Earnings Call Transcript - RNW Q2 2024

Operator, Operator

Thank you for waiting, and welcome to ReNew's Second Quarter Fiscal Year '24 Earnings Report. All participants are in listen-only mode. There will be a presentation followed by a question-and-answer session. I would now like to turn the conference over to Mr. Nathan Judge from Investor Relations. Please proceed.

Nathan Judge, Investor Relations

Yes. Thank you, Jason, and good morning, everyone. And thank you for joining us. This morning, we issued a press release announcing results for the fiscal 2024 second quarter ending September 30, 2023. A copy of the press release and the presentation are available on the Investor Relations section of ReNew's website at www.renew.com. With me today are Sumant Sinha, Founder, Chairman, and CEO; Kailash Vaswani, our newly appointed CFO; and Vaishali Nigam Sinha, Co-Founder and Chairman of Sustainability. After the prepared remarks, we will open up the call for questions. Please note, our safe harbor statements are contained within our press release, presentation materials, and materials available on our website. These statements are important and integral to our remarks and there are risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements. So we encourage you to review the press release we furnished in our Form 6-K and the presentation on our website for a more complete description. Also contained in our press release, presentation materials, and annual report are certain non-IFRS measures that we reconcile to the most comparable IFRS measures, and these reconciliations are also available on our website in the press release, presentation materials, and on our annual report. And it is now my pleasure to hand it over to Sumant. Sumant?

Sumant Sinha, CEO

Yes, thank you, Nathan. Good morning, everyone. I'm glad to have you all in our second quarter fiscal year ended 2024. This year has presented new opportunities for us in avenues that align seamlessly with our competitive advantages. The backdrop for Indian renewable energy developers is the best we have ever seen, marked by a significant surge in power demand, shortfalls in energy supply, and a significant increase in auctions for renewable energy— the lowest cost electricity supply without subsidy, a softening of solar module prices, and a shift towards complex projects best served by wind, of which we are the largest developer in the country. I firmly believe that ReNew, with its disciplined approach to identifying the best return opportunities, is well positioned to capitalize on the current market. We continue to make progress towards our goals, maintaining capital discipline along the way. We are more confident of achieving our financial guidance set earlier this year and are raising the lower end of our EBITDA guidance by approximately 3%. We now anticipate delivering between INR 62 billion to INR 66 billion in adjusted EBITDA for FY '24. We have put in a majority of our wind turbines and solar panels in our largest projects being commissioned this year, which puts us in good stead to deliver on our guidance of between 1.75 and 2.25 gigawatts of projects to be completed by this fiscal year-end. We expect the additional capacity to translate to approximately 35% or more per share EBITDA growth next fiscal year. We continue to seek a consistent flow of auctions, as central agencies such as NTPC, SJVN, SECI, NHPC, and some states have announced RE auctions of 65 gigawatts this year, the highest that we have ever seen in the history of our industry. Notably, 18 gigawatts of auctions have already been completed this year, already surpassing the previous year's amount, with still about four months plus to go. A higher ratio of complex auctions signals a trend that distribution companies want specific electricity supply profiles, which require customized solutions. The complexity and limited development capabilities in India, among other things, have resulted in less participation by competitors. Broadly, we have seen an upward lift to auction tariffs for the past 12 months, and recent auctions indicate that this trend will continue further. We have signed a Power Purchase Agreement, PPA, with GUVNL, which is the Gujarat Distribution Entity for 400 megawatts of capacity that we won earlier this year and have received letters of awards for another 2.9 gigawatts that we have won. As a reminder, we do not include projects with LoAs into our portfolio until we have a contract—a signed PPA—indicating another step up in our long-term earnings potential as the 3.1 gigawatts of projects won receive PPAs over the next three to six months. Our assets continue to attract interest from investors and strategic partners at favorable valuations. Recently, we concluded the sale of 100 megawatts of solar assets, resulting in a gain. In a little over two years, we have raised about $565 million from asset recycling and year-to-date about $93 million. The ability to recycle capital and deploy it in higher return opportunities remains a significant component of our capital allocation and value creation strategy. This quarter, we reported a profit after tax of US$45 million, one of the highest reported by us to date. This quarter, for the first time in a while, the wind resource was about close to normal. Wind PLF increased to 41.3% from approximately 33.7% in the corresponding quarter last year, and marked three straight years where we have seen improved wind resource, which may portend for more normal weather going forward. While we remain optimistic about long-term wind PLFs returning to normal levels, we are choosing to remain conservative at this time regarding our weather expectations for the remainder of this year in our guidance. Turning to Page 5, in September 2023, we witnessed a record surge in power demand, taking 240 gigawatts during peak hours, as well as a surge in power prices traded on the exchange, reflecting strong overall growth in power demand in the country. We have seen overall power demand consistently rise at 8% over the last several years and continue to expect sustained growth for the next few years. While the Indian government is ambitious about achieving the 2030 renewable energy targets, with a 50 gigawatt renewable energy annual auction calendar, our position as a market leader in developing wind remains differentiated. With a shift away from vanilla wind and solar auctions, there is a tilt towards round-the-clock and complex auctions, a significant step towards catering to unique power demand profiles of distribution companies, with wind as a key differentiator. Our experience in developing complex solutions provides us with a significant advantage over others who do not yet have in-house wind EPC capability, digital or AI platforms, and strong understanding of the supply chain cycles that enable us in securing returns superior to our peer group. Turning to Page 6, while the market opportunity is substantial, our commitment to capital discipline remains unwavering. In-house wind and digital capabilities empower us to seamlessly build, operate, and maintain renewable energy projects, providing us competitive advantages in the market and enabling returns above our competitors and above our cost of capital. Recently, we signed a PPA with GUVNL at a tariff of 2.71 per kilowatt-hour for 400 megawatts of solar and secured letters of awards for most of our 3.1 gigawatts of auctions built earlier this year at attractive tariffs. Given the increase of intermittent generation in the country, there is substantial demand for electricity supply that meets more stringent delivery and reliability requirements. More than 60% of the 37.2 gigawatts of auctions yet to be completed this year are complex power solutions. Given our industry-leading wind EPC capability, our scale—given the larger size required for complex projects—our ability to source equipment through vertical integration, our superior access to the lowest cost of capital, and our substantial land bank, we have competitive advantages in delivering these complex RE projects quicker and at a lower cost than anyone else in India. To summarize, this is therefore one of the best backdrops for Indian renewable energy that we have seen in a very, very long while. Turning to Page 7, our on-ground progress remains on track as our projects enter final construction phases. Cheaper solar module prices have enabled us to procure modules at almost half the price as compared to the same time last year. We delayed projects in the past because the then CapEx costs would have resulted in subpar IRRs. As we continue to reiterate, we remain laser-focused on capital discipline and have been rewarded for our patience. We have saved shareholders, by our estimate, about $100 million in lower CapEx by pushing out certain projects. We have consistently invested small amounts of capital in complementary businesses to enable even greater competitive advantages in our core renewable energy development business. For example, we spent about 10% of our CapEx to develop solar manufacturing, given the substantial reductions on imports that are being imposed by the central government. This decision has borne fruit in allowing us to procure high IRR projects in recent auctions that others may not have been able to procure supply for. Investment in transmission is another example. There are currently chronic delays across India in completing interconnection hubs that allow new projects to connect to the grid. Rather than leave our large projects sitting idle, we decided to invest a small amount of capital, less than 5% of our equity, to build a transmission EPC business. Furthermore, we have recaptured most of this equity through capital recycling that garnered gains. We successfully commissioned our first transmission project this quarter, which is the connection point for our large peak power project, providing 138 circuit kilometers of connectivity. Before I turn it over to our newly appointed CFO, I am really pleased that the Board has chosen to promote Kailash to the CFO role. Many of you would have interacted with Kailash previously and know of his experience and extensive knowledge of renewable energy debt markets. Kailash has been with ReNew since the beginning; he joined us in 2011 as one of the founding members of the company and has been instrumental in all of our fundraising efforts, both debt and equity. To date, he has helped ReNew raise close to $15 billion through various sources, including about $565 million raised through asset recycling. I do consider us lucky that we were able to identify someone internally for this position, who has in-depth knowledge about the business, as well as a proven track record. With that, I would like to turn it over to Kailash to go over the latest financials.

Kailash Vaswani, CFO

Thank you, Sumant. And it's my pleasure to be here and interact with all of you. Before I begin my comments on the quarter, I thought I would like to share a little about my view on my commitment to capital discipline, in which I am a staunch believer. We live within our means and only deploy capital when the returns on our investments are comfortably above our cost of capital. Having been on ReNew's investment committee for some time, I fully supported the $250 million share buyback that was authorized in February of last year, as I saw investing in our shares as one of the most attractive investment opportunities of scale at that time. I still believe that at the current share price, there are a wide array of options that we can use to fund growth without issuing shares. I have led all of the capital recycling efforts so far and see a significant amount of demand for our projects. I also will lead efforts to deleverage our balance sheet over time. With regard to the veracity of our reported numbers, I fully stand behind them. Turning to Page 9, while the global markets have been impacted by a rise in interest rates, we have actively managed our portfolio by refinancing our higher-cost debt and ensuring our overall cost of debt is kept in check. In India, the yield spread for Indian money debt has compressed significantly as the sector matures. We can currently raise debt for our projects at sub-9% through large Indian financial institutions. Importantly, assuming interest rates remain where they are now, we expect to be able to refinance $850 million of maturing debt over the next several years at a lower interest rate, saving an average of 25 to 50 basis points. We have significant access to debt from diversified sources, including from PFC and REC, which is the Power Finance Corporation and the Rural Electrification Corporation, known to provide one of the most competitive costs for project debt in the industry. We recently signed an MOU for $8 billion with them. We continue to expect that we will be able to effectively manage our interest costs and ensure that project IRRs remain within the targeted range. Turning to Page 10, our asset recycling program continues to see interest from international players seeking an offset to their carbon footprint. We believe that asset recycling will effectively provide us with a long-term advantage by helping us scale at a faster pace while providing avenues to optimize the build process and enhance returns on invested capital. We completed a sale of 100 megawatts of solar assets in the current period and raised almost US$93 million through asset recycling year-to-date, amounting to about $565 million in aggregate. For growth beyond the current pipeline, we expect that we have operational development capability to build about 2.5 to 3 gigawatts of assets annually, of which we intend to recycle assets, including sales of farm downs of net interest of about 1 to 1.5 gigawatts each year, which would generate the required cash flow to fund growth in addition to our internal sources. This would ensure we have sufficient equity for growth without having to issue shares. Turning to Page 11, we are pleased to report our highest quarterly profit after tax of US$45 million and the highest first half-year profit after tax of US$81 million to date. We saw a return to normal wind patterns during the current period, and the wind PLF during the quarter was 41.3%, compared to 32.7% in the same quarter last year. We continue to remain cautiously optimistic about recovery in the long-term wind PLF towards the long-term normal levels. Our operating capacity increased by approximately 600 megawatts over the last comparable quarter in the prior year, an increase of about 8%. For the full year, we expect interest costs to be marginally higher compared to the prior year on account of new project commissioning, which is offset by savings in interest rates from refinancing. Of course, this is subject to volatility in the foreign exchange market. Taxes look to be about 20% to 25% higher in FY '24 as more of our subsidiaries are turning profitable. Turning to Page 12, we reported an adjusted EBITDA of US$256 million for Q2 FY '24. The higher EBITDA is primarily attributable to additional revenue from projects commissioned during the period, higher wind PLFs offset by lower late payment surcharges—about $11 million—as more of our customers are paying on time and higher operating costs reflecting more headcount to support our growth. Turning to Page 13, our DSO continues to improve year-on-year, having seen an improvement of 119 days since September '22 and an improvement of 26 days since the beginning of this fiscal year. We continue to work with states and believe that our DSO will continue to improve over time, as we focus on getting paid for overdue receivables as well as a favorable mixed shift where more of our revenues come from central government and corporate customers who pay on time. Moving to Page 14, we are focused on improving our liquidity and leverage. Our cash balance stood at close to $1 billion, almost US$985 million, and our net debt on operating assets was US$4.7 billion. Off gross debt, about 59% of our debt has a fixed interest rate. We only have about US$325 million of debt maturing in the next 12 months, which we expect to refinance at a lower average rate than currently being paid. We have good visibility on how we anticipate refinancing the remaining 600-odd million that matures in FY '25 and FY '26. With that, I would like to turn it over to Vaishali to talk about our ESG initiatives.

Vaishali Nigam Sinha, Chairman of Sustainability

Thank you, Kailash. Turning to Page 16, building upon the momentum from the previous year, we remain steadfast in our commitment to establishing new benchmarks across all aspects of our ESG vision, performance, and transparency. We are leading the way for ESG in our sector. ReNew has released a sustainability report for fiscal year 2022-23 titled Driving Decarbonization. The report is aligned with GRI, SASB, and TCFD and externally assured by DNV. Some of the key highlights of the report are that ReNew has generated clean electricity, which is 17,386 gigawatt hours, enough to power nearly 5 million Indian households. It has also helped to avoid 14 million tons of carbon emissions through its operations, which is about 0.5% of India's total emissions. The carbon intensity of ReNew's electricity generation is about 92% less than the Indian power sector's average. ReNew saves about 318,708 kiloliters of water, marking about a 48% year-on-year increase through our robotic cleaning and condition-based monitoring system. ReNew achieved carbon neutral status for the third consecutive year for Scope 1 and 2 greenhouse gas emissions. I mentioned earlier as well that our net zero targets for 2014 were validated by SBTi and entail reducing greenhouse gas emissions across all scopes by 29.4% in 2027 and by 90% by 2040. This involves clean energy procurement for operations, electrification of fossil fuel-based equipment, encouraging suppliers to set SBTi aligned targets, low carbon footprint raw materials, and green logistics for transportation. As you can tell, we are deeply committed. Social responsibility continues to remain an integral part of our business. Our CFe journey, which began in 2014, has positively impacted the lives of over 1 million people across 500-plus villages in India, spanning across 10 states in the remotest parts of our country. Now, if you could turn to Page 17, I would like to switch to specifics of some of our efforts for the first half of fiscal year 2024. Lighting Lives, which is one of our flagship programs, is an initiative where we electrify schools with less than three hours of electricity using solar off-grid systems. We are electrifying 50 schools and have also established 50 digital learning centers, and all of this is in progress and going well. The climate curriculum is being rolled out to about 9,000 students across the country. Women4Climate is another program we are very passionate about. It aims to include more women in the energy sector, with programs on green skilling in partnership with UN organizations. We are also working on re-skilling some of the salt pan workers in Gujarat to become solar technicians. Nearly 60 women salt pan farmers have been trained, and 48 trainees have secured employment. Employee engagement is an essential part of what we do. We have programs designed for and led by employees at ReNew, including an annual volunteering campaign, which is the right bucket challenge, distributing about 40,000 kgs of rice across India. We have kick-started the fiscal year 2024 disclosure cycle with the submission of CPP Climate Change 2023 disclosure. We will be disclosing further progress in our forthcoming sustainability report. With this, let me hand it back to Sumant to talk about our annual guidance.

Sumant Sinha, CEO

Thank you, Vaishali. Turning to our annual guidance, I am happy to report that we have increased the bottom end of our FY '24 adjusted EBITDA guidance by INR 2 billion to INR 62 billion to INR 66 billion on account of a better-than-expected H1 performance. We have provided some additional details on how results compared to our original guidance in the appendix of this earnings presentation. We reiterate our capacity of completed guidance for this fiscal year of between 1.75 to 2.25 gigawatts. Regarding our buyback, we have repurchased 38.6 million shares in total since February last year, which represent approximately 35% of the free float at the time of listing. We have $11 million of authorization remaining, which represents about 4% to 5% of the total free float. With that, we will be happy to take any questions. Thank you.

Operator, Operator

Our first question comes from Puneet Gulati from HSBC. Please go ahead.

Puneet Gulati, Analyst

Yes, thank you so much and congratulations on good numbers and good profitability as well. My first question is on the wind PLF. So this quarter has been particularly good at 42% PLF. Should one consider this to be normal for Q2, or do you think it was higher than normal?

Sumant Sinha, CEO

Yes, Puneet. Hi, thank you. This year's PLF in Q2 was a little bit, but very marginally, I would say higher than what would be normal. But keep in mind that Q1 is actually significantly lower as well. So, in aggregate, Q1 and Q2 put together is lower than what should have been the case.

Puneet Gulati, Analyst

Okay, understood. So, the first half is normal, but Q2 is higher and Q1 lower.

Sumant Sinha, CEO

Yes, first half is a little bit less than normal, but Q2 is a little bit higher than normal, and Q1 was lower. Therefore, we are ending up a bit lower than the overall H1 expectation would have been.

Puneet Gulati, Analyst

Understood. And secondly, can you also update on one of the acquisitions that you announced a few quarters back? What is the progress there?

Sumant Sinha, CEO

Yes, I'll let Kailash do that.

Kailash Vaswani, CFO

Yes, Puneet. So, on the acquisition that we had announced, there was a lot of delay in getting the approvals because those assets were sitting in a partnership firm, and they had to demerge it into a company, and the approvals for that demerger took a lot of time. So, that deal reached a long-stop date, and we decided we didn't want it because the entire market had taken so much time for this process to get completed that we didn't want to wait any longer, and we got better opportunities on the bidding side. So, we decided to allocate capital more on the organic front.

Puneet Gulati, Analyst

Understood. And there were no penalties that we had to pay for that?

Kailash Vaswani, CFO

No, no penalties. There were some transaction costs involved, initial costs which were less than $1 million. That was your total cost that we ended up incurring on it.

Puneet Gulati, Analyst

Okay. And secondly, Sumant, you announced this year that a lot of bids have been announced, tendering has happened, and some PPAs have been signed. Do you have a similar number for FY '23? What kind of bids got announced and how much PPAs have been signed, and what is the backlog for that?

Sumant Sinha, CEO

So, FY '23, you know, Puneet, it's very hard for me to give a number because FY '23, we actually hardly won any capacity. We just had a 3% market share last year. And - but I should tell you that our SECI 8 solar, which is the outstanding, in fact, we haven't put anywhere in the presentation, but therefore, Nathan, you have to tell me whether I can talk about that or not.

Nathan Judge, Investor Relations

Yes, go ahead, Sumant.

Sumant Sinha, CEO

Okay. So, the SECI 8, which was an outstanding 200 megawatts, that PPA has also been signed now. So, of the 13.7 or 8 that we now have, everything is fully signed PPAs. So, there's nothing that is now not signed. The only point I'm trying to make is that old PPAs are getting converted quite rapidly. With power demand going up, there is definitely interest among the discounts to go to SECI and try to convert some of the options into firm PPAs. But, you know, Puneet, the process is a long one because the distribution utilities have to first go to the commercial implication. Then they have to go to their local regulator and get the approval of the tariff. That process can take a month or two. Then they come back to the SECI and then basically go ahead and sign the PPA. After that, SECI signs the PPA balance. So, that whole process can take several months to get consummated. And in auctions where there is a central acquirer, they have to go to the central regulatory authority. So, for example, a couple of bids that we won back in April-May are now sitting with the central regulator, CERC, for approval. And it's just a process, frankly speaking. It takes a little bit of time. The process of converting these bids to PPAs is happening within the works. I think progressively, as some of these approvals from the regulators come through, you'll see some of that getting announced.

Puneet Gulati, Analyst

And in your reasonable expectation of the 2.9 left, how many of them should you see PPAs getting signed this year itself?

Sumant Sinha, CEO

I would imagine that most of them should—

Puneet Gulati, Analyst

I'm sure it's hard to say.

Sumant Sinha, CEO

Yes, it's hard to say, but actually, I would imagine most of them should get signed. Certainly, some of the more plain vanilla ones should. Complex auctions require a longer lead time to convert to PPAs due to their nature. Therefore, this storm will also take a longer time to understand them and be able to get their internal approvals. But, you know, the reality is for us that there is no urgency on some of these because for the capacity that we've won, these are things that we're going to construct only in FY '26. We have time on our side to get them signed. Meanwhile, I should tell you that for all the projects that we've got LoAs, we've already blocked transmission capacity. So, transmission capacity has been blocked. Land, we have, obviously, we're working on that right now. But eventually, we will convert them into actual deals when the PPAs do get signed as we go forward. Keep in mind that our clock to execute starts ticking only once the PPAs are signed.

Puneet Gulati, Analyst

Right. But you have land for the entire 3.5, which is one good thing.

Sumant Sinha, CEO

Yes. I mean, we don't have to acquire it right now as long as we have good line of sight into where that land is. In some cases, you can block the land without actually paying any real significant amount of money. But the important thing is as long as you block the transmission capacity, that's the most critical factor. With the LoAs in hand, we are able to block the transmission capacity. And so for all the capacities that we have— all the 3.1 gigawatts that we run, we have blocked the transmission capacity for all of that.

Puneet Gulati, Analyst

Understood. That's very helpful. And lastly, any progress on asset recycling? Anything that you did in Q2 and what's out there for the second half?

Sumant Sinha, CEO

Yes, Kailash, can you take that?

Kailash Vaswani, CFO

Yes. So, we have consummated transactions of almost around $93 million to date. We are working on a few in the pipeline. But the timing on asset sales is hard to say because it depends on when the deals get done, so how much will get done in Q3 versus Q4, we are working towards it.

Puneet Gulati, Analyst

And $93 million would include the Gentari acquisition and its results?

Kailash Vaswani, CFO

That's right. It includes the two deals or three deals, rather. It's the Gentari deal, the 100 megawatt sale to Technip Solar, and the third one is the amount we got from Northland solar transmission assets.

Puneet Gulati, Analyst

Okay. Understood. That's everything. Thank you so much, and all the best.

Kailash Vaswani, CFO

Thank you.

Operator, Operator

The next question comes from Justin Clare from ROTH MKM. Please go ahead.

Justin Clare, Analyst

Yes. Hi. Thanks for taking our questions. I want to ask just about the amount of capacity here. It seems a significantly larger opportunity for renewable projects in terms of the auctions that are expected annually. So I was wondering if you could speak to the potential for bottlenecks to emerge given the larger volume of capacity. And then, maybe you could speak to your strategy in managing those potential bottlenecks.

Sumant Sinha, CEO

Justin, thank you so much for the question. You asked me a question that I can spend many hours discussing, as you can imagine because this is essential to our business. Just to give you a very quick sense of that, I think the key issues required for executing a project are, of course, PPAs, which we discussed, and there is ample opportunity for us to win capacities there. The second is transmission. That is not a limiting factor right now because the government is building transmission capacity at a rapid pace. As I said, once we win an LoA or win a bid and get the LoA, we're able to block transmission capacity. If there is no transmission capacity available, then the execution timelines are automatically moved forward. So transmission does not pose a problem for us. The third is land. We are constantly working on that and look to block land for projects three to four years out. We have several hundred net marks now up and running to measure wind. In solar, we have blocked a number of mechanisms of transmission capacity in Rajasthan, which allows us to execute projects even beyond our existing pipelines. There is a lot of land available in Rajasthan for solar projects. The issue of staffing is one we constantly reevaluate. We need to ensure we build a quality organization with high execution capacity steadily improving. Then there is the matter of capital. We are looking at a mix of internal capital and asset recycling to raise capital for funding some of these projects. I think that's how we're looking at these five key areas. The sixth issue is the supply chain. We have very key relationships with important OEMs, which go out a few years, as the largest wind player in the country, we get the best terms from wind OEMs. In solar, we have tried to stay a step ahead of government policy to secure our supply. That gives us a significant competitive advantage. We hope that answers your question.

Justin Clare, Analyst

Got it. Okay. Yes, very helpful. And then, I guess just on the supply chain, you have your own in-house module manufacturing today. What is the cost structure for the modules you produce in-house, and how does that compare to what's available in the market, including import duties? How might this give you a relative advantage in terms of your cost structure?

Sumant Sinha, CEO

Yes, Justin, we haven't come out with those numbers right now, right? Please reconfirm.

Nathan Judge, Investor Relations

No, not just yet. But I mean, if you want to give some ranges, that's fine.

Sumant Sinha, CEO

Okay. Thank you. So, yes, the import duties in India for solar modules are about 40%. This gives us sufficient protection against imported modules. The cost differential between what we produce in India and what is produced in China is about 10% to 15%. The 40% protection is sufficient to allow us to not have that as an issue. Also keep in mind that we have the approved list of module manufacturers as a hard barrier to import, which the government imposed from this April but deferred for a year. It will return in April of next year and will prevent imports despite duties. Our sense is that module supply next year will be in deficit, as capacity takes time to reach quality levels. Our production cost is competitive with other Indian companies, which is also something we want to benchmark ourselves against.

Justin Clare, Analyst

Okay. I appreciate it. Thank you.

Sumant Sinha, CEO

Thank you.

Nathan Judge, Investor Relations

There is an email question from Girish at Morgan Stanley that is related to that. Are we open to selling a minority stake in our solar manufacturing? There seems to be an overcapacity coming online in India given the strong responses to PLI. What are our thoughts about those?

Sumant Sinha, CEO

Yes. We certainly are open. We're not willing to keep 100% of the solar plant. The reason we set it up is to assure ourselves of supply security. As long as we meet that primary objective, we're fine. Regarding overcapacity in the Indian market, we need to wait and see. There are many plans announced; however, how many will become reality remains to be monitored. Earlier capacities may become uncompetitive due to lack of efficiency and inability to produce the latest-generation modules. Some earlier capacities might need to be discounted in calculations of capacities coming up.

Nathan Judge, Investor Relations

Thank you. Jason, go ahead to the next question. Thank you.

Operator, Operator

And our next question comes from Nikhil Nigania from Bernstein. Please go ahead.

Nikhil Nigania, Analyst

Yes. Thank you. Congratulations on a good set of numbers. My first question is regarding the RTC and Peak Power projects. Good to see their guidance being maintained. But just wanted to clarify that transmission is not a bottleneck for these two assets—when they're commissioned in Q4, power evacuations and the grid evacuations will start happening.

Sumant Sinha, CEO

Yes, Nikhil, I can categorically confirm that transmission is not a bottleneck. Largely, we are actually building a lot of it ourselves. The very first project opting in RTC has three different wind projects and one solar project. The first wind project connects to a substation that we are making, and that has been charged. We just wait through the connectivity protocols now to connect the first project into that substation. The second one, also, is being built by us, which is another substation. We have clear understanding and control of when the substations come up. The third connects to a substation built by a third-party that we are closely monitoring. It also looks like it's on track, so I don't anticipate any transmission-related issues in commissioning these projects.

Nikhil Nigania, Analyst

Okay. Good to hear that. I think a related question then is transmission. Is transmission being seen as a constraint for India ramping up to 30, 40 gigs of renewable installation now?

Sumant Sinha, CEO

I would say the government has been quite proactive in building on transmission capacity. A lot of transmission capacity exists in the country that can allow for the 50-gigawatt commissioning. The only thing is that the transmission capacity is not necessarily where people want to set up. There might be some constraints in places like Rajasthan or Karnataka, where bottlenecks may emerge. But those constraints will appear after reaching about 30 to 40 gigawatts of connectivity rather than at 10 or 15 gigawatts. There is a lot of room to go before we start having significant constraints.

Nikhil Nigania, Analyst

Got it. Thank you. And my last question then is, there was this one big tender, the RTC-2 tender, I think for more than 2 gigawatts, which has been going around for quite some time. Any updates that could be shared on that?

Sumant Sinha, CEO

I'm not sure which tender you're specifically talking about. There's the RTC-2?

Nikhil Nigania, Analyst

Yes. The one that coal was also not to be blended—coal-fired generation.

Sumant Sinha, CEO

Okay. I haven't heard about that tender for quite some time. I'm not sure it is live right now. However, several other RTC auctions have happened. Techie 6 was the first, for 200 megawatts of headline capacity, translating to about 3.5 gigawatts of actual RTC capacity. SJVN just recently did another 200 megawatts capacity, not fully subscribed, in which we've done 184 megawatts. There have also been the REMCL tender. So, there have been three such tenders in the last few months. Several more are due to come up in the next few months.

Nikhil Nigania, Analyst

Got it. Thank you so much. Those are my questions.

Operator, Operator

And our next question comes from Angie Storozynski from Seaport. Please go ahead.

Angie Storozynski, Analyst

Thank you. So just two simple questions. One, you do lots of capital recycling on existing and future projects. I'm wondering if the gains that you record on that are reflected in your EBITDA?

Sumant Sinha, CEO

Yes, Kailash?

Kailash Vaswani, CFO

Sure. The gains on asset sales have not been reflected in the EBITDA line as of now. I think the accounting transaction happened subsequent to the end of the previous quarter. That's the reason why it will get accounted in the subsequent period. To your second point, we consolidate the full EBITDA where we own 51% majority of the assets. There, the full debt also gets consolidated into our balance sheet. So, we don't consolidate on a proportional basis. If we are in control of the asset, then the entire EBITDA and debt stay with us. We take out the minority interest due to the joint venture partners' interest in the project.

Angie Storozynski, Analyst

I understand, but I'm just asking you—yes.

Nathan Judge, Investor Relations

Yes. Just to clarify, on our guidance that you see there, that is just our net. If you look at the debt—

Angie Storozynski, Analyst

So it is net of minority interest.

Nathan Judge, Investor Relations

Yes. So those are actually net to shareholders.

Angie Storozynski, Analyst

Okay.

Sumant Sinha, CEO

So, see, again, there's an accounting value to it. What tends to happen is that we book cost basis and accounting calculation on the capital expenditure. We're also going to put some margins at the EPC levels. When we consolidate them, they get knocked off. When we sell those assets, those assets are marked at a higher value in our books because we are selling those assets. The gains are smaller, but the cash flow impact is larger.

Angie Storozynski, Analyst

I understand. So if the gains are not very material. Also remember that most of the larger transactions are related to projects that are under construction. Right? So our Peak Power and our RTC projects, right? And those gains would be well commercial gains, but accounting gains are de minimis because they haven't been actually sold off operating assets. That's where you would see gains. So far, there hasn't been much.

Sumant Sinha, CEO

Yes, it seems like those gains are highly variable. So we've been cautious in realizing them.

Angie Storozynski, Analyst

Okay. And then lastly, would you consider balance sheet financing as your portfolio grows?

Sumant Sinha, CEO

In changing everything to balance sheet, it will take time and requires a certain type of market environment, such as an easy money policy where rates are lower. In that market, transactions are more straightforward. Given current conditions, investors focus on getting security on specified assets, and lenders typically do not want to consolidate or hold security of construction risk with other lenders. We are unlikely to move to a balance sheet type of financing anytime soon. For us, this project finance model works well and remains preferred in the Indian context.

Angie Storozynski, Analyst

Great. Thank you.

Operator, Operator

There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.