Reliance Power Ltd Management Discussions

Forward looking statements

Statements in this Management Discussion and Analysis of Financial Condition and Results of Operations of the Company describing the Companys objectives, expectations or predictions may be forward looking within the meaning of applicable securities laws and regulations. Forward looking statements are based on certain assumptions and expectations of future events.

The Company cannot guarantee that these assumptions and expectations are accurate or will be realised. The Company assumes no responsibility to publicly amend, modify or revise forward looking statements, on the basis of any subsequent developments, information or events. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Companys operations include availability and cost of fuel, determination of tariff and such other charges and levies by the regulatory authority, changes in Government regulations, tax laws, economic developments and such other factors.

The financial statements of the Company have been prepared in accordance with the provisions of the Companies Act, 2013 (the Act) and comply with the Companies (Indian Accounting Standards) (Ind AS) Rules, 2015, which have been notified by the Central Government on February 16, 2015. The Management of Reliance Power Limited ("Reliance Power" or "the Company") has used estimates and judgments relating to the financial statements on a prudent and reasonable basis, in order that the financial statements reflect in a true and fair manner, the state of affairs and profit/(loss) for the year.

The following discussions on our financial condition and results of operations should be read together with our audited consolidated financial statements and the notes to these statements included in the Annual Report.

Unless otherwise specified or the context otherwise requires, all references herein to "we", "us", "our", "the Company", "Reliance" or "Reliance Power" are to Reliance Power Limited and/or its subsidiary companies.

Indian Power Sector, Opportunities and Threats

Indian Economy, being the fifth largest economy in the world, has achieved the GDP growth of 7.6% in 2023-24 and with the focus of Government on Infrastructure and Manufacturing sector, GDP growth forecast of ~ 7% is projected by RBI. Power demand of the country has increased at an unprecedented rate due to rapid growth of the economy. Further, with the country aspiring to become the third largest economy in the world by achieving the GDP of US$ 5 trillion and more, India needs 24x7 availability of power for its economic growth; however, this objective cannot be achieved by the sources of renewable energy alone in view of its inherent intermittent nature. Hence, the government has renewed its focus on coal-based thermal capacity addition for meeting growing energy needs. More so, in view of its capacity to balance the energy output as well as capacity to meet the base load requirement, considering the fast-growing renewable energy generation.

During the Financial Year 2023-24, the Indian power sector witnessed:

• Less than targeted addition to installed generation capacity;

• Continued growth in power demand owing to increased economic activity;

• Increase in overall Thermal PLF to 69.07% in financial year ended 2024, an increase of 5% over financial year ended 2023;

• Increased volume of trading in power exchanges;

• Continued efforts towards resolution of stressed generation assets in the private sector;

• Continued challenges facing Discoms:

> high level of Aggregate Technical and Commercial losses (AT & C Losses);

> Cost and Tariff rate gap (ACS - ARR); and

> continued financial stress and liquidity challenges.

Universal access for consumers to affordable & reliable power in a sustainable manner is the guiding principle for Indias Power Sector. Accordingly, Governments major initiatives focus on:

• transition from fossil fuel based energy to cleaner & greener sources of energy;

• strengthening distribution sector by improving operational & financial efficiency of DISCOMs and augmenting distribution infrastructure;

• transmission capacity for integration of over 500 GW of non-fossil fuel capacity by 2030;

• ensuring timely recovery of costs due to change in law, for entities across power supply chain; and

• deepening of power markets through introduction of RTM, GTAM, GDAM markets.

As per the projections of National Electricity Plan for the period 2022-32, the required coal and lignite based installed capacity will be 283 GW by 2031-2032 as against the present installed capacity of 218 GW. The Government has decided to add new coal-based thermal power capacity of ~80 GW by 2031-32 to meet the increasing power demand in the country. Further, India has ambitious target for energy transition and plans to have 500 GW of non-fossil based installed capacity by 2030.

The renewed thrust on the thermal power capacity addition by Government of India presents growth opportunities for existing successful thermal power players.

Demand and supply outlook

On the demand side, Indias per capita power consumption is at ~1331 kWh/year (as on March 31, 2023), is still about one- third of the worlds average ~3600 kWh/year consumption.

Growing population; increasing electrification & universal access to power; rising per-capita usage and expansion in economic activities including penetration of Electric Vehicles (EV) in both consumer and industrial segments, are expected to boost the growth in the power consumption.

In the financial year 2024, peak power demand increased by 12.7 percent to an all-time high of ~243 GW, whereas in energy terms it increased by 7.6 percent to ~1 627 BU.

Power Generation Capacity

In terms of capacity, there has been a year-on-year increase of nearly 18 GW in installed power generation capacity (434 GW in FY24 vis-a-vis 416 GW in FY23).

There has been a progressive shift towards renewable sources (mainly solar & wind). In the last 5 years, the share of renewable energy in the installed capacity has increased from ~35% (~123 GW in March 2019) to ~42% (~1 83 GW in March 2024). However, thermal power, in view of its inherent capacity to mitigate the sudden spurt in demand as well as its reliable and sustainable generation capacities, shall continue to remain vital source of power generation for meeting the power requirement of the country, hence, under the renewed thrust, thermal power generation capacities shall continue to grow so as to have the projected capacity of ~ 283 GW by 2031-32 as against the present installed capacity of 218 GW.

Key risks and concerns

Power sector is a highly capital-intensive business with long gestation periods before commencement of revenue streams, especially for the projects using conventional technology. Coal-based power projects have an average development and construction period of 7 to 8 years and an even longer operating period (over 25 years). Since most of the projects have such a long-time frame, there are certain inherent risks in both, internal and external environment. The Company monitors the external environment and manages its internal environment to mitigate the risks / concerns on a continuous basis. Some of the key areas that need continuous monitoring within the sector are:

a) Enhanced focus on ESG norms

There has been enhanced focus on ESG norms primarily driven by environmental dimension of ESG and climate change awareness. Indian authorities are also giving increased attention to these norms. SEBI has come out with a circular for a detailed disclosure on these parameters and the required data is disclosed under the Business Responsibility and Sustainability Report as attached with the annual report. The Company complies with required operating norms of power generation as well continue to follow the best operating practices on the social and governance.

b) Weak financial condition of electricity distribution Companies

The financial health of electricity DISCOMs is an area of key concern threatening the very viability of the power sector. DISCOMs are the weakest link in the electricity supply chain and have been suffering on account of operational inefficiencies; inadequate investments in distribution network as well as lack of timely and adequate tariff revisions to help recover costs.

Recognizing the difficulties faced by the DISCOMs, the Government has implemented a set of comprehensive measures under UDAY (Ujwal DISCOM Assurance Yojana) to help distribution utilities achieve operational and financial turnaround. UDAY scheme was targeted to lower AT&C losses, reduce gap between ACS and ARR (Cost and Tariff rate) and improve operational efficiency of DISCOMs. Additionally, efforts from Energy Efficiency Services (EESL) to replace conventional meters with smart meters are targeted at improving billing efficiency, leading to higher revenue realisation by DISCOMs. With experience gained from implementation of UDAY scheme, Government has rolled out a revamped reforms-based result-linked power distribution sector scheme to support DISCOMs. The Scheme envisages an outlay of about 3 lakh crores over a duration of financial year 2022 to 2026. Key objective of the Scheme is to reduce AT&C losses to pan-India levels of 12-15% and ACS-ARR gap to zero by financial year 2025. As a result of reform measures taken under the scheme, AT&C losses have come down to 15.41% (provisional) in FY 22-23. The direct impact of this will be on reducing the ACS-ARR gap which will ultimately benefit end consumers for getting quality supply.

Additional measures, such as privatization of DISCOMs in union territories; and amendment to Electricity Act to give consumer a choice of supplier, when implemented effectively, are likely to positively impact the sector in the long run.

The turnaround of DISCOMs will help generating companies in mitigating counterparty risks both in terms of payment security and increased demand for power.

c) Gas - Continuing supply deficit

Viability of existing as well as newly developed gas-based power plants, aggregating to nearly 25 GW capacity, is adversely impacted due to lack of adequate domestic gas supply in the country. This industry-wide issue, which has led to practically entire gas-based capacity in the country getting stranded, continues to await a long-term resolution. However, considering the ensuing power deficits, government has come out with different schemes to bring gas-based generation capacity into operation to meet peak demand.

d) Implementation of New Environment (Protection) Norms

With notification of the Environment (Protection) Amendment Rules, 2015, all coal-based power plants are required to meet the revised emission norms.

For complying with the new environment norms, the developers would need to undertake additional capital expenditure (CAPEX). In order to facilitate the smooth implementation of the same, the Ministry of Power (MOP), vide its letter dated May 30, 2018, has issued directions to the CERC and other State regulators (SERCs) to consider the revised emission standards as Change in Law (CIL) and devise an appropriate regulatory mechanism to address the impact on tariff. During financial year 2022, CERC issued framework for computing tariff recovery to mitigate impact of change in law due to implementation of new environment norms.

In the present sector context, banks and financial institutions are not forthcoming to finance the additional capital expenditure arising from implementation of CAPEX to meet new environment norms. Certainty in cost recovery on account of additional capital and operational costs, under concluded long-term and medium-term PPAs, is critical to securing financing for timely completion of additional capital expenditure.

Further, Ministry of Environment, Forest and Climate Change (MoEFCC) vide its Gazette Notification dated March 31, 2021 categorized all TPPs with reference to its location and revised the timelines for compliance of new emission norms. The same has been further extended upto December 31, 2026 vide a Gazette Notification dated September 05, 2022 from MoEFCC.

e) Governments thrust for future growth of Power Sector in India

The Government has over the past years provided an unprecedented level of support to renewable energy and sustainability. Even during the G20 Summit held in September 2023, India was a beacon of leadership with the adoption of the New Delhi Declaration which paved the way for sustainable energy by formation of the Global Biofuel Alliance and pledging to achieve global carbon neutrality by mid-century.

In line with the perspective, in the interim budget announced in February 2024, introduced measures to further the strides made by India in sustainable energy. The budget focused on promotion of Green Hydrogen, Solar Power Grid, Roof Top Solar, Electric Vehicle (EV) Ecosystem, etc.

f) Power Demand and Plant Load Factor (PLF) of Thermal Power Plants

Power demand in India has grown at a CAGR of about 6.57 percent in last 5 years. Growth in electricity demand has been met by rapid capacity addition of thermal projects in the earlier years. Growth in economic activities in recent years has seen a positive impact in terms of PLF of coal fired thermal power plants which stood at 69% for financial year 2024. Notwithstanding growth in renewable capacity, thermal power plants would continue to remain the mainstay for meeting base load requirements considering the intermittent nature of supply from renewable sources.

Reliance Powers operating project portfolio is well diversified in terms of location, fuel source and off-takers. Projects key differentiators help mitigate sectoral challenges highlighted above.

Sasan Ultra Mega Power Project, developed by Sasan Power Limited (SPL), is the most competitive coal based power supplier for all its procurers; has a long-term Power Purchase Agreement (PPA) in place and a strong payment security mechanism mitigating risks relating to demand and weak financial condition of distribution companies. Further, it has a captive coal mine, which provides complete fuel security. During the year under review, Sasan recorded a Plant Load Factor (PLF) of 93.5%. Rosa Power Project, developed by Rosa Power Supply Company Limited (RPSCL), operates under a cost-plus business model wherein tariffs are determined by the State Regulator under Section 62 of Electricity Act. RPSCL too has a long-term PPA in place and has a three-tier payment security mechanism mitigating demand & payment related risks. RPSCL has always consistently maintained its high plant availability, with financial year 2024 witnessing a plant availability of 94%.

SPL and RPSCL have been working in right earnest towards implementation of projects to comply with new environmental norms.

The Companys renewable portfolio is fully contracted in terms of power offtake, thus mitigating demand risk and has suitable payment security mechanisms in place.

As brought out above, the Companys operating project portfolio is significantly insulated from sector specific risks.

Internal Financial Control and Systems

The Company has put in place internal control systems and processes which are commensurate with its size and scale of its operations. The system has control processes designed to take care of various control and audit requirements. The Company has Internal Audit function which oversees the implementation and adherence to various systems and processes. The internal audit function reviews and ensures the sustained effectiveness of Internal Financial Controls designed by the Company. The internal audit team is supported by the reputed audit firms to undertake the exercise of Internal Audit at various project locations. The report of the Internal Auditors is placed at the Audit Committee of the Board and the improvements in systems and processes are carried out where necessary.

Risk Management Framework

The Company has also put in place a Risk Management Framework, both at the corporate as well as at the project level, which provides a process of identifying, assessing, monitoring, reporting and mitigating various risks at all levels, at periodic intervals. The Risk Management process is supervised by the Risk Management Committee of the Board. The Committee undertakes a review of the risks as well as the status of the mitigation plans.

Discussion on Operations of the Company

The Company is in the business of setting up and operating power projects and development of coal mines associated with such projects. The Company has built a portfolio of power projects and coal mines. Of the power projects in its portfolio, the projects aggregating to ~ 5945 MW are commissioned while the other power projects are under various stages of development.

a) Sasan Ultra Mega Power Project, 3,960 MW pithead coal-based Project in Madhya Pradesh

The Sasan Ultra Mega Power Project (Sasan UMPP), with a capacity of 3,960 MW, stands as one of the worlds largest integrated coal-based power plants combined with a captive coal mine. It continued to achieve outstanding operational performance compared to its peers with generation of 32,530 million units (MUs) during the year at an impressive Plant Load Factor (PLF) of 93.5% compared to the all India average PLF of approximately 69%. During the year, coal production from its captive mines reached 18.28 million metric tons. Sasan Coal Mine handled a total volume of 77.8 million cubic meters, including overburden removal of 65.6 million cubic meters. This substantial volume places it among the largest coal mines in the country. The power generated by the Sasan UMPP is supplied to 14 DISCOMs across 7 states through a 25-year long-term Power Purchase Agreement (PPA).

b) Rosa, 1,200 MW coal-based power project in Uttar Pradesh

Rosa power plant completed another year with excellent operational and financial performance. In its 12th year of full operations, the plant generated 7609.7 MUs of electricity. The entire electricity generated from the project is sold to the State of Uttar Pradesh under a cost-plus regulated PPA.

c) Butibori, 600 MW coal-based power project in Maharashtra

The Butibori Power Project, a coal-based thermal plant with a capacity of 600 MW, was not in operation during the year due to protracted delays in issuance of legal/ regulatory orders; lack of fuel supply for one of the units and commercial dispute with the power procurer. The company is actively working on a resolution plan to address this situation.

d) Vashpet, 45 MW wind project in Maharashtra

The Company has set up a 45 MW Wind Farm in Sangli District of Maharashtra. During the year under review, the project generated 50.96 MUs of electricity. Further, the Company has concluded the slump sale / transfer of the Wind Power Project for a cash consideration of 132.39 crore (net of TDS) on April 12, 2024.

e) Dhursar, 40 MW Solar Photovoltaic (PV) power project in Rajasthan

Dhursar Solar Power Private Limited (DSPPL) has set up a 40 MW Solar PV Plant in Jaisalmer district of Rajasthan. Electricity from this project is sold under a PPA for a period of 25 years. During the year under review, the project generated 59.4 MUs of electricity.

f) 100 MW Solar CSP in Rajasthan

Rajasthan Sun Technique Energy Private Limited (RSTEPL), a wholly-owned subsidiary of the Company, has commissioned the 100 MW Concentrated Solar Power Project (CSP) in Jaisalmer, Rajasthan. During the year under review, project generated 35.56 MUs of electricity.

g) Krishnapatnam Ultra Mega Power Project (the Krishnapatnam UMPP), 3,960 MW imported coal-based Project in Andhra Pradesh

Coastal Andhra Power Limited (CAPL), a wholly owned subsidiary of our company, is responsible for the development of the Krishnapatnam Ultra Mega Power Project (UMPP) based on imported coal. However, the project has encountered viability challenges due to regulatory changes in Indonesia, the intended source of coal for the project. Despite efforts to resolve the issue through discussions with the procurers, they issued a notice terminating the Power Purchase Agreement (PPA) and demanded liquidated damages. In response, our company initiated arbitration proceedings and approached the Honorable Delhi High Court in March 2012. Subsequently, following a court order in January 2019, the procurers encashed the Bank Guarantees (BGs), recovering 300 Crore as liquidated damages. Subsequently, CAPL filed a petition with the Central Electricity Regulatory Commission (CERC) challenging PPA termination and encashment of BGs which is pending adjudication. Notably, the matter related to the resumption of CAPL land at the Honble High Court of Andhra Pradesh in Amaravati has been amicably settled with the Government of Andhra Pradesh.

h) 3,960 MW coal-based power project in Madhya Pradesh

Chitrangi Power Private Limited (CPPL) was setting up a 6x660 MW (3,960 MW) super critical coal-fired thermal power project at Chitrangi Tehsil in Singrauli District of Madhya Pradesh. It had received all the major clearances and approvals required for implementation of the project. The company proposed to use coal for this project from the surplus coal up to 9 MTPA from the Moher, Moher- Amlohri Extention and Chatrasal coal Blocks allocated to Sasan Power Limited, allowed by Ministry of Coal (MoC) vide its Gazette notification No.335 dated February 17, 2010 and balance from other sources. The Company had participated in bid for supply of power of Uttar Pradesh Power Corporation Limited and Madhya Pradesh Power Management Company Limited.

Based on Honble Supreme Courts order dated August 25, 2014, MoC cancelled its earlier notification dated February 17, 2010 permitting use of surplus coal from Sasan UMPP for this project resulting in frustration of the bids due to non availability of coal. In view of the above, implementation of this project has been kept in abeyance.

i) Samalkot Power Project (SMPL)

In the absence of availability of domestic natural gas, entire gas-based generation capacity in the country including SMPL is stranded. Company has relentlessly pursued opportunities to monetize SMPL equipment and towards this end, it had entered into a Memorandum of Understanding (MOU) with the Government of Bangladesh (GoB) for developing a gas based project of 3000 MW capacity in a phased manner. Pursuant to the above, Reliance Bangladesh LNG and Power Limited (RBLPL), subsidiary of the Parent Company had taken steps to conclude a long-term PPA for supply of 718 MW (net) power from a combined cycle gas based power plant to be set up at Meghnaghat near Dhaka in Bangladesh (Phase-1). The project agreements (comprising Power Purchase Agreement, Land Lease Agreement, Gas Supply Agreement and Implementation Agreement) were signed in September 2019.

Parent Company also concluded agreements with JERA Power International (Netherlands) - a subsidiary of JERA Co. Inc. (Japan) to invest 49% equity in RBLPL in September 2019. JERA owns/ has domestic investments in 27 power projects with ~80 GW of generating capacity in Japan and nearly 10 GW of generating capacity overseas (including projects under development). JERA also has a large portfolio of 11 LNG terminals and 20 LNG carriers.

SMPL had signed an Equipment Supply Contract in March 2020 to sell one module for development of the Phase-1 project in Bangladesh. The export of the module has been completed and proceeds from equipment supply have been used to pare the debt from EXIM Bank of United States.

Your Company continues to pursue opportunities for monetization of remaining two modules of SMPL.

j) Hydroelectric Power Projects

The Company undertook the development of various hydroelectric power projects, aggregating to 3438 MW capacity, located in Arunachal Pradesh, Himachal Pradesh and Uttarakhand. These projects are in different stages of development. Hydroelectric power projects by nature have long gestation periods and require clearances from various authorities before commencement of construction activities. Some of these projects have achieved significant development milestones. However, given the current hydro power sector scenario, expected tariffs of hydro projects and consequent reluctance of DISCOMs to enter into long- term PPAs for hydro power, the development efforts on these projects have been kept in abeyance.

During the year company has monetized its investments in Tato-II (700 MW) and Kalai-II (1 200 MW) and is exploring opportunities for monetization of balance hydroelectric power projects.

k) Coal Mines

The Company has been allocated coal mines in India along with the Sasan UMPP. The Moher and Moher Amlohri

Extension coal block, a captive coal block allocated to Sasan Power Limited (SPL), is fully operational.

During the year 2015-16, the Government of India cancelled the allocation of Chhatrasal Coal Block to SPL and restricted annual coal production from Moher and Moher Amlohri Extension coal mine to 16 Million Metric Tonnes per annum. The Company has challenged the above directions of the Ministry of Coal (MoC) in Honble High Court of Delhi by way of a Writ Petition, which is pending. Based on representations of SPL, MoC has issued a Standard Operating Procedure which allows Sasan UMPP to produce coal upto the requirement of the project on automatic approval basis, which ensures complete fuel security for Sasan UMPP.

The Company also has coal mine concessions in Indonesia.

l) Coal Bed Methane (CBM) Blocks

The Company had stakes in four Coal Bed Methane (CBM) blocks. All four blocks have since been relinquished.

Health, Safety and Environment (HSE) and Corporate Social Responsibility (CSR)

The Company attaches utmost importance to the operational safety standards at all its installations. Necessary proactive and preventive measures are regularly undertaken to ensure that the standards are followed for the safety of employees and equipment. Both external and internal safety audits, as well as mock drills are conducted time to time to gauge emergency and crisis management preparedness.

Corporate Social Responsibility has always been an integral part of Reliance Groups vision. The Company firmly believes in the commitment to all its stakeholders. Special emphasis is laid on empowering local communities around all the business units. The Company undertakes social interventions in the field of Healthcare, Education, Rural Transformation, Swachh Bharat Abhiyan and Environment. The programmes are designed after identifying the needs of the community and are integrated into the annual operating business plans with measurable goals. Our CSR programmes have received numerous awards and accolades over the years from renowned organisations like FICCI, World CSR Congress, Bombay Chambers of Commerce & Industry (BCCI), India CSR and The CSR Journal.

Human Resources

The Company strongly believes that its employees are the most valuable asset and the strategic differentiator. With this focus in mind, Reliance Power has taken various initiatives towards aligning its HR processes with its business strategy. Our endeavour is to provide a work environment where continuous learning and development takes place to meet the changing demands and priorities of the business.

The Company has a rich blend of millennial and experienced employees. We have 1,277 highly trained and experienced professionals pan India. We take immense pride in the technical and functional excellence of our employees. We attach much importance to learning and development of our employees. Our well laid down career progression plans help in seamless transfer of knowledge to the younger generation and shape them as future leaders.

Discussion on Financial Condition and Financial Performance

An extract of the Consolidated Profit and Loss is provided below:

Rs in lakhs

Particulars	Year Ended March 31, 2024	Year Ended March 31, 2023
Revenue from operations	7,89,260	7,54,269
Other Income	36,763	34,005
Total Income	8,26,023	7,88,274
Cost of Fuel consumed	3,83,135	3,65,476
Employee Benefit Expenses	18,424	17,881
Finance Cost	2,45,129	2,52,661
Depreciation / Amortisation	1,06,175	1,03,273
General, Administration & Other Expenses	2,71,970	1,82,414
Total Expenses	10,24,833	9,21,705
Profit before exceptional items and tax	(1,98,810)	(1,33,431)
Exceptional items	(4,005)	1,03,686
Profit/(Loss) after exceptional items and before tax (continuing operations)	(2,02,815)	(29,745)
Tax Expenses	21,403	6,391
Profit/(Loss) after Taxes (continuing operations)	(2,24,218)	(36,136)
Profit/(Loss) after Tax (discontinuing operations)	17,380	(4,153)
Profit/(Loss) after Tax (continuing & discontinuing operations)	(2,06,838)	(40,289)
- Profit attributable to non-controlling interest	-	6,788
- Profit attributable to owners of the Parent	(2,06,838)	(47,077)
EPS (?) (basic and diluted)	(5,458)	(1.352)

Key financial ratios based on Consolidated Financials are presented below:

Particulars	Year Ended March 31, 2024	Year Ended March 31, 2023
Debtors Turnover (Days)	76.3	130
Inventory Turnover (Days)	52.1	60
Interest Coverage Ratio*	0.2	0.5
Current Ratio	0.3	0.3
Debt Equity Ratio	1.6	1.8
Operating Profit Margin (%)*	15.0	25.0
Net Profit Margin (%)*	(25.0)	(18.3)
Return on Networth (%)*	(17.0)	(12.9)

* Lower due to provision for impairment