REG - OPG Power Ventures - Trading update for Nine Months of FY22

OPG Power VenturesAnnouncement

23/02/2022 07:00

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RNS Number : 5461C  OPG Power Ventures plc  23 February 2022

23 February 2022

 

OPG Power Ventures plc

("OPG", the "Group" or the "Company")

 

Trading update for Nine Months of FY22

 

Summary

 

For the nine months to 31 December 2021:

 

·   Total generation of 1.55 billion units (1.47 billion units for nine
months FY21);

·   Plant Load Factor ("PLF") for the period at Chennai was 57% (54% for
nine months FY21);

·   Average tariff for nine months FY22 was Rs 5.53 per kWh (Rs 5.52 per
kWh for nine months FY21);

·   Net debt was £16.5 million (£16.2 million at 31 March 2021);

·   Investment in Atsuya Technologies Private Limited in line with the
strategy to diversify into ESG compliant opportunities and to reduce and
offset carbon emissions;

·   Indian economy is recovering from COVID-19 pandemic and lockdown; IMF
has projected a 9% growth rate for Indian economy in FY22 against global
growth rate projection of 4.4% for CY22.

 

 

For further information, please visit www.opgpower.com or contact:

 

 OPG Power Ventures PLC                              +44 (0) 782 734 1323
 Dmitri Tsvetkov

 Cenkos Securities (Nominated Adviser & Broker)      +44 (0) 20 7397 8900
 Stephen Keys / Katy Birkin

 Tavistock (Financial PR)                            +44 (0) 20 7920 3150
 Simon Hudson / Nick Elwes

 

 

Operations Summary

 

                                         Nine Months  Nine Months  FY

                                         FY22         FY21         31 Mar 2021
 Generation (million kWh)
 414 MW                                  1,156        1,141        1,701
 Additional "deemed" offtake at Chennai  391          327          406
 Total Generation (MUe)(1)               1,547        1,468        2,107
 Reported Average PLF (%)
 414 MW                                  57%          54%          58%
 Average Tariff Realised (Rs)
 414 MW                                  5.53         5.52         5.52

 

Note:

1      MU / Mue - millions units or kWh of equivalent power

 

 

Total generation at the Chennai plant, including deemed generation, in the
nine months of FY22 was 1.55 billion units, 5% higher than in the nine months
of FY21.

 

Average tariffs realised in the period were Rs 5.53 per kWh (nine months of
FY21: Rs5.52 per kWh).

 

Coal and freight

Over the last several months the prices of thermal coal and freight have
surged primarily due to geopolitical issues in the region and increased
requirement of coal on the back of post COVID-19 economic recovery. The
current year average coal price is almost double in comparison to the average
price for Indonesian coal over the last ten years.

Whilst OPG was partially covered from increases in prices with fixed price
agreements for coal and freight, the Company remains exposed to market
fluctuations for the unhedged portion of coal consumption and freight.

 

 In light of this, the Company explored various options including sourcing
coal from other geographies (including domestic sources) to reduce the per
unit cost of electricity. The Company sourced 0.4 million tons of Indian coal
at auction in order to replace higher cost Indonesian coal. In addition, OPG
secured procurement of 0.13 million tons per year from Indian mines under a
five year contract which can be converted into a longer-term fuel supply
agreement for ten years, at the option of the Company. The price is fixed for
the term of the contract and is significantly lower than the imported coal
prices. The quantity of domestic coal secured at fixed prices will meet
approximately 25-30% of the Company's requirement for the first year and 8-10%
of annual coal requirements from the second year onwards.

 

 

Deleveraging

In 2018 the Board took the decision to focus on the Company's profitable,
long-life assets in Chennai, and to prioritise the deleveraging of the
business to enhance and increase the value of shareholders' equity. The Board
continues to believe that this long-term strategy will deliver value to
shareholders with free cash flows providing significant returns and
opportunities to grow the business further.

 

Net debt comprising total borrowings of £45.3 million less unrestricted cash
and cash equivalents of £28.8 million was £16.5 million at the end of the
period (31 March 2021: £16.2 million). The balance of the term loans and NCDs
are scheduled to be fully repaid by Q2 2024.

 

62 MW Karnataka Solar projects

As previously announced, the Board has decided to sell OPG's interest in 62MW
Karnataka solar projects and these assets remain in a disposal process.

 

Environmental, Social and Governance ("ESG") - strategic Investment in Atsuya
Technologies

OPG continues the development of its ESG strategy which, among other matters,
will include the objective of reducing the Company's carbon footprint. OPG
recognises that a comprehensive decarbonisation strategy is critical to its
future. The Company aims to identify and undertake various initiatives that
will reduce and offset carbon emissions from its operations and to be aligned
with the UN Sustainable Development Goals ("SDGs").

 

As part of our strategy to diversify into energy savings/ESG compliant
opportunities, the Company made an investment (valued at less than one per
cent of OPG's total assets) to acquire an equity stake in Chennai-based
sustainability solutions provider, Atsuya Technologies Private Limited
("Atsuya") (www.atsuyatech.com (http://www.atsuyatech.com) ).

 

An early-stage, but fast-growing venture, Atsuya provides a suite of
innovative engineering solutions to a wide variety of industries to help them
scale up organically while meeting their sustainability goals. Atsuya's
solutions, which cover eight of the seventeen SDGs, leverage state-of-the-art
technologies such as artificial intelligence, deep tech and the internet of
things. Atsuya's existing clients include new-age Unicorns as well as a
Fortune 500 Indian energy company.

OPG, as a progressive power producer, has been developing its ESG strategy,
with a long-term vision to grow in the renewable and energy transition
technologies sectors. In the short-term, a strategic investment in Atsuya
gives OPG the opportunity to better align with its sustainability goals, and
create value for all stakeholders. The investment provides OPG with the right
to nominate a director to the Board of Atsuya and for OPG and Atsuya to work
jointly on marketing and selling Atsuya's solutions outside of India.

 

Independent of this investment, OPG continues to evaluate various options to
increase its renewable energy asset base, notably solar power, and to
establish joint-ventures to roll out various energy transition technologies,
including energy efficiency improvements and green hydrogen production. These
initiatives will ensure that OPG delivers its emissions reduction targets in
the medium and long-term.

 

The Global and Indian Economy and Indian Power Sector

The COVID-19 pandemic has impacted economic growth across the globe.  In a
recent IMF report, the global economy is projected to grow 4.4 percent in CY
2022.  The IMF has projected a growth rate for the Indian economy at 9 per
cent for FY22.

 

During the initial lockdown, the total power consumption in India reduced by
approximately 25 per cent primarily due to decrease in industrial demand for
electricity on account of COVID-19 restrictions. As the restrictions were
eased power consumption has been seen to be gradually increased. Following the
gradual recovery of the Indian economy, power demand in country is expected to
grow, driven by rising industrial demand. India's power consumption rose to
100.42 billion units ("BU") in November 2021 compared with 96.88 BU in
November 2020 and for December 2021 consumption was 110 BU compared to 106 BU
in December 2020.

 

Outlook

During the first seven months of FY21 to the end of October 2021 the prices of
thermal coal and freight have surged primarily due to the increased
requirement for coal and other goods as a result of post COVID-19 economic
recovery. However, coal prices have decreased significantly since the peak in
October 2021 and the Company anticipates that coal prices will normalise over
time.

 

As previously reported, due to the negative impact of higher coal prices and
freight costs the Group's plants will be operating at a lower capacity for the
remainder of FY22 and revenue and net profit will reduce in comparison with
FY21.

 

OPG believes that the medium and long-term fundamentals of the Group remain
unchanged and post-COVID-19 recovery, as well as the normalisation of coal
prices and freight costs, the Company expects to continue to prosper as
management seeks to deliver its long term, profitable and sustainable business
model. OPG will also continue to focus on advancing its ESG strategy and our
maiden investment in Atsuya is the first step in the Group's ESG development
and focus on ESG compliant projects.

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