JSW Energy Ltd

NSE:JSWENERGY

Earnings Call Transcript 2022-Q4

[Operator]

Ladies and gentlemen, good day and welcome to JSW Energy Limited Q4 FY '22 Earnings Conference Call hosted by Edelweiss Securities Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Suyash Mishra from Edelweiss Securities. Thank you, and over to you, sir.

[Suyash Mishra, analyst]

Good evening, everyone. On behalf of Edelweiss, I welcome you all to JSW Energy's Q4 and FY '22 Annual Results Conference Call. From the management today, we have with us Mr. Prashant Jain, Joint Managing Director and CEO; Mr. Pritesh Vinay, Director of Finance; and Mr. Ashwin Bajaj, Group Head, IR.

I would now hand over the call to Mr. Ashwin Bajaj for the opening remarks, post which we will have a Q&A session. Over to you, Mr. Bajaj.

[Ashwin Bajaj, executive]

Yes. Thanks, Suyash, and thanks for having the call today. So good evening, everyone. This is Ashwin Bajaj, and welcome to JSW Energy's results call for Q4 FY '22 and also an update on our renewable rate growth strategy. We have our CEO and CFO, as Suyash introduced.

So with that, let me hand it over to Mr. Jain for opening remarks, and then we'll open it up for questions.

[Prashant Jain, executive]

Good evening, everybody, and [Foreign Language] to each one of you.

The power sector has been in focus after a long time. And if you look at power demand per se, the quarter 4 power demand grew 3.1%. And for the entire year, it was up by 7.9%. And the total demand was 1,375 billion units for the entire year. In the current financial year, in the month of April, we have seen power demand growing at the rate of 12.26%. And in the month of May, for the first 4 days, the power demand is up by 18.8%.

Similarly, in terms of the generation, we have seen quarter 4 power generation was up by 3.4%. In FY '22, it was up by 7.8%. We have seen the renewable energy generation up by 15% in the last year and thermal generation up by 8%.

If you look at the total mix per se, then the thermal generation was constant at 74.8% in the last year, and hydro percentage was lower at 10.2% as compared to the previous year of 10.9%, whereas the renewable component went up from 10.6% to 11.4%.

The total installed capacity was at 399.5 gigawatt. We saw the capacity addition of 17.3 gigawatts primarily from renewable, which was 15.5 gigawatt. And majority was solar, which was 13.9 gigawatt. And we saw a capacity retirement of 1.6 gigawatt.

The interesting trend came in the merchant volume. We saw the merchant volume at 65 billion units out of the total demand of 1,375 billion units, and which was up by 7.8% during the entire year. But in the month of March, this volume came down drastically. And now this volume came down to 28% at 4.1 billion units.

But if you look at last week of April onwards, this volume is down by 60%. Typically, we have been seeing 200 to 230 million units every day being sold in the merchant market. But in -- from -- since the last week of April, this volume is as low as 40 to 50 million units. On an average, it is 70, 75 million units, whereas the purchase bids are in the range of 700 million units. So that's the kind of a contract which is coming up, which is because the -- enough capacity is not available, which is having coal to supply in this particular market. Because of which, you are seeing the purchase -- the power prices are at a constant rate of INR 12 at which regulator has already kept it.

API coal prices are at a very highly -- high elevated level. If you look at quarter 4, average is $238. Year as a whole is $161. If you see -- the highest price we have seen was $427 in the month of March, on 11th March. Post that, it has corrected. In the entire April month, average was $294, and now it is moving in the 10 -- plus/minus $10, $15 since the month of April.

If you look at the Coal India production, which was up 6.3% in the entire year, including all its subsidiary, and dispatch was up by 16.8%. And captive coal production was up by 34%, and dispatches were also up by 36%, whereas the imported coal is down by 12% at 191 million tonne. And further in the current financial year, it is further going down.

So I'm giving all this data to give one part is that there is a higher price of the thermal coal in the international market. Because of which, the fuel price at which the power can be produced at the international prices are -- is north of INR 8 to INR 9. That's the price at which you can produce power, only I'm talking about the variable cost. Because of which, the power generation based on imported coal is consistently coming down. In spite of higher production and dispatch by Coal India and Coal India subsidiaries as well as the captive mines, there is not enough capacity available which can feed the demand, which is growing at 11%, 12%. So this kind of a trend for the time being is going to continue.

In terms of the JSW Energy performance, for the quarter, our generation was up by 15% and for the year, it was up by 4%. Hydro generation grew 15% during the quarter and for the year, it was down 2%. The thermal generation for the quarter was up by 15% and for the year, it was up by 6%. For our long-term thermal power generation, was up by 20% during the quarter and 7% for the entire year. And short-term generation was lower, 34% during the quarter and up 6% during the year.

In terms of the financials, our EBITDA was INR 4,030 -- INR 4,138 crore, which was up 32% for the year. And PAT was INR 1,739 crore, which was up by 117% year-on-year. There is a one-off item of INR 594 crore for the year due to the true-up of our Karcham asset. Adjusted for that, our EBITDA for the year is up by 15% at INR 3,542 crore, and PAT is up 48% at INR 1,180 crores.

One good news is our receivables are lowest point what we have seen in the last 3, 4 years at 59 days in spite of higher generation, and the quality of receivables is at its best where overdues are at its minimum. We recovered close to INR 220 crore in late payment surcharge, which is shown as other income during the year. Including the states like Andhra Pradesh or Rajasthan or other states where we find it -- difficulties, we have recovered all our late payment surcharges. Our net debt stood at INR 6,963 crores with a weighted average debt cost, which is lower to what we have seen in the history of the company at 7.74%.

We have filed all the PPAs for 2.5-gigawatt capacity for renewable, which we had undertaken. We commissioned 225 megawatt of the solar capacity, and rest of the capacity is on track, and we will be commissioning within time. We have also secured 15 gigawatt of resources for solar and wind, and 5-gigawatt resources we have tied up for hydro pumped storage. And we are on track to achieve what we have guided for, achieving 10 gigawatt by FY '25 and 20 gigawatt by FY '30. In addition to that, we will be also undertaking storage projects as well as green hydrogen and green ammonia project, which we are moving at this point of time and tying in the resources and securing the technology, which we will be announcing in due course of time.

With this, I would like to thank each one of you for a patient hearing, and I open the floor for question and answer. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Mohit from DAM Capital Advisors.

[Mohit Kumar, analyst]

Sir, my first question is we are seeing very high prices at exchanges and in bilateral markets. Despite that, our PLF of the Vijayanagar and Ratnagiri were low in this quarter. Does it mean that when we are not able to procure coal and our variable cost is slightly higher, so that we [ are able ] to make money at these prices? Is that right assessment?

[Prashant Jain, executive]

No, no. See, you need to understand one thing is that we look at our variable costs and when we -- and we look at the merchant market. So as and when the merchant market tariff is more than our variable cost, we are pumping full power into the grid. So if you see the merchant market analysis, then the power prices have started going up in the month of March, post 14th of March only. Before that, power prices were in the range of -- on a day average of INR 5.5 or lower, whereas the thermal coal prices were at its peak at that point of time.

Now when the power prices started shooting up, we have been selling the power into the merchant market. We never had any coal issue at any point of time. And to just give you color, in the month of April, we sold the maximum number of units as compared to any IPP in the country -- in the month of April. Our sales into the merchant market in the month of April was highest as compared to any power producer in the country. I hope it answers.

[Mohit Kumar, analyst]

Understood, sir. Secondly, sir, on the accounting adjustment for the prior [indiscernible] at Karcham, is it primarily related to high capital cost approval by the CERC for 2014-'19? Or is it something else? And secondly, there is also a reversal of carrying cost of INR 59 crore. Is it related to sharing of the financial gains because of lower interest -- lower refinancing cost? Is it the -- is it right assessment?

[Prashant Jain, executive]

Pritesh, I would like [ you to ] take up...

[Pritesh Vinay, executive]

So Mohit, the truing up order that we got for Karcham Wangtoo is for the control period 2014 to '19 as well as for 2019 to '24 period, meaning that the effective implications on the books is for a 7-year period, starting from 2014-'15 until 2021-'22, right? That is number one.

Number two is that, yes, and in fact, order is in the public domain on CERC website, so you all can access that. But effectively, what has happened is that if I were to summarize the implication of that is that it has been an additional INR 180 crore capital cost, which has been approved based on what was petitioned by the erstwhile owners of this asset as well as there are certain adjustments on the tax side. So a combination of these 2 is what has led to the whole reversal of the provisions. We are carrying close to INR 1,260 crores of provisions, and of which around total -- in total, INR 665 crores have been reversed.

Now on the second part of your question, the carrying cost. So what we were doing is from the end of last year onwards, part of this provision was -- basically, we're carrying costs that we were recognizing in our books for these regulatory liabilities. And now that this has been reversed, so that carrying cost has also been reversed.

[Mohit Kumar, analyst]

What is the total impact of Karcham? It is -- is it INR 590 plus INR 64 is the right...

[Pritesh Vinay, executive]

Yes. So above EBITDA and below EBITDA. I mean if you look at the note #6 of the semi-consolidated results, that has the exact breakup where there is part in revenue, there is part in other income, and there is part which was under the finance cost.

[Mohit Kumar, analyst]

Understood. Sir, the third question, our target is to reach 10 gigawatt of renewable capacity by FY '25, and we are already in the beginning of FY '23. So when can we expect to see this pipeline going up of under construction projects?

[Prashant Jain, executive]

So with 2.5 gigawatt, which is under construction, we will be closing -- we will be completing our 7 gigawatt of capacity, and another 3 gigawatt is under development at this point of time. So we are going to start and start talking about those projects in -- pretty soon. So we are on course to achieve 10 gigawatt, and maybe we can do better than that.

[Operator]

The next question is from the line of Vivek from DSP Mutual Fund.

[Vivek Ramakrishnan, analyst]

I had 2 questions. The ROE on renewable power, would that get affected by the high capital cost because all raw material costs have gone up? And in that context, let's say, you had to bid and win [ Mitra, ] is it better to buy rather than build at this point of time is the first question. Should I also ask the second question?

[Prashant Jain, executive]

Yes. Yes.

[Vivek Ramakrishnan, analyst]

Okay. In terms of merchant power, if I hear you correctly, at the current coal prices, the INR 12 is -- is it low? Or is it still profitable for you? That's the second question. That's all for me.

[Prashant Jain, executive]

Okay. So the first question, which I'm -- as far as the projects which we are building, we have been -- we have secured and finalized all the contracts based on whatever we had planned. And so there is an impact of some component, which is primarily the steel, which we have been open because we have to purchase the steel for making the foundation as well as the power as and when it is required. Otherwise, all our contracts for the fixed price contracts -- so there is -- there was no implication.

But on an overall basis, there is very marginal impact on our capital costs, which we had already built in, in majority of our projects as part of the contingencies. So we will be achieving what we have planned, which is mid-teen IRRs will be certainly achieved in all of our 2.5 gigawatt of the capacity. So with our efficient planning of the project management, we will be doing that.

And in fact, if you see that what we build our solar project, it is the fastest-ever project built in the country 11 month short, including the COVID wave. And then in case of our SECI IX and X projects, people have not given for SECI VII and VIII. People have not done the financial closure and the PPA, and we are on a path of commissioning the first turbine in the month of July. And we have also shared the photographs of the foundation as well as the substation. So we are on course of commissioning very expeditiously and much before the time in the project.

As regards to taking over the assets versus the building, every year, we need to see that the returns are there or not. So it is case-to-case basis. It cannot be generalized. I don't think the transactions which are being done in the in the secondary market, which you are seeing, like you might have seen the asset at which the Sprng Energy has -- the valuation at which the Sprng Energy has been sold. There is enough return available or some of the transactions which are being done. So it is -- one needs to be really prudent that what you are going to do and what you are going to get. And we are very, very mindful about that part, and we have been maintaining. And that is why we have been chasing growth at a stipulated return, and we are getting enough of it. So we are pretty sure.

The second question which you are asking about, INR 12, whether it is profitable. Yes, it is profitable, but it is not as profitable as when the cap was at INR 20. And I think the CERC has also come out with this cap on the basis that there is no -- not enough margin available for the IPPs to make money at this point of time. If you look at the domestic coal at which the auctions are being done, the fuel cost will be in the north of INR 10, even for the pithead plants. And similar in the situation is for the imported coal-based plant, fuel prices are in the range of INR 9 to INR 10. So you will be recovering anything between INR 2 to INR 4 at these prices, not more than that.

[Vivek Ramakrishnan, analyst]

Okay. Sir, that's great. And congratulations on the execution, and good luck, sir.

[Prashant Jain, executive]

Thank you.

[Operator]

Next question is from the line of Rahul Modi from ICICI Securities.

[Rahul Modi, analyst]

Congratulations with super set of results. I believe what we've been talking since the last 1 year about we're getting into a power deficit situation has now panned out. So just further to this, just a couple of understanding on the numbers. Sir, you just made this reconciling -- you mentioned INR 665 crores of the Karcham order impact. I believe Pritesh was mentioning there is something on the EBITDA and below EBITDA impact on other income and interest as well. If you could just give me a breakup of that to understand that better. And what is the late payment projects components, which can extract this quarter?

[Prashant Jain, executive]

Pritesh?

[Pritesh Vinay, executive]

Yes. Rahul, if you -- I don't know if you have access to the presentation that we have put up on the website as well as the results that were uploaded at SEBI. Do you have access to that? Then it will be easier for me to walk you through what I was trying to explain.

[Rahul Modi, analyst]

Yes. So I've seen the press release. I just missed on the presentation [indiscernible].

[Pritesh Vinay, executive]

So I will explain to you. So if you look at Slide 26, which gives the EBITDA bridge, right, so there's an element of INR 596 crores bump-up, which has clearly been mentioned as due to the Karcham Wangtoo true-up order impact. Now what you have to do is that you have to look at SEBI note #6 of the consolidated financial results. There, there are 3 items mentioned: revenue of INR 553 crores and other income of about INR 43 crores. So this total is INR 596 crores. This comes above EBITDA, right? And then there is a write-back of carrying cost of INR 69 crores, which is -- which used to be part of the interest cost, and that is below EBITDA. The sum total of all these 3 items is INR 665 crores is what I was explaining.

[Rahul Modi, analyst]

Okay. Perfect. This is very helpful. Sir, secondly, if you could just...

[Pritesh Vinay, executive]

I'm getting -- sorry, can you please speak up a bit? We are -- it's a bit muffled, your voice.

[Rahul Modi, analyst]

Is it better now?

[Pritesh Vinay, executive]

Yes. Yes, this is better.

[Rahul Modi, analyst]

Okay. Okay. Just we read in the papers -- and there was a -- on the exchanges also, you had given an update on the issue with regard to Barmer, the lignite mining. Sir, any thoughts on exactly what happened? And what is the course of action going forward?

[Pritesh Vinay, executive]

So Rahul, again, with Barmer, what had happened was that -- just to put things into context, JSW Energy (Barmer) Limited, which is a lignite-based power plant, [ 2,080 ] megawatt. This has 100% offtake from the Rajasthan discoms. And this is a regulated return project under the purview of RERC.

Now this project was built as part of the implementation agreement signed way back in 2006 with the Government of Rajasthan, by way of which -- this is an integrated project. There is a mining part, which is a 51-49 JV, where 51% shareholding is by the Government of Rajasthan's mining entity called RSMML, and 49% is JSW Energy (Barmer) Limited, right? So this is an integrated project.

Now there is a technical issue with respect to the mining lease transfer that was done by RSMML to BLMCL under the provisions of the law. So if you look at Note #5 that we have put up, this kind of gives people context in our script way that in 2014, the Ministry of Coal, Government of India had granted an approval for the transfer of mining lease. But in 2016, they wrote back to the Government of Rajasthan saying that this transfer of mining lease from RSMML to BLMCL was without the previous approval of Government of India and advised the government of Rajasthan to make a fresh proposal for transfer of the mining lease.

Thereafter, there have been multiple deliberations between the Government of Rajasthan and the Government of India on this particular matter. And in that context, we received this notice in the first week of April, for which we had made suitable disclosure, saying that RSMML, on directions by Government of Rajasthan, asked BLMCL that you please stop mining activities in 15 days. But at the same time, RSMML was asked by government of Rajasthan to ensure that uninterrupted lignite supply was continued for the power project.

Thereafter, we made representations because there are a lot of nuances involved in this. There was an implementation agreement. There was a JV agreement. There's a fuel supply agreement. There are PPAs, the whole works. And we also -- there were legal recourses also available. So based on the representations made, et cetera, on 28th of April, we received a communication saying that the Government of Rajasthan has kept its order of the first week of April in deferment for the next period of 3 months. And therefore, lignite mining has continued since then. So this is the whole issue, what had happened.

Prashant, you would like to add anything?

[Prashant Jain, executive]

Yes. So basically, as Pritesh explained that this is governed by an implementation agreement, wherein Government of Rajasthan is going to secure the 100% of the power supply and they were responsible to provide us the lignite for this particular power plant. And because of this technical issue, there is an approval, which is again being sought from the Government of India by Government of Rajasthan. And Government of India has been actively working upon it, and they are going to -- they are taking necessary steps.

But as far as JSW Energy is concerned, we are -- we have been assured of the full lignite supply, and that is what we are getting the return on the -- our fixed cost, what we have made into the power plant. So that is what -- we continue to receive that. And we are quite confident that, that will continue to happen.

[Rahul Modi, analyst]

Perfect. This is very helpful. Sir, can you give us some update on the 5 gigawatt of pumped hydro projects that you signed with various states? Any time line, what can be the tariff structure like and some economics around this? That would be very helpful.

[Prashant Jain, executive]

We are at this point of time acquiring the land and as well as we have applied for the environment clearances at various locations. We have already received the water approval at some of the power -- some of the hydro pumped storage locations also. And we expect that in the current financial year, at least one hydro pumped project we will be starting, which will be an integrated project for our green hydrogen project in Karnataka. So we will be making -- we have not talked anything about the Karnataka pumped storage project, but we have -- we will be in the last stage of getting the approval from Government of Karnataka, and that will be the first project which we are going to start construction, which will be an integrated project with wind, solar and then which will be used for production of green hydrogen and green ammonia.

So eventually, there are various policies which will be coming up. But at this point of time, there are no policies. But we believe that this will be the need of hour for renewable energy going forward, and that's why we are building all these locations and sites. And in next couple of months when we start the project, we will be sharing with you a lot of economics and data about it.

[Rahul Modi, analyst]

Sir, what is the capacity which we are targeting in Karnataka?

[Prashant Jain, executive]

So you can say that in all states put together, we are talking about close to 10 gigawatt of the capacity, and it is the absolute -- this is the megawatt hour -- this is the actual turbine capacity. But typically, all these plants will be adding 6 to 8 hours of storage. So 10 gigawatt will be become 60 to 80 gigawatt hour kind of storage capacity. So that's the kind of capacity. In Karnataka also, there are the 3 projects which we are contemplating. All 3 put together, the combined capacity will be 1 gigawatt.

[Pritesh Vinay, executive]

So Rahul, if I may add to that, in terms of the exact configuration, once we have firmed up the proposals and presented and sought Board's approval, we will make appropriate disclosures at that point of time.

[Rahul Modi, analyst]

Perfect. Any -- last question from my side. Any bids that you are expecting, either from SECI or any other [ novel ] agencies for any state in both -- either the solar or the wind or to the book in the near term?

[Prashant Jain, executive]

So given the commodity prices and then where the prevailing power prices and the kind of a bid which people have done it, you yourself know whether they will be happening or not. And that's why the point which we have been making all the time that there is a difference between securing the bid and creating a pipeline and actually executing it.

That's what has been differentiated between JSW Energy and rest of the players. We are executing and building the project which we have secured the bid and signed the PPA a couple of months ago, and we are in a phase of commissioning. So we don't believe that at the prevailing power prices, prevailing commodity prices and project costs correlate each other. And also the nonavailability of the solar panel and only dependence on the domestic capacity, you will be seeing any kind of a renewable capacity addition in the next 2 years' time frame. It will be some time away before the -- you start seeing these kind of bids as well as the projects.

[Operator]

The next question is from the line of Love Sharma from Lombard Odier Investment Management.

[Love Sharma, analyst]

Just one question. When you sold JSW Hydro, just wanted to understand, given this noise around PTC, which is also the counterparty for the project there, any concerns you have seen? I noticed, of course, in the results there, the receivables position remains quite strong. But just from your perspective, have you seen any changes, any kind of concern?

[Pritesh Vinay, executive]

Love, I mean, I think in a way, you answered your question yourself. 29 days of receivables at hydro at the end of March compared to 38 days same time last year, that tells you about the quality of receivables, collections, et cetera. So yes, as far as we are concerned -- and there's absolutely no issue with PTC as a counterparty. This, I think -- this is our 10th year that this asset post COD has been operating with PTC as a counterparty, and there are absolutely no issues on that.

[Love Sharma, analyst]

Okay. So no changes of any kind? I think, of course, there can -- the issues there are more financial in nature, but optionally, [ these things have remained as it is, ] I believe.

[Prashant Jain, executive]

Any changes there is a positive, not negative.

[Love Sharma, analyst]

Okay. And can you explain why is that?

[Prashant Jain, executive]

Because of the quality of receivables what we are having and because all the overdues have been paid, and we have covered all of our late payment surcharge from all the discoms. And also whatever was pending in terms of regulatory order, that matter have been also put to rest.

[Operator]

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

[Apoorva Bahadur, analyst]

Congratulations on a good set of numbers. Sir, I wanted to understand more on your pumped hydro plants, I mean, you had [indiscernible] plant. I know you are yet to disclose them formally [ pending ] Board approval. But to again show some light, so typically, we understand that it takes around 3 to 4 years to develop a pumped hydro project. So are we looking at around the same time frame by when our hydrogen [ implementation ] will begin? Or is there a possibility to sort of crack these time lines and you're looking at something sooner?

[Prashant Jain, executive]

So typically, it takes that much of time, but typically, like any hydro project also takes 5 to 7 years' time frame. But we are on course of commissioning our Kutehr hydro power plant in less than 4 years' time frame. We start building the foundation of that project in October 2019, and we are expecting that we will commission the project in flat 44 months' time frame. And similar activities we have done in other project areas. So we are quite confident we will be doing in a much shorter time as far as the pumped hydro projects.

And so we are not that much of concerned in terms of the timing-wise. We are -- at this point of time, we want to just integrate the things. And we are so upbeat about this particular opportunity because we know that this will put us into the product and services business as compared to the only power generation business because -- which is more and more competitive. And then sometimes, we find it very tough to compete with our competitors, too.

In order to build a large book, they become unrealistic, and then that becomes quite a big challenge. That's why we want to produce power for our own consumption, and we want to offer product and services. And this is one area which will catapult this company to a product and services company. So I think as we start building these projects, you will see that this is putting into -- this company into a different orbit.

[Apoorva Bahadur, analyst]

Interesting. Sir, you said -- as you said that this is green hydrogen will probably change the business model of the company. Can you share what costs are you making at which you're introducing green hydrogen, whenever you do that? And what type of ROCE business this will be? So will it be like a 20% plus ROCE business? Or you are expecting something even better?

[Prashant Jain, executive]

What I can tell you is this is something which is going to change the way that we do business in the fossil fuel industry and then how the world is going to be changed. The size of opportunity is quite big. And right now, there are a lot of numbers which are there into the public domain, which has been disclosed right from $4 to $6 of the current production cost of the green hydrogen and with a road map of people going to $1 per kg by 2030 and beyond, including [indiscernible] and various other corporates.

What I can tell you is that we will be quite competitive as compared to what people are talking about and much early what people are talking in terms of the road map. And so just give us some more time because -- why we are talking about little more time? We are absolutely at a point where we can start placing the order immediately and start the project and could have taken the Board approval in the -- today's Board meeting also. But as you know, that world is right now moving through a lot of supply disruption -- demand and supply disruption in terms of a lot of commodities and because of which, the visibility on the prices is not firm. And that is what is happening with our suppliers, and that is what we are in a final stage of discussion. And as soon as we are seeing firm visibility, we will be able to concretize these plans, and then we will be in a position to discuss with you.

[Apoorva Bahadur, analyst]

Sure, sir. Sir, last question from my side. Then after that, I'll get back in the queue post that. And as I think Rahul mentioned earlier that your prediction of power shortage has come true actually, it is realizing. So now do we intend to reenter into thermal generation again, sir, probably Barmer second phase?

[Prashant Jain, executive]

So we have a stated policy. We have talked about it. And I think we -- it's -- if we want to -- for example, if I want to talk to you about the Barmer project, it was never contemplated based on the merchant power. And stated approach, what we will be setting up the power capacity, if we are supplying, either we are going to supply to the discoms or we are going to consume on our own. But we are not keen to look at any capacity based on the merchant generation.

So these are the transitory situations, which will last for a couple of quarters or maybe a couple of years because there has not been enough capacity addition in the sector and whereas the economic growth has been happening and that has been resulting into the power shortage. That does not mean that one should add up a lot of capacity immediately, but I think the energy transition is here to stay.

And of course, there will be some more life which will happen to the thermal generation. Like you have seen the life which has been given back to oil because everybody has written off oil 6 months ago and now everybody is talking very, very positive about oil. These are transitory volatility. But we see that the energy transition is here to stay. So we are pretty focused at this point of time. We will continue to work in the trajectory where we are.

[Operator]

[Operator Instructions] The next question is from the line of [ Shyam Gult ] from [ Niveshe. ]

[Unknown Analyst]

Congratulations for a good set of numbers. I have a question regarding the current power prices. So as you can see that currently, in assessing the power prices -- and what are your outlooks on the monsoon season because given the monsoon...

[Operator]

I'm sorry, but then your voice is not coming very clear. May I request that you speak through the handset?

[Unknown Analyst]

Okay, sir. Hello?

[Operator]

Sir, go ahead.

[Unknown Analyst]

Am I audible?

[Operator]

Yes, you are.

[Unknown Analyst]

So my question was regarding the current power prices. As you can see, the coal demand is rising. Power demand is rising. And due to the coal shortage -- supply of coal shortage, we are facing this crisis. So what are your outlooks with regards to ongoing power crisis, impact on our business and also on the -- for the coming monsoon season?

[Prashant Jain, executive]

Okay. So I think it's a function of demand and supply and then input cost. These are the 2 things which are changing the power prices because the thermal coal licenses internationally are at a pretty elevated level. And India imports close to 200 million tonnes of coal. And that price -- at the current price of $300, that variable cost to produce power itself is INR 9 to INR 10. So as long as thermal coal prices are higher, there won't be enough capacity available to produce power and give it to the grid.

And secondly, right now, the power demand is elevated. If the power demand comes down, in that situation, there will be a moderation on the power prices. As long as these 2 conditions are in favor of higher prices, power prices will remain at elevated level. So if it is on a general basis, I can see that the power prices will continue to remain elevated, but it will keep on fluctuating depending upon the monthly or daily demand and supply situation.

[Unknown Analyst]

Okay, sir. Sir, I have an additional question.

[Prashant Jain, executive]

Go ahead.

[Unknown Analyst]

There is a cap of INR 12 per unit on the power. And so sir, what -- so we get our basic raw materials for -- in thermal power plant and coals come government from -- or imported from outside?

[Prashant Jain, executive]

We only import. We don't source coal from the domestic sources.

[Operator]

Ladies and gentlemen, we will take that as the last question. I now hand the conference over to the management for closing comments.

[Ashwin Bajaj, executive]

Yes. Thank you, operator, and thanks, ladies and gentlemen, for joining us today. Please do contact us if you have any further questions. Thanks and good evening.

[Operator]

Thank you very much. On behalf of Edelweiss Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.