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.

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Operations Summary

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).

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.