Orient Green Power Company Ltd Management Discussions.

Global Economy Overview

The global economy has been resilient despite the new variants of Covid-19 prolonging the pandemic. Vaccination programmes and policy measures taken by economies resulted in increased global output by 6.1%.

The war in Ukraine has triggered a costly humanitarian crisis that demands a peaceful resolution. Economic damage from the conflict is expected to contribute to a significant slowdown in global growth in 2022. A severe double-digit drop in GDP for Ukraine and a large contraction in Russia are more than likely, along with worldwide spillovers through commodity markets, trade, and financial channels. The war besides impeding growth, will add to inflation. Fuel and food prices have increased rapidly, with vulnerable populations—particularly in low-income countries being most affected. Elevated inflation will complicate the trade-offs central banks face between containing price pressures and maintaining growth. Interest rates are expected to rise as central banks tighten policy, exerting pressure on emerging market and developing economies. Moreover, many countries have limited fiscal policy space to cushion the impact of the war on their economies. The invasion has contributed to economic fragmentation as a significant number of countries sever commercial ties with Russia and derailed the post-pandemic recovery. It also threatens the rule-based frameworks that have facilitated greater global economic integration that helped to lift millions out of poverty. In addition, the conflict adds to the economic strains wrought by the pandemic.

Global growth is projected to slow from an estimated 6.1 percent in 2021 to 3.6 percent in 2022 and 2023. Beyond 2023, global growth is forecast to decline to about 3.3 percent over the medium term.

Crucially, this forecast assumes that the conflict remains confined to Ukraine, further sanctions on Russia exempt the energy sector (although the impact of European countries decisions to wean themselves off Russian energy and embargoes announced through March 31, 2022, are factored into the baseline), and the pandemics health and economic impacts abate over the course of 2022. With a few exceptions, employment and output will typically remain below pre-pandemic trends through 2026.

The Global outlook for renewables is positive since the spiking energy prices and considerations both of global warming mitigation and energy security increase the focus on renewables.

Indian Economy Overview

India has emerged as the fastest-growing major economy in the world and is expected to be one of the top three economic powers in the world over the next 10-15 years, backed by its robust democracy and strong partnerships.

Indias gross domestic product (GDP) is expected to grow 7.4 percent in the financial year 2022-23. It forecasts the growth for agriculture and allied activities at 3.3 percent, while for industry and services sectors at 5.9 percent and 8.5 percent, respectively. An annual median GDP growth forecast for 2022-23 is projected at 7.4 percent — with a minimum and maximum growth estimate of 6 percent and 7.8 percent, respectively.

Indian Power Sector Overview

Indian power sector is undergoing a significant change that has redefined the industry outlook. Sustained economic growth continues to drive electricity demand in India. The Government of Indias focus on attaining ‘Power for all has accelerated capacity addition in the country. At the same time, the competitive intensity is increasing at both the market and supply sides (fuel, logistics, finances, and manpower).

India is the third-largest producer and second-largest consumer of electricity worldwide, with an installed power capacity of 395.07 GW, during 2022.

Indias installed renewable energy capacity stood at 152.36 GW, representing 38.56% of the overall installed power capacity. Solar energy is estimated to contribute 50.30 GW, followed by 40.1 GW from wind power, 10.17 GW from biomass and 46.51 GW from hydropower.

The renewable energy capacity addition stood at 8.2 GW for the first eight months of FY22 as against 3.4 GW for the first eight months of FY21.

Renewable Energy Sector

Indias Renewable Energy capacity additions are expected to set new records in 2022 as delayed projects from various competitive auctions are completed. Despite this, growth of RE capacity additions are expected to be far lower than the annual capacity addition of 40 GW required for India to reach the target of 500 GW pledged at the COP26. The target of the government is to achieve 227 GW of RE capacity (including 114 GW of solar capacity and 67 GW of wind power capacity) by 2022, more than its 175 GW target as per the Paris Agreement.

The Ministry of New & Renewable Energy, has given its assent to amendments in the existing Renewable Energy Certificate (REC) mechanism.

The Salient features of changes proposed in revamped REC mechanism are:

1. Validity of REC would be perpetual i.e., till it is sold.

2. Floor and forbearance prices are not required to be specified.

3. CERC to have monitoring and the surveillance mechanism to ensure that there is no hoarding of RECs.

4. The RE generator who are eligible for REC, will be eligible for issuance of RECs for the period of PPA as per the prevailing guidelines. The existing RE projects that are eligible for REC would continue to get RECs for 25 years.

5. A technology multiplier can be introduced for promotion of new and high priced RE technologies, which can be allocated in various baskets specific to technologies depending on maturity.

6. RECs can be issued to obligated entities (including DISCOMs and open access consumers) which purchase RE Power beyond their RPO compliance notified by the Central Government.

7. No REC to be issued to the beneficiary of subsidies/ concessions or waiver of any other charges. The Forum of Regulators(FoR) to define concessional charges uniformly for denying the RECs.

8. Allowing traders and bilateral transactions in REC mechanism.

Wind Energy Sector

Wind energy evacuation across India in FY 2021-22 was higher than it was in FY 2020-21. As against a contribution of 7.44% across the windy states in 2020-21, it increased to 7.65% in 2021-22. In terms of numbers, it increased from 50,075 MU to 56,194 MU.

In 2021-22, Karnataka stood first in the country with 11.25% of its demand met coming from wind energy; it evacuated 8,233 MU; Andhra Pradesh came second in the country with wind energy meeting 10.44% of its demand; it evacuated 6,988 MU. In third place is Tamil Nadu, which met 10.14% of its demand from wind energy; it evacuated 11,330 MU.

We do look forward to more wind energy being evacuated and contributing more in terms of percentage of demand met in FY 2022-23 and in the years to come. This is especially important given the need to reduce carbon emissions and the dependence on fossil fuels. Another telling factor that adds to the need for maximising the evacuation and use of wind is the fact that we are now witnessing a situation where even the quantum of energy available in the energy markets is inadequate to meet the demand.

Financial Performance

FY22 witnessed a marginal increase in generation as compared to FY 21. However, the favourable outcomes from the legal forums made the year exceptional. During the year, the Appellate Tribunal for Electricity (APTEL) set aside the Central Energy Regulatory Commissions order on revision of floor and forbearance price of Renewable Energy Certificates (REC) to Rs.Nil and Rs.1000 respectively. This resulted in resumption of REC trading and has rejuvenated the wind industry across the country. Further, the Andhra Pradesh Energy Regulatory Commissions order, directing the AP Discom to clear the dues to one of our subsidiaries of over Rs.30 crores in six monthly instalments resulted in improved profitability and cash flows. The cash flows from the said orders coupled with companys efforts to monetise additional vacant land parcels and utilizing these proceeds for repayment of loan over dues resulted in significant reduction in debt and interest costs during the year. The efforts of the management coupled with timely repayments lead to 1% interest rate reduction which would improve the cash flows and profitability in the years to come.

Revenues during the year amounted to Rs. 311 Crores as against Rs. 255 Crores generated during FY21, higher by 22%. The increase was largely contributed by resumption of REC trading during the year coupled with marginal increase in the generation. REC revenue of Rs. 48 crore contributed to 86% of the increase in revenues.

EBITDA for the year stood at Rs. 228 Crores as against Rs. 170 Crores reported during last year, higher by 34%. Margins for the year stood at 72% as against 65% delivered during FY21, higher by 700 bps. Revenues on account of REC trading contributed to the increase despite marginal increase in operating expenses.

Depreciation for the year amounts to Rs. 89 crores as against Rs. 91 crores, lower by 2%.

Interest outgo for the year stood at Rs. 121 crore as against Rs. 138 crore lower by 12%. Our efforts in recent years have been largely directed towards addressing the liability side of the business.

The companys efforts started yielding results, the average interest rate reduced by 1% during the year. Further, the Group had repaid Rs.154 Crores of borrowings during the year with no over dues as at the year end. This momentum is expected to continue in the future.

Profit after tax for the year stood at Rs. 36 crores as against loss of Rs. 57 crores during last fiscal. The REC trading and differential tariff claim on AP Discom during the year contributed to the increase.


The companys revenue to the extent of Rs 21 Crores is in escrow pending the disposal of a stay granted by the Supreme Court of India on the order issued by Central Electricity Regulatory Commission (‘CERC) on reduction of floor price of RECs. This has been pending for over five years.

In addition, an ongoing dispute with the AP discom has resulted in a sum of Rs. 60 Crores being held up for over a year. The combination of these issues has made cashflows particularly challenging for the company this year.

Human Resources

Our employees are our most important assets. As of March 2022, OGPL has a workforce of 124. We believe the quality and commitment level of our professionals is at par / highest amongst the power generating companies. OGPL continues to focus on key drivers of employee engagement like career growth, learning opportunities, fair performance and rewards and employee well-being by enhancing its HR processes for scale, agility and consistent employee experience.

Further, it also organizes workshops enhancing the skill sets of its employees and promoting their overall involvement. Frequent and outcome oriented session has resulted in superior employee experience. The Company also assigns individual goals to the employees, consistent with the overall objective of the business which not only acts as a strong motivator but also contributes towards improving the overall efficiencies of the business.

Lastly, the Companys transparent working environment wherein employees can raise their concerns and opinions results in higher engagement levels and lower employee turnover ratio.

Internal Controls and adequacy

The Company has an independent Internal Audit Practices with well-established risk management processes both at the business and corporate levels. Internal Auditor submits their reports, directly to the Chairman of the Audit Committee of the Board of Directors, which ensures process independence.

The audit committee revisits the adequacy of internal audit/ controls and ensures that the size and composition commensurate with the size of the business.

The Company believes that every employee has a role to play in fostering an environment in which controls, assurance, accountability and ethical behaviour are accorded high importance. This complements the Internal Audits conducted to ensure total coverage during the year.

The overall aim of the companys internal control framework is to assure that operations are effective and well aligned with the strategic goals. The internal control framework is intended to ensure correct, reliable, complete and timely financial reporting and management information.

Managements Responsibility Statement

The management is accountable for making the Companys consolidated financial statements and related information mentioned in this annual report. It believes that these financial statements fairly reflect the form and substance of transactions, and reasonably represents the companys financial condition and results of operations in conformity with Indian Generally Accepted Accounting Principles / Indian Accounting Standards.

Safe Harbour

Some of the statements in this Annual Report that are not historical facts are forward looking statements. These forward looking statements include our financial and growth projections as well as statements concerning our plans, strategies, intentions and beliefs concerning our business and the markets in which we operate. These statements are based on information currently available to us, and we assume no obligation to update these statements as circumstances change. There are risks and uncertainties that could cause actual events to differ materially from these forward looking statements. These risks include, but are not limited to, the level of market demand, market conditions that could affect our business, our ability to create, acquire and build new businesses and to grow our existing businesses, our ability to attract and retain qualified personnel, currency fluctuations and market fluctuations in India and elsewhere around the world, and other risks not specifically mentioned herein but those that are common to any industry.