the bid, and then it start looking for the assets and connectivity and land acquisition, and then we don't build the project, which is the difference between the most of the companies and us. We started building the projects immediately after we secured the bid. Now it is going into the commissioning. The turnaround time is few months.
Got it. Thanks, sir. That's also my question.
Thank you. We'll take the last question from the line of Sandeep from Edelweiss. Please go ahead.
Yeah, hi, sir, this is Sandeep. Thanks for the opportunity. Two set of questions. First, I believe that about, you know, our 600 MW of merchant capacity, we have kept it open intentionally to take the advantage of, merchant prices. I mean, you know, the merchant prices have been volatile, but what, according to you, is the likely trajectory over here for the next, say, six months to one year? Is it going to be somewhere between INR 3 to 6? How do you see that? That's the first question.
I'm not sure I will be able to answer you that what will be the prices, but I can say that, you know, power shortage is going to stay here for couple of quarters. Prices will be ultimately a function of demand and supply, and I see that not enough investment has taken place in power sector in last couple of years, and because of this, we will be seeing the power shortage in time to come, and that will directly reflect into the merchant prices.
That will ultimately lead to the re-signing of the PPAs. That is what the interpretation is, right?
That may happen. I'm sure that, you know, when did you last time see that, in spite of having a PPA at X price, DISCOM agreed to buy at a much higher price from the company with whom they have PPA? Given a special approval. Does that happen?
Yeah. That's true. I take your point. You know, they had the kind of obligation. That's what they said. That was another thing. Sir, my second question is, you know, do you actually foresee a peak deficit which is right now at just about 0.5% or 1%? Do you foresee that we are going back to 2011 times when the peak deficit used to be about 10% to 11%? Because, you know, India being an evening peak country, you know, the renewables have little role to play over there. And thermal, since we are not investing, you will see that 2023, 2024, you will hit that peak deficit.
I believe very strongly that we are going to see the power shortage. Because we have not made enough investments.
Okay. Now basically.
That's what I am also saying, that the deficit is going to increase. If there is a shortage, there will be the deficit which will be increased. Both are the two sides of coin.
Yeah. No, no, I agree. My point was that when are we likely to see that? Is that likely to be visible in FY 2022-2023? When do you think that is likely to start hitting?
No, I think we have already started seeing it.
Okay.
We'll continue to see, because, you know, where is the investment happening other than renewable? What is the pace of investment? 10 GW, which is 2,000 MW a year. The demand is increasing by 10,000 MW every year.
Right.
We know you plot on from 2010 to 2020, how much capacity we have increased and how much demand has increased. Not in the installed capacity. We have to see the generation capability. If in last 10 years we have set up 100,000 MW of the renewable capacity, last 10 years, which is equivalent to 19 GW only. We are talking about capacity increase, but we are not seeing the actual capability to generate how many million units. Whereas the demand is growing much higher. Last 7-8 years, close to 45,000 MW of overcapacity has been absorbed.
We have been a power surplus country in terms of the capacity from 2013 onwards, and that's where you have been seeing this kind of a NPA problem and also the subdued merchant market and all this kind of a thing. This all overcapacity has got absorbed in last 6 years, 7 years. Now, in order to overcome this, you need to at least set up 35,000 MW of renewable every year. You are meeting the incremental demand. You will continue to have this kind of a scenario, what you are having. If you don't set up that kind of a capacity, then you will be having shortage.
Right. Right. Got it, sir. Thank you so much.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments. Thank you.
Yeah. Thank you everyone for joining us, this evening, ladies and gentlemen, and, feel free to reach out to us for further questions. Thanks again.
Thank you. Ladies and gentlemen, on behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.