Azure Power Global Ltd [AZREF] Filings

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

or

For the transition period from                    to                

or

For the fiscal year ended March 31, 2023

or

Date of event requiring this shell company report

Commission file number 001-37909

Azure Power Global Limited

(Exact name of Registrant as specified in its charter)

Mauritius

(Jurisdiction of Incorporation or Organization)

8^th Floor, Tower A, DLF Infinity, Cyber City, Phase II, Gurugram-122002, Haryana, India

Telephone: +91-124 4155755

(Address and Telephone Number of Principal Executive Offices)

Sunil Gupta, Chief Executive Officer

8^th Floor, Tower A, DLF Infinity, Cyber City, Phase II, Gurugram-122002, Haryana, India

Telephone: +91-124 4155755, e-mail: sunil.gupta@azurepower.com

Sugata Sircar, Chief Financial Officer

8^th Floor, Tower A, DLF Infinity, Cyber City, Phase II, Gurugram-122002, Haryana, India

Telephone: +91-124 4155755, e-mail: sugata.sircar@azurepower.com

(Name, Telephone, email and/or Facsimile Number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

(Title of Class)

As of March 31, 2023, 64,166,360 equity shares, par value US$0.000625 per share, were issued and outstanding.

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(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

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Table of Contents

FORM 20-F CROSS-REFERENCE GUIDE

CONVENTIONS USED IN THIS ANNUAL REPORT

Except where the context requires otherwise and for purposes of this annual report only:

In this annual report, references to “U.S.” or the “United States” are to the United States of America, its territories and possessions, any State of the United States and the District of Columbia. References to “India” are to the Republic of India, its territories and its possessions. References to “Mauritius” are to the Republic of Mauritius.

Unless otherwise indicated, the consolidated financial statements and related notes included in this annual report have been presented in Indian rupees and prepared in accordance with U.S. GAAP. References to a particular “Fiscal”, “fiscal”, “fiscal year” or “FY” are to our fiscal year ended March 31 of that year, which is typical in our industry and in the jurisdictions in which we operate.

This annual report contains translations of certain Indian rupee amounts into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise stated, the translation of Indian rupees into U.S. dollars has been made at INR 82.19 to US$1.00, which is the noon buying rate in New York City for cable transfer in non-U.S. currencies as certified for customs purposes by the Federal Reserve Bank of New York on March 31, 2023. We make no representation that the Indian rupee or U.S. dollar amounts referred to in this annual report could have been converted into U.S. dollars or Indian rupees, as the case may be, at any particular rate or at all.

As used in this annual report, all references to watts (e.g., megawatts, gigawatts, kilowatt hour, terawatt hour, MW, GW, kWh, etc.) refer to measurements of power generated.

Forward-Looking Statements

This annual report contains forward looking statements about our current expectations and views of future events. All statements, other than statements of historical facts, contained in this annual report, including statements about our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and future megawatt goals of management, are forward looking statements. These statements relate to events that involve known and unknown risks, uncertainties and other factors, including those listed under “Risk Factors,” which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, these forward-looking statements can be identified by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar expressions.

These forward-looking statements are subject to risks, uncertainties and assumptions, some of which are beyond our control. In addition, these forward-looking statements reflect our current views about future events and are not a guarantee of future performance. Actual outcomes may differ materially from the information contained in the forward-looking statements because of a number of factors, including, without limitation, the risk factors set forth in “Risk Factors” and the following:

We caution you that forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those in forward-looking statements as a result of various factors. These risks and uncertainties include factors relating to (i) economic, political and social issues in the country in which we operate, (ii) the domestic as well as global economy, (iii) financial and capital markets, (iv) Indian government policies and regulation on renewable energy, (v) tax related laws in the US, Mauritius and India, and (vi) degree of competition in the renewable energy market in India.

For additional information on risk factors that could cause our actual results to differ from expectations reflected in forward- looking statements, see “Risk Factors”. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments. All forward-looking statements attributed to us or a person acting on our behalf are expressly qualified in their entirety by this cautionary statement, and you should not place undue reliance on any forward-looking statement. You should read this annual report, the exhibits hereto and other documents we have filed with the SEC completely and with the understanding that our actual future results or performance may be materially different from what we expect.

I. BUSINESS, COMPANY & INDUSTRY OVERVIEW

A. Business Overview

Azure is one of India’s leading utility scale renewable energy project developers and operators. We build, own, and operate large grid-scale renewable energy projects across India that supply clean energy to India’s power grid. We developed India’s first utility-scale solar power project in 2009 and have since then grown to achieve substantial scale in the Indian renewable industry. Our Operational, Contracted and Awarded capacity now stands at 4,278 MW (excluding 3,033 MW for which we will not continue with construction, see “– Project Pipeline”) including 86.5 MW of rooftop capacity and Contracted and Awarded capacity of 1,237 MW. We have a total operating capacity of 3,041 MW including rooftop capacity. Our operational power plants are spread over 12 Indian states. Out of total operational capacity, 90% of our plants are in high irradiation zones like Rajasthan, Gujarat, Maharashtra and Andhra Pradesh. Below are outlines of our utility scale operational portfolio.

We sell renewable power under long term PPAs, typically 25 years in duration, at a fixed tariff. The strength of our off take customers is fundamental to our business and more than 62% of our PPAs (operational capacity) are signed with top rated central government owned intermediaries such as SECI and NTPC, providing predictable and consistent revenues and cash flows. Further, according to a report published by MoP in April 2023, among the state government owned Discoms that we have large capacities contracted with, Gujarat is rated A+, Punjab & Assam are A rated, while the three Discoms of Karnataka (CESCOM, GESCOM and HESCOM) are B rated, and Maharashtra Discom is rated B-. Our counterparty exposure for the commissioned capacity is set out below:

During FY 2023, we generated 5,854 million units of clean and green electricity for the Indian power grid. Our goal is to remain a leader in the renewable energy market in India. All our operating assets are currently solar. We intend to explore adding wind, hybrid and storage assets over time, to complement our solar generation capacity.

Our Competitive Advantage

We believe that Azure has developed durable competitive advantages from a range of factors, including:

Our Business Strategy

India is our focus market which has emerged as the third largest producer and consumer of electricity in the world. It is a global pacesetter in terms of renewable energy capacity additions and is on track to become one of the world’s largest markets for clean energy technologies. In 2023 alone, various central and state government agencies and distribution companies in India auctioned 22.9 GW of renewable energy capacity. India has set ambitious climate change and energy transition targets, including Net-Zero carbon emissions by 2070, growth of non-fossil fuel energy capacity to 500 GW by 2030 and to achieve energy independence by 2047. The Government of India’s (“GoI”) support for the sector, macro factors such as increased electrification and rapid urbanization are expected to result in India representing a significant share in the global renewable energy market across technologies like solar and wind. For more information, see “– Industry Overview”.

We believe we are well positioned to benefit from the expanding renewable energy market in India. We expect to continue to invest in the capabilities that we believe give us an edge in an increasingly competitive market. These include:

Our strategic priorities are:

To execute our pipeline of projects

Delivering on our pipeline in a timely and efficient manner – within acceptable risk and return parameters – is one of our key strategic priorities. We have signed PPAs for approximately 270 MW of our pipeline not including 3,033 MW for which we will not continue with construction, see “– Project Pipeline” and have signed Letters of Awards (“LoAs”) for another 967 MW. Whilst most of the pipeline is in solar, we have started early-stage development on wind projects and wind solar hybrid projects. We continue to identify project sites with good renewable energy resource potential, connectivity to the grid, and favourable on-ground working ecosystem.

Bid for and win renewable energy auctions in India in line with our risk and return profile

The ambitious targets set by the GoI, combined with climate change commitments being announced by Indian corporates, are expected to substantially increase the demand for clean energy. India offers tremendous potential in solar and wind power, which should be the fastest growing sources of energy in the next decade and beyond. We will continue to bid in a disciplined manner to win projects at an acceptable rate of return and include PPAs with high grade off take. The PPAs signed by us are typically for 25 years duration and considering the long tenor of these contracts, it’s important to ensure that the counterparties to such agreements are organizations with robust business model and strong operational cashflows to service their PPA obligations. Based on the above, Azure only selects bidding opportunities that it believes minimize the risks, ensure bankability of our projects, and have a high probability of generating the expected cash-flows.

Maintain world class standards of safety, reliability and efficiency at our plants including using digital and automated tools

We are a fully integrated renewable energy company undertaking development, construction, ownership, operation and maintenance of renewable energy plants. New technologies, including digital and automation, will help optimize output and reduce cost, while better serving the grid requirement for firmer and more predictable power. We have rolled out multiple initiatives aimed at enhancing safety, efficiency and process improvements which include advanced automated robotic cleaning technologies for photovoltaic modules, drones for monitoring, centralized digital platform for asset performance monitoring, predictive analytics etc. We will continue to deploy technologies and innovations that help us deliver world class operating performance and simultaneously optimize the asset life.

Build capabilities in non-solar generation especially in wind, and in storage, to address a more demanding utility grid environment

As the share of renewable energy increases in the energy mix, the challenges to integrate Renewable Energy in the grid will increase due to their variable nature of generation. We expect that there will be an increasing focus to improve power system flexibility and reduce the intermittency associated with renewable power. The Indian wind energy profile complements India’s solar generation profile. Thus, we expect that wind energy, solar-wind hybrids and energy storage solutions will be increasingly deployed for a predictable and flatter renewable energy generation profile and grid stability. On similar lines, we expect that utility customers will increase their share of renewable energy consumption but will increasingly demand more predictable and continuous power. This will require integration of solar, wind and storage technologies. In line with the evolving requirements of the market, we will continue to strengthen our capability to deliver firm and dispatchable renewable power to our customers by leveraging solar, wind and storage technologies.

Develop business beyond the core utility business by partnering with large energy users for their requirements for reliable green energy

With an increasing focus on decarbonization and sustainability, there is a significant and growing demand for renewable energy from commercial and industrial customers. We aim to partner with large energy consumers across segments to meet their requirements for reliable and affordable green energy. We will look for opportunities to replace their brown energy consumption with green power through various techno-commercial offerings tailored to specific customer needs. Such displacement would target not only the power requirements of our partners but also the grey fuel usage for various heating, cooling and other process driven energy requirements.

We will continue to evaluate new technologies such as Green Hydrogen which present an opportunity to implement large scale renewable energy projects in a sustainable manner. We intend to identify such opportunities which integrate with our business strategy, add value to our existing portfolio and would leverage our core strength of building efficient renewable energy projects.

Project Pipeline

A major part of our project pipeline consisted of 4,000 MW allocated by SECI under their manufacturing linked tender, that we won in December 2019 and upsized in July 2020 to reflect the green-shoe. We had executed PPAs with SECI for aggregate capacity of 3,033 MW under the manufacturing linked tender, and PPAs for the balance capacity of 967 MW can be signed only after SECI has the power supply agreements for these remaining MW in place.

We are conducting an ongoing review of our projects under contract to consider their commercial and economic viability. In addition, a Special Committee of the Board (the “Special Committee”) was convened in August 2022 to review certain material projects and contracts over a three-year period for anti-corruption and related compliance issues. See “Risk Factors - We have conducted investigations into whistle-blower claims and other allegations against persons who served as our directors, officers and employees. We reported the allegations and our findings to the SEC and the U.S. Department of Justice and continue to cooperate with these authorities.”

Pursuant to the manufacturing linked tender award of 4,000 MW, the Group executed PPAs for a capacity of 2,333 MW with SECI, for which SECI executed a Power Sale Agreement (“PSA”) with the state of Andhra Pradesh during Fiscal 2022. In respect of these 2,333 MW projects, two PILs were filed in the High Court of Andhra Pradesh in Fiscal 2022, challenging various aspects of the manufacturing linked tender and seeking to quash the Andhra Pradesh Regulator’s approval for procurement of capacity tied up by Andhra Pradesh Discoms with SECI pursuant to the tender. The tariff adoption for the capacities by the CERC is subject to the outcome of the PILs. We are not a party to the PILs, and the PILs currently are pending adjudication. Currently, we cannot predict the outcome of these two PILs.

Based on the economics and uncertainties associated with the PILs and ongoing Special Committee review, the Group concluded that it should seek to terminate the PPAs in respect of these 2,333 MW projects and filed a petition at the Andhra Pradesh High Court seeking a declaration that the Group should be discharged from performance of the obligations under the Andhra Pradesh PPAs for a capacity of 2,333 MW as a result of the absence of the unconditional tariff adoption order from the regulatory commission. Since there was a threat by SECI to revoke the Bank Guarantee of US$14.2 million, the High Court in its order dated October 16, 2023, directed SECI not to take coercive steps against the Group until the next date of hearing. This matter is pending.

On March 18, 2024, we received two letters from SECI. In its first letter, SECI stated that it had terminated the PPAs with the Group in respect of the 2,333 MW projects and reserved its rights to take action against the Group including forfeiture of the performance bank guarantees and success charges and fees in respect of the PPAs and other documentation associated with the 2,333 MW projects. In its second letter, SECI informed the Group that it was awarding the 2,333 MW projects and associated PPAs to a third-party. Further, SECI informed the Group that it had reduced Azure’s capacity allocation under the manufacturing Letter of Award by 2,333MW and its corresponding manufacturing capacity of solar cells and solar modules by 583 MW. Accordingly, the Group has taken a write-off of INR 254 million (US$ 3.1 million) towards irrecoverable costs and a provision of INR 1,223 million (US$14.9 million) towards Bank Guarantees in its consolidated financial statements for Fiscal 2023.

In light of the ongoing Special Committee review as well as economic and execution challenges, the Group also has decided to withdraw from the 700 MW projects which is part of the 4,000 MW manufacturing linked tender awarded by SECI in Fiscal 2020. The Group intends to commence discussions with SECI to ensure an orderly withdrawal from the 700 MW projects and from the obligations of the Group and its subsidiaries under the PPA, Performance Bank Guarantees and other guarantees relating to the projects. Accordingly, the Group has recognized a provision of INR 1,053 million (US$ 12.8 million) in its consolidated financial statements for Fiscal 2023 towards irrecoverable costs and Bank Guarantee in relation to the 700 MW projects.

In FY 2023, we also executed PPAs with SECI for our first 150 MW solar-wind hybrid project, and for our first wind project of 120 MW. The presently estimated scheduled commissioning timelines for these projects are May 2025 (for the 120 MW wind project), and November 2025 (for the 150 MW solar-wind hybrid project). These timelines are estimated based on anticipated dates of regulatory approvals (in case of the 120 MW wind project), and anticipated completion dates of the requisite elements of the grid’s transmission/evacuation system (in case of the 150 MW hybrid project).

In case of the 120 MW Wind Project, the tariff has only recently been adopted by CERC (in March 2024), after a delay of more than 16 months. The approval for power procurement by one of the buying state’s (procuring 45 MW out of the 120 MW contracted capacity) regulatory commission – is still awaited. Because of the inordinate delay in getting these regulatory approvals (which is a Condition Precedent to be fulfilled by SECI and/ or the buying utility under the PPA), this tariff is no longer market competitive. Owing to this delay, and a few deviations in the PPA (from the standard bidding guidelines), we have written to SECI to withdraw their tariff adoption petition filed at CERC, and made a submission to the same effect at CERC as well. Now that the said tariff has been adopted at CERC, we are in the process of evaluating the same, and deciding further course of action.

Project Implementation

We have inhouse design, engineering, project execution, operations and maintenance capabilities. We remain one of the pioneers in executing and delivering renewable projects in India, demonstrated by our early adoption of proven technologies like bi-facial modules, trackers, and robotic dry cleaning. We aim to operate our plants to world-class standards of safety, reliability and efficiency using leading digital and automated tools with predictive and rapid response abilities.

Many of our projects are in zones with high irradiation and/or strong winds. We position our power plants to optimize generating efficiency, proximity to customers. The typical timeline available under a PPA for commissioning a power project is approximately 18-24 months. The following diagram illustrates the key activities under life cycle of a typical project.

We procure major components such as solar modules and inverters directly from multiple manufacturers with industry standard warranty and guarantee terms. Our supply chain team are developing strategic relationships with a range of key suppliers of critical equipment and components both in India and globally. We select our suppliers based on quality, technology provided, expected cost, reliability, warranty coverage, ease of installation and other ancillary costs.

The price of components for our solar power plants have declined over the longer time horizon as manufacturers lower their cost of production via technological improvement and economies of scale. However, in the second half of FY 2022, we experienced challenges in receipt and pricing of material from suppliers, primarily due to price increases of raw materials and disruptions to trade flows due to COVID-19 shutdowns in source markets and the imposition of customs duties. We then responded to these supply headwinds by deepening our strategic partnerships with key suppliers like for modules we entered into an agreement with Premier Energies Group (“Premier Group”) and First Solar, Inc. in the second half of 2022. We agreed to invest INR 1,000 million (US$12.2 million) in Premier Group, one of India’s leading manufacturers of solar PV cells, of which an investment of INR 455 million (~US$ 5.5 million) has been made for the subscription of equity shares & compulsorily convertible debentures issued by Premier Energies Investment Private Limited (“PEIPL”), towards subscription of 26% shareholding in PEIPL and modules and also signed a Module Supply Agreement (“MSA”) for supply of modules up to 600 MW capacity per annum over next four years. Under the MSA, we have a right to procure modules of up to 600 MW per annum, with a minimum commitment given to off take 300 MW per annum, subject to agreed exemptions. The start date for the MSA with Premier Group has been deferred to April 1, 2026. With First Solar, we entered into an agreement for 600 MW (DC) of high-performance, advanced thin film photovoltaic (“PV”) solar modules. We continue to track market price movements and have multiple options for procurement as and when required. On February 13, 2024, FS India Solar Ventures Private Limited (“First Solar”) sent us a notice that First Solar was terminating the Master Supply Agreement, dated August 22, 2022 (“First Solar MSA”), between First Solar and APIPL. The notice claims that a termination payment of US$29.242 million is due to be paid by APIPL to First Solar under the First Solar MSA. APIPL disputes that such a termination payment is due and intends to engage in commercial discussions with First Solar to resolve the matter.

We also signed a Master Supply Agreement with Siemens Gamesa Renewable Power Private Limited (“Siemens Gamesa”) to supply 96 units of onshore wind turbines that will cater to an overall capacity of approximately 346 MW of wind projects. On March 05, 2024, Siemens Gamesa sent us a notice which claims a default and damages of INR 1,934 million (US$23.5 million) in connection with a supply agreement between Siemens Gamesa and APIPL in respect of our 345.6 MW wind power project in the state of Karnataka. APIPL disputes such claim of default and damages and intends to engage in mutual discussions with Simens Gamesa to resolve the matter.

Once a project is constructed and grid-connected, it produces recurring revenue. Our project operating expenses are relatively lower than conventional power plants, with most cash flow servicing the capital costs of the project or contributing to our growth capital requirements including corporate overhead. Because plant operating margins are relatively stable, our growth and financial success depend on effective management of our expenses and the development of new projects. Also refer to “Operating and Financial Review and Prospects” for further details. 

B. Company Overview

Azure Power Global Limited is a limited liability company incorporated in Mauritius We are a renewable energy developer and independent renewable power producer, and our entire operations are currently in India. Our Green Bonds are listed on the Singapore Exchange (SGX) and include the first solar Green Bond from India. As such we are subject to regulation in four jurisdictions: the United States, where Azure Power shares is a reporting company with the SEC; Mauritius, where Azure Power is incorporated; Singapore, where our Green Bonds are traded; and India, where we operate. On November 13, 2023 our shares were delisted from NYSE. On January 29, 2024, the Company’s shares ceased to be registered with the SEC pursuant to Section 12(b) of the Exchange Act. Further, on April 1, 2024, we expect that our SEC reporting obligations under Section 15(d) of the Exchange Act will be suspended and the Company will no longer have an obligation to file periodic reports (annual reports on Form 20-F and Form 6-K reports) with the SEC. For more information, see “Risk Factors ̶ The New York Stock Exchange (NYSE) has delisted our Company’s shares, due to our failure to file timely reports with the SEC” and also, “Risk Factors - On April 1, 2024, we expect that our SEC reporting obligations under Section 15(d) of the Exchange Act will be suspended and the Company will no longer have an obligation to file periodic reports (annual reports on Form 20-F and Form 6-K reports) with the SEC.”

Our Company’s registered office is located at c/o AAA Global Services Ltd, 4^th Floor, Iconebene, Rue De L’institut, Ebene, 80817, Mauritius with principal executive offices located at: 8^th Floor, Tower A, DLF Infinity, Cyber City, Phase II, Gurugram-122002, Haryana, India. Our telephone number at our principal executive office’s location is +0124-4155755 and our principal website address is www.azurepower.com. Unless expressly indicated, the information contained on our website is not incorporated by reference in this annual report. Reports, information statements and other information that we filed with or submit to the SEC is available on its website at www.sec.gov. Our Company’s agent for service of process in the United States is CT Corporation System, located at 28 Liberty Street, New York, NY 10005.

Organizational Structure

The following diagram illustrates our corporate structure:

* In April 2021, we entered into a sales contract with Radiance Renewables Private Limited (“Radiance”) to sell certain subsidiaries having an operating capacity of 153 MW for INR 5,350 million (US$70.5 million), subject to certain purchase price adjustments. Out of the identified rooftop portfolio of 153 MW, we have already transferred 17.3 MW to Radiance, 33.2 MW will be transferred to Radiance after refinancing of the RG-II bonds and 16 MW will be transferred to Radiance post March 31, 2024. Hence, we have not considered these rooftop portfolios of 66.5 MW for reporting under its total portfolio as at year end. Further, the Group and Radiance mutually agreed to terminate the transfer in shareholding of the remaining un-transferred 86.5 MW portfolio to Radiance, Hence, portfolio of 86.5 MW have been considered for reporting under total portfolio as at year end.

Our Sustainability Initiatives and ESG Focus

Sustainability is at the core of our business. We are focused on integrating sustainability across business, building a culture focused on sustainability, sustainability reporting and ESG ratings. Our leadership is evident in the ratings received by us. We have rated as a “low risk” company with a score of 15.8 by Morningstar Sustainalytics; MSCI has given us a rating of “AA” indicating Azure’s resilience to long term ESG risks.

As a socially and environmentally conscious company, we are committed to protecting our environment and creating a safe and health workplace. To meet these objectives, we have implemented our Environmental and Social Management framework (“ESMF”). The framework acts as a guideline through which we plan and undertake activities to meet our HSE commitments and helps us to assess our environmental and social performance against established international guidelines such as the International Finance Corporation (“IFC”) Performance Standards and World Bank Equator Principles and governance standards. We continue to operate our plants to the highest standards of safety. We have defined targets for monitoring the continual improvement in our safety performance. Any incident at any of our sites is thoroughly investigated and remedial actions taken.

We estimate that Azure’s renewable power generation helped to avoid the production of approximately 5 million tons of CO2e in FY 2023 and 19.5 million tons -equivalent since inception. We strongly believe that commitment to high standards of corporate responsibility is both the right way to do business but also an enabler of our business.

During Fiscal 2022, we rolled out various initiatives to address United Nations Sustainable Development Goals (SDG). As one of country’s pivotal clean energy partner, we at Azure are helping India’s to achieve its Net Zero target, thereby contributing to achieving the goals of SDG 13 (Climate Action). As part of our community development initiatives, we are actively working towards improving the quality of infrastructure in schools around our sites, thereby contributing towards achieving the goals of SDG 4 (Quality Education), development of village infrastructure, thereby contributing towards advancement of SDG 1 (No Poverty) and SDG 6 (Clean Water and Sanitation).

ESG Updates

Environmental

As a pure play renewable energy company, we are working towards clean energy transition and contributing to India met its Net zero target.

Climate change: We estimate that Azure’s renewable power generation helped to avoid the production of approximately 5 million tons of CO₂e in FY 2023 and 19.5 million tons -equivalent since inception. We have been validated to be carbon neutral for fifth consecutive year for our scope 1 and scope 2 emissions. Our actions to reduce Scope 1 emissions include implementation of an Electric Vehicle policy that will phase out all fossil fuel-based vehicles by 2030.

Water Security: We reduced our water consumption per MWh from 122 L/ MWh in FY 2018 to 15 L/ MWh in FY 2023. We recognize that the water required for cleaning our solar modules may result in adverse environmental impact. We are installing robotic dry-cleaning systems at all our project sites to eliminate the requirement for water which has helped to save approximately 1 million kilo liters of water.

Natural capital enhancement: We are committed to planting 50 tree saplings per MW installed at or around all our future project sites. In FY 2023, we planted 30,000 trees around our sites. 

Social

Community engagement: Through our community engagement initiatives, Azure is committed to improving the quality of life by making a positive economic and social contribution to the communities living in and around its sites. In Fiscal 2022, we won the prestigious Apex India CSR Excellence award 2021. In FY 2023, we commissioned an Impact Evaluation of our CSR activities carried out during FY 2022.

Occupational Health and Safety: Our foremost priority is the health and safety of our staff and contractors at project sites as well as our corporate office. Our target is zero harm for everyone from our operations. We continue to promote safety awareness and best practices among all employees and contractors. We obtained ISO 45001 (Occupational Health and Safety) certification, won the Greentech Effective Safety Culture Award 2021 and Grow Care India Occupational Health and Safety award 2021. We undertook a safety culture survey in September 2022 which saw voluntary participation of 50% of our employees. The survey concluded that the company is performing better than its peers in matter of safety. The internal validation corroborates external validation in form of multiple safety awards as received by the company.

Labor and working condition: We look to monitor the social and compliance performance of our key contractors and suppliers. We have obtained Social Accountability 8000 certification to assure appropriate labor and working conditions associated with our projects.

Governance

We are committed to the high standards of corporate governance and continue to improve our processes and practices.

Board Membership: Our Board currently consists of eight members, two of whom are women. All Board members are Non-Executive; five are Independent Non-Executives and three are Non-Executive nominees of shareholders (two of CDPQ and one of OMERS).

There have been changes in the membership of the Board in FY 2023 and thereafter. In March 2022, Ms. Christine McNamara joined the Board and became the Chair of the Audit and Risk Committee. She stepped down from her position on June 26, 2023, for personal reasons. The Company appointed Mr. Richard Payette as a new independent non-executive director on July 1, 2023, and he was also appointed as the Chair of the Audit and Risk Committee. Mr. Payette brings four decades of experience in the management of global companies and in accounting, audit and governance areas.

In April 2022, our previous Managing Director and CEO, Mr. Ranjit Gupta, resigned.

In May 2022, Ms. Delphine Voeltzel joined the Board as a director and Nominee of OMERS. At the end of May 2022, Arno Harris left the Board after more than six years of service. In October 2022, Mr. Sugata Sircar joined the Board as an Independent Director and member of the Audit and Risk committee. Mr. Sugata is a chartered accountant with 32 years of experience in energy and automation, chemicals, textiles, tires, fast moving consumer goods and city gas distribution. Mr. Sircar stepped down from his role as independent director of the Company on April 30, 2023 to become our CFO.

In February 2023, Mr. Jean-François Boisvenu joined the Board as an Independent Non-executive Director and member of the Audit and Risk committee. Mr. Boisvenu has more than 25 years of experience in corporate and commercial law matters, with expertise in international banking transactions, lending and debt capital markets transactions and financial institutions regulation. In March 2023, Mrs. Yung Oy Pin Lun Leung left the Board after more than three years of service. She was replaced by Mr. Gowtamsingh Dabee. Mr. Dabee has over 25 years of experience as a professional accountant in public practice and industry in Mauritius, Africa, and the Middle East.

On October 11, 2023, Mr. Alan Rosling resigned as Chairman of the Board and as a director of the Company and APIPL. On October 12, 2023, the Company announced that Mr. M.S. Unnikrishnan, who has been a director of the Company since August 19, 2020, became the Chairman of the Board of the Company.

Mr. Deepak Malhotra and Mr. Cyril Sebastien Dominique Cabanes resigned as directors of the Company on October 29, 2023 and October 30, 2023 respectively. On October 31, 2023, Mr. Jaime Garcia Nieto and Mr. Philippe Pierre Wind were appointed as directors of the Company. Both directors are non-executive nominees of the majority shareholder, CDPQ.

On March 13, 2024, Mr. M.S. Unnikrishnan resigned as Chairman of the Board and as a director of the Company and APIPL.

For further information, see “Management and Employees – Management”.

Board Committees: In recent months, the Board has completed a review of the Terms of Reference, Charters and membership of its Committees. The Audit Committee is now the Audit and Risk Committee, taking responsibility for our new ERM system. The CSR Committee is now the Sustainability and CSR Committee and has a broader mandate to ensure our ESG and CSR performance is world class and supports our goals, ethos, and operating strategy. The Nomination and Governance Committee has been merged with Compensation Committee and now it is referred as Compensation, Nomination and Governance Committee. The existing Capital Committee is now renamed as Investment & Capital Committee.

For further information, see “Management and Employees – Board Committees”.

Executive Committees: The Company has formed an Executive Risk Committee to develop, implement and monitor the Enterprise Risk Management framework. CEO, CFO and Chief Compliance & Ethics Officer (“CC&EO”) are the members of this committee.

For further information, see “Management and Employees – Board Committees”.

Management: On April 26, 2022, we announced that the Board had accepted the resignations of our previous CEO and Managing Director, Mr. Ranjit Gupta, and COO, Mr. Murali Subramanian. Mr. Harsh Shah joined the Company as CEO on July 1, 2022, but subsequently resigned on August 29, 2022. Thereafter, Mr. Rupesh Agarwal became Acting CEO of the Company on Mr. Shah’s resignation. In November 2022, Mr. R. Narasimhan Iyer joined as Chief Operating Officer of the Company. On April 30, 2023, Mr. Sugata Sircar resigned from his position as non-executive Independent Director and member of the Company’s Audit and Risk Committee and Capital Committee and on May 1, 2023, joined as CFO for the Company and the Group and Executive Director, Finance of the Company’s subsidiary, APIPL. In July 2023, Mr. Sunil Gupta was appointed as the CEO of the group and as Managing Director of the Company’s subsidiary, APIPL. For more information, see “Risk Factors – The loss of our senior management or key employees may adversely affect our ability to conduct our business”.

For further information, see “Management and Employees – Management”.

C. Industry Overview

Renewable energy represents a significant and growing industry in India. At the twenty-sixth meeting of Conference of the Parties climate summit in Glasgow, the Prime Minister of India set the country’s renewable energy target of 500 GWs by 2030. Beyond that, the Prime Minister committed for India to achieve Net Zero by 2070. India’s Nationally Determined Commitments were further tightened at twenty-seventh meeting of Conference of the Parties in Egypt.

An efficient, resilient, and financially robust power sector is essential for the growth of the Indian economy. Renewable sources of power are cleaner, faster to build and more cost-effective than most traditional sources of power. India’s rapidly growing economy requires significant investment in additional power capacity. India is already one of the largest renewable energy markets globally.

Renewable energy has strong government support, and the government has designed policies, programs, and a liberal environment to attract domestic and foreign investment to the sector. Initially, the National Solar Mission (“NSM”) was launched in 2010 as a part of India’s National Action Plan on Climate Change (“NAPCC”) with a view to deploy 20 GWs of solar capacity by FY 2022. In 2015, the targets were revised to 175 GWs by 2022. India has now committed to achieve about 50 percent cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030.

The Indian renewable energy sector is among most attractive renewable energy market in the world, with total installed capacity of renewable power of 135 GWs as of January 2024 (excluding large hydro). India has witnessed one of the fastest growth rates in renewable energy capacity among all large economies, with renewable energy capacity growing from 35.5 GWs in March 2014 to 135 GWs in January 2024 (excluding large hydro), a 280% increase. India’s total electricity installed capacity stood at 429 GWs as of February 2024.

Total Installed Capacity (as of January 31, 2024)

Power Consumption

We believe that there is huge potential for power demand to grow in India. The country is among the fastest growing large economies, already ranked fifth globally in terms of total GDP. Over the ten year period up to January 2024, electricity consumption and peak demand in India grew at a CAGR of 3.8% and 5.2%, respectively. Annual per capita power consumption in India has also grown significantly from 0.9 MWh in FY 2014 to 1.3 MWh in 2022-23, although it is still among the lowest in the world. According to the International Energy Agency, the annual per capita electricity consumption of India is around 21.7% that of China, which had per capita electricity consumption of 5.98 MWh, and around 9.9% of the United States, which had per capita electricity consumption of 13.07 MWh.

Solar Energy Potential

The National Institute of Solar Energy (“NISE”), an autonomous research and development institution under the Ministry of New and Renewable Energy (“MNRE”), assesses the country’s solar potential at approximately 748 GWs, assuming 3% of the waste land area could be covered by Solar PV modules. Solar energy has taken a central place in India’s NAPCC with the National Solar Mission (“NSM”) as one of the key missions. The GoI have launched various schemes under the NSM to boost generation of solar power in the country, most importantly procurement of solar power by SECI, but also including initiatives such as Solar Park Scheme, Viability Gap Funding (“VGF”) Schemes, CPSU Scheme, Defence Scheme, Canal bank & Canal top Scheme, Bundling Scheme and Grid Connected Solar Rooftop Scheme.

In addition, policies to promote and enable renewable energy have included a Renewable Purchase Obligation (“RPO”) on certain industries, the waiver of ISTS charges and losses for inter-state sale of solar and wind power, “must run” status, guidelines for procurement of solar power though tariff based competitive bidding process, standards for deployment of solar photovoltaic systems and devices, provision of roof top solar and guidelines for development of smart cities, amendments in building by-laws for mandatory provision of roof top solar for new construction or higher floor area ratio, infrastructure status for solar projects, tax free solar bonds, and providing long tenor loans from multi-lateral agencies.

Solar power capacity in India increased from 2.6 GWs in March 2014 to 74.3 GWs as of January 2024. The following diagram shows solar installed capacity as of January 2024 for states with highest irradiation:

Wind Energy Potential

In recent years wind power generation capacity in India has increased significantly. Through the National Institute of Wind Energy, the GoI installed over 800 wind-monitoring stations across the country and issued wind potential maps at 50 meters, 80 meters, 100 meters and 120 meters above ground level. The recent assessment indicates a gross wind power potential of 302 GWs in the country at 100 meters and 695.50 GWs at 120 meters above ground level. Most of this potential exists in seven states: Gujarat, Telangana, Maharashtra, Tamil Nadu, Madhya Pradesh, Karnataka and Andhra Pradesh.

D. Regulatory Matters

Due to the industry and geographic diversity of our projects, our operations are subject to a variety of rules and regulations. Set forth below is a brief overview of the principal laws and regulations currently governing the businesses of our Indian subsidiaries. The laws and regulations set out below are not exhaustive and are only intended to provide general information to the investors and are neither designed nor intended to be a substitute for professional legal advice.

Central Government – Policies and Regulations:

Electricity Act, 2003

The Electricity Act, 2003, as amended (the “Electricity Act”) is the central legislation which covers, among others, generation, transmission, distribution, trading and use of electricity in India. It governs the establishment, operation and maintenance of any electricity generating company and prescribes technical standards in relation to the connectivity of generating companies with the grid. As per provisions of the Electricity Act, generating companies are required to establish, operate and maintain generating stations, sub-stations and dedicated transmission lines. Further, the generating companies may supply electricity to any licensee or even directly to consumers, subject to obtaining open access to the transmission and distribution systems and payment of transmission charges, including wheeling charges and any other open access charges, as may be determined by the concerned electricity regulatory commission. In terms of the Electricity Act, open access means the non-discriminatory provision for the use of transmission lines or distribution system or associated facilities with such lines or system, by any licensee or consumer or a person engaged in generation in accordance with the regulations specified by the relevant electricity regulatory commission.

In accordance with Section 7 of the Electricity Act, a generating company may establish, operate and maintain a generating station without obtaining a license under the Electricity Act if it complies with the technical standards relating to connectivity with the grid prescribed under clause (b) of Section 73 of the Electricity Act.

Under the Electricity Act, the State Electricity Regulatory Commissions, (“SERCs”) are required to promote co-generation and generation of electricity from renewable sources of energy and sale of electricity to any person from sources other than the incumbent distribution licensee under the provisions of open access. The Electricity Act further requires the SERCs to specify, for the purchase of electricity from renewable sources, as a percentage of the total consumption of electricity within the area of a distribution licensee, which has been implemented in the form of renewable purchase obligations (“RPOs”).

Additionally, the Electricity Rules, 2005, as amended (“Electricity Rules”) also prescribe a regulatory framework for developing captive generating plants. Pursuant to the Electricity Rules, a power plant shall qualify as a captive power plant only if not less than 26% of ownership is held by captive users and not less than 51% of the aggregate electricity generated in such plant, determined on an annual basis, is consumed for captive use.

Tariff Determination

Under the Electricity Act, the appropriate commission is empowered to determine the tariff for the supply of electricity by a generating company to a distribution licensee. The appropriate electricity regulatory commission is guided by certain principles while determining the tariff applicable to power generating companies which include, among other things, principles and methodologies specified by the CERC for tariff determination, safeguarding consumer interest and other multiyear tariff principles established in the National Electricity Policy (“NEP”) in 2005, the Tariff Policy 2006 (as defined below) and the National Tariff Policy of India, 2016 (“NTP 2016”). Tariffs may also be determined through the transparent process of bidding in accordance with guidelines issued by the GoI.

Guidelines for Tariff Based Competitive Bidding Process for Procurement of Power from Grid Connected Solar PV Power Projects

The MoP has issued revised guidelines for tariff based competitive bidding process for procurement of power from grid connected solar PV power projects. These guidelines are issued under the provisions of Section 63 of the Electricity Act, 2003 for long term procurement of Solar power by the Procurers, from solar PV power projects, with or without energy storage, through competitive bidding.

The projects already awarded/ under implementation/ commissioned under the erstwhile bidding guidelines, will continue to be governed by those guidelines and will not be covered under these guidelines.

The objectives of these guidelines are to promote competitive procurement of electricity from solar PV power plants, by distribution licensees and to facilitate Solar PV capacity addition and fulfilment of Renewable Purchase Obligation (RPO)/ Energy Storage Obligations (ESO) requirement of DISCOMs.

Guidelines for Tariff Based Competitive Bidding Process for Procurement Power from Grid Connected Wind Power Projects

The MoP has also issued revised guidelines for tariff based competitive bidding process for procurement power from grid connected wind power projects. These guidelines too are issued under the provisions of Section 63 of the Electricity Act, 2003 for procurement of electricity by the Procurer(s), from grid-connected wind power projects having (a) bid capacity of 10 MW and above for projects connected to intra-state transmission system; and (b) bid capacity of 50 MW and above for projects connected to inter-state transmission system.

The objectives of these guidelines are to facilitate renewable capacity addition and fulfilment of Renewable Purchase Obligation (RPO) requirement of distribution licensees and to provide a transparent, fair, standardized procurement framework based on open competitive bidding with appropriate risk-sharing between various stakeholders to enable procurement of power at competitive prices in consumer interest, improve bankability of projects and ensure reasonable returns to the investors.

Guidelines for Tariff Based Competitive Bidding Process for Procurement of Power from Grid Connected Wind Solar Hybrid Projects.

The MoP has issued revised guidelines for tariff based competitive bidding process for procurement of power from grid connected wind solar hybrid projects. These Guidelines are issued under the provisions of Section 63 of the Electricity Act, 2003 for long term procurement of electricity through competitive bidding process, by procurer, from hybrid power projects having (a) bid capacity of 10 MW and above for projects connected to intra-state transmission system and (b) bid capacity of 50 MW and above for projects connected to inter-state transmission system, subject to the condition that the rated power capacity of one resource (wind or solar) shall be at least 33% of the total contracted capacity.

Storage may be added to the hybrid power project to ensure availability of firm power for a particular period, reduce the variability of output power from wind solar hybrid project and providing higher energy output for a given capacity at delivery point, by installing additional capacity of wind and solar power in a wind solar hybrid project. The power procured from the project may be used for fulfilment of RPO in the proportion of rated capacity of solar and wind power in the plant respectively.

The projects already awarded/ under implementation/ commissioned under the erstwhile bidding guidelines, will continue to be governed by those guidelines and will not be covered under these guidelines.

The objectives of these guidelines are to promote competitive procurement of electricity from grid connected wind solar hybrid power projects, by distribution licensees, to protect consumer interests and to facilitate renewable capacity addition and fulfilment of Renewable Purchase Obligation (RPO) requirement of DISCOMs;

Guidelines for Tariff Based Competitive Bidding Process for Procurement of Firm and Dispatchable Power from Grid Connected Renewable Energy Power Projects with Energy Storage Systems

The MoP has issued new guidelines for tariff based competitive bidding process for procurement of firm and dispatchable power from grid connected renewable energy power projects with energy storage systems. These guidelines too are issued under the provisions of Section 63 of the Electricity Act, 2003 for long term procurement of firm and dispatchable power by the procurers, from RE Projects, through competitive bidding.

The objectives of these guidelines are to provide firm and dispatchable power to the DISCOMs from renewable energy sources, facilitate renewable capacity addition and fulfilment of Renewable Purchase Obligation (RPO)/ Storage Power obligations (SPO) requirement of DISCOMs. These guidelines also provide a transparent, fair, standardized procurement framework based on open competitive bidding with appropriate risk-sharing between various stakeholders to enable procurement of power at competitive prices in consumer interest, improve bankability of projects and ensure reasonable returns to the investors. This will also provide a framework for the inter-state/ intra-state, long-term, sale-purchase of power as a further measure to derisk the sector.

National Electricity Policy, 2005

The GoI promulgated the NEP in 2005, under Section 3 of the Electricity Act. The key objectives of the NEP, amongst other things are, stipulating guidelines for accelerated development of the power sector, providing supply of electricity to all areas and protecting interests of consumers and other stakeholders, keeping in view availability of energy resources, technology available to exploit these resources, economics of generation using different resources and energy security issues.

Further, NEP emphasizes the need to promote generation of electricity based on non-conventional sources of energy. The NEP provides that SERCs should specify appropriate tariffs to promote renewable energy (until renewable energy power projects relying on non-conventional technologies can compete within the competitive bidding system). SERCs are required to specify percentages of the total consumption of electricity in the area of a distribution licensee that progressively increase the share of electricity generated from renewable sources. Furthermore, the NEP provides that such purchase of electricity by distribution companies should be through competitive bidding.

The GoI has released draft of National Electricity Policy, 2021 and sought comments from the stakeholders. Once implemented, the draft National Electricity Policy aims at achieving the following objectives, among others: (a) promotion of clean and sustainable generation of electricity; (b) development of adequate and efficient transmission systems; (c) revitalization of DISCOMs; (d) development of efficient markets for electricity; (e) supply of reliable and quality power in line with specified standards in an efficient manner; (f) move towards light- touch regulation; and (g) promotion of manufacturing goods and services in India in the generation, transmission and distribution segments of the power sector under the Make in India initiative and Atmanirbhar Bharat Abhiyan (self-reliance scheme).

Renewable Purchase Obligations

The Electricity Act promotes the development of renewable sources of energy by requiring the SERCs to ensure grid connectivity and the sale of electricity generated from renewable sources. In addition, the Electricity Act and the Tariff Policy require the SERCs to specify, for the purchase of electricity from renewable sources, a percentage of the total consumption of electricity within the area of a distribution licensee, which are known as RPOs. RPOs are required to be met by obligated entities (distribution licensees, captive power plants and open access consumers) by purchasing renewable energy, either by renewable energy power producers such as the Group, or by purchasing renewable energy certificates (“RECs”). In the event of default by an obligated entity in any fiscal year, the SERC may direct the obligated entity to pay a penalty or to deposit an amount determined by the relevant SERC, into a fund to be utilized for, among others, the purchase of RECs.

Further, the Energy Conservation Act, 2001, as amended by Energy Conservation (Amendment) Act, 2022, delegates powers to the Central Government to specify minimum share of consumption of non-fossil resources by designated consumers as energy or feed stock and specify different shares of consumption for different types of non-fossil resources for different designated consumers. The distribution licensees have also been notified as designated consumers under the Energy Conservation Act, 2001.

Additionally, in terms of the amended Energy Conservation Act, 2001, the Ministry of Power through notification dated 20.10.2023, has specified a minimum share of consumption of renewable energy by the electricity distribution licensees as a percentage of total share of energy consumption, with certain conditions.

The above notification is to come into force on 1^st April 2024 and therefore the distribution licensees will have to comply with the specified renewable energy consumption norms w.e.f. FY 2024-25.

Central Electricity Regulatory Commission (Connectivity and General Network Access to the inter-State Transmission System) Regulations, 2022 (“GNA Regulations”)

The CERC issued the GNA Regulations on June 7, 2022, which were fully enforced from October 1, 2023, and have replaced CERC Connectivity & Open Access regulations, 2009. These regulations aim to streamline and enhance the country’s power transmission and connectivity infrastructure. The GNA Regulations provide electricity generators with general network access, allowing them to connect to and distribute power through the inter-state transmission system without designating the location of the off taker.

CERC issues first Amendment to CERC (Connectivity and GNA to the ISTS) Regulations, 2023

On April 1, 2023, CERC introduced significant amendments to the GNA Regulations, aiming to streamline and enhance the functioning of the electricity grid. Among these amendments, one notable change is the provision allowing generating stations and energy storage systems (ESS) to expand their capacity within the approved connectivity limits. However, this expansion is subject to the condition that the net injection does not surpass the connectivity quantum, ensuring grid stability.

The amendment introduces specific eligibility criteria for renewable energy entities to avail ISTS Connectivity under the General Network Access (GNA) regulations, and specifies the required documents for different types of renewable applicants, such as Renewable Power Park Developers and Renewable Energy Generating Stations.

Also, the amendments address the reduction of GNA quantum for host states where regional generating stations are located, particularly those connected solely to the State Transmission Utility (STU) system or both STU and ISTS. This adjustment aims to balance the distribution of grid resources among states. Additionally, the amendments delineate eligibility criteria for Discoms and Bulk Consumers directly connected to ISTS and STU-connected drawee entities to apply for GNA-related benefits. It also outline procedures for power exchange transactions, specifically concerning ISTS charges, bilateral, and collective transactions undertaken through Power Exchanges. These procedures aim to ensure transparent and efficient settlement of transmission charges. Moreover, the amendments extend the period of GNA utilization between entities from one year to three years, providing flexibility and enabling longer-term planning and resource allocation. The notice period for relinquishing GNA has also been extended to one year from the previous 30 days, accompanied by a fee of Rs. 50 lakhs, which aims to streamline administrative processes.

Lastly, the amendments waive one-time GNA charges for capacity declared commercial on the effective date of the Regulations, promoting the development and commercialization of electricity generation projects without additional financial burden. These amendments collectively contribute to the optimization and efficiency of the electricity grid infrastructure in India.

Central Electricity Regulatory Commission (Sharing of Inter-State Transmission Charges and Losses) Regulations, 2020 (“CERC Transmission Charges Regulations 2020”) and its First Amendment, 2023

The CERC Transmission Charges Regulations 2020, as amended on February 7, 2023 (via its First Amendment), provides a framework for sharing of charges among the entities for using the ISTS network. The CERC Transmission Charges Regulations 2020 came into force from November 1, 2020 and superseded the CERC Transmission Charges Regulations 2010.

This regulation came into effect from October 1, 2023. The First Amendment aims to modify the CERC (Sharing of Interstate Transmission Charges and Losses) Regulations, 2020, aligning them with the CERC (Connectivity and General Network Access to the Inter-State Transmission System) Regulations, 2022. Key provisions introduced through this amendment include clarifications on definitions such as ‘Associated Transmission System’ and ‘Drawee DIC’, along with updated terminology consistent with Connectivity Regulations. The amendment also outlines procedures for billing and settlement of transmission charges among Drawee DICs and generating stations or sellers, ensuring transparency and equitable distribution of costs. Additionally, methodologies for computing transmission deviation, rates, and exemptions have been detailed to maintain grid stability and incentivize investment in renewable energy projects and energy storage systems. These amendments aim to streamline operations, promote renewable energy adoption, and facilitate reliable electricity supply across the nation.

As per the CERC Transmission Charges Regulations 2020, and its first amendment, ISTS transmission charges waiver to wind and solar projects is as follows:

Central Electricity Regulatory Commission (Indian Electricity Grid Code) Regulations, 2023 (“Grid Code”)

The Indian Electricity Grid Code (IEGC) Regulations, 2023, as notified by CERC, came into force on October 1, 2023, marking an important moment in the governance of India’s electricity grid. IEGC aims to ensure reliability, stability, and efficiency of grid operations. It establishes technical and design criteria for connectivity, outlining procedures and requirements for the physical integration of grid elements. Additionally, the protection protocol section delineates settings and audit plans for electrical systems, ensuring the safety and integrity of grid infrastructure.

Furthermore, IEGC address aspects related to commissioning and commercial operation, covering processes for drawl or injection of startup power, trial run operations, and documentation requirements before the declaration of Commercial Operation Date (COD). Operational guidelines are detailed to ensure the integrity, stability, and resilience of the grid, aiming to achieve economy and efficiency in power system operations.

IEGC provide a framework for scheduling and dispatch procedures, facilitating the injection and drawl of power by regional entities while ensuring effective information exchange, including for intra-state and cross-border transactions. Cybersecurity measures are mandated for all grid users in accordance with relevant regulations and guidelines.

IEGC include provisions for monitoring compliance and specify that they shall not be treated as ‘Change in law’ in any agreements. Notably, the Scheduling and Dispatch Code introduces key provisions such as Regional Load Dispatch Centers (RLDCs) being provided with details before power scheduling, and the facilitation of scheduling through Qualified Coordinating Agencies (QCAs). The Security Constrained Unit Commitment (SCUC) mechanism is introduced to maximize reserves without altering buyer schedules, further enhancing grid security. The regulations also outline procedures for Unit Shut Down (USD) and scheduling from alternate sources.

Grid India issues procedure for determination of Uniform RE Tariff (URET) for implementation of the Central RE Pool Scheme approved by MoP in the Electricity (Amendment) Rules

Pursuant to the Electricity (Amendment) Rules 2022 (Amendment Rules), which inter-alia provide for implementation of uniform renewable energy tariff (URET), the MoP on October 25, 2023 issued the procedure for implementation of URET through Grid India, as the implementing agency (IA) for standardizing the tariff across various categories of central pool such as solar, wind etc., at which the intermediary procurer (IP) will sell power generated from renewable sources from such central pool to all the end procurers.

Some notable features of URET implementation procedure include:

Further, the MoP vide office memorandum dated February 14, 2024, has notified the start date of the Solar Power Central Pool and Solar-Wind Hybrid Central Pool as February 15, 2024, for all solar and solar-wind hybrid projects bid for after the aforesaid start-date. The principle of operation of a pool shall be based on a first in first out (FIFO) approach, i.e. solar and solar-wind hybrid projects whose letter of award has been placed first, would be placed in their respective pools first, and also sold first by the IA.

The following Renewable Energy Implementing Agencies (REIA) of MNRE, all central govt. agencies, shall act as IP for the URET procedure – SECI Ltd., NTPC Ltd., NHPC Ltd. and SJVN Ltd.

Central Electricity Regulatory Commission (Deviation Settlement Mechanism and related matters) Regulations, 2022 (“F&S Regulations”)

The CERC in these regulations, as amended from time to time, has laid down rules guidelines and standards for maintaining grid discipline and grid security as envisaged under the Grid Code through the commercial mechanism for Deviation Settlement through withdrawal and injection of electricity by the users of the grid including wind and solar based plants connected to an interstate transmission network. The wind and solar generators connected to interstate transmission networks are required to provide a daily 15 minutes’ time block wise generation schedule. The schedule may be revised by giving advance notice to the relevant Regional Load Despatch Centre. Any deviations between actual generation with respect to the schedule generation in the 15-minute time block is liable to attract commercial charges as per the formula prescribed in the F&S Regulations.

Electricity (Timely Recovery of Costs due to Change in Law) Rules, 2021 (“Change in Law Rules”)

The Change in Law Rules, provide the mechanism for adjustment and recovery of monthly tariff or charges upon the occurrence of a change in law (such as change in any domestic tax including duty, levy, cess, or charges as specified under the Change in Law Rules), for the compensation of the affected party to restore such affected party to the same economic position as if such change in law had not occurred. Change in law, as per the Change in Law Rules, unless otherwise defined in the relevant agreement means, any enactment or amendment or repeal of any law, made after the determination of tariff under the Electricity Act, leading to corresponding changes in the cost requiring change in tariff. Where the relevant agreement does not lay down a formula for calculation of the amount of the impact of a change in law to be adjusted and recovered, such impact shall be calculated in accordance with the formula provided in the Change in Law Rules, which is based on, among other things, the estimated monthly electricity generation, contracted capacity of the power plant as per the agreement, normative plant load factor (“PLF”) and capacity utilization factor. The generating company or transmission licensee shall, within thirty days of the coming into effect of the recovery of impact of change in law, furnish all relevant documents along with the details of calculation for adjustment of the amount of the impact in the monthly tariff or charges to the appropriate commission, which shall verify the calculation and adjust the amount of impact within 60 days from the date of receipt of the relevant documents. After such adjustment, the generating company or transmission licensee, as the case may be, shall adjust the monthly tariff or charges annually based on actual amount recovered, to ensure that the payment to the affected party is not more than the yearly annuity amount. The MoP, pursuant to its circular dated February 21, 2022, clarified that this Change in Law Rules will be applicable on the events occurred on or after the date of notification of this Change in Law Rules.

Electricity (Promotion of Generation of Electricity from Must-Run Power Plant) Rules, 2021 (“Must-Run Rules”)

Under the Must-Run Rules, a wind, solar, wind-solar hybrid or hydro power plant (in cases where water levels could lead to flooding risk) or a power plant from any other sources, as may be established from time to time by the relevant governmental authority, that has entered into an agreement to sell electricity to any person is a ‘must-run power plant’. A must-run power plant is not subject to reduction or regulation of generation or supply of electricity on account of merit order dispatch or any other commercial consideration, except in the event of technical constraint in the electricity grid or for reasons of security of the electricity grid. In the event of reduced demand by a procurer from a must-run power plant, compensation is payable by the procurer to the must -run power plant at the rates specified in the agreement for purchase or supply of electricity. In the event of any technical constraint in the electricity grid or for reasons of security of the electricity grid, where the procurer notifies the must-run power plant in advance of a reduction, the must-run power plant will sell the electricity not utilized by the procurer on the open market. The amount realized by such must-run power plant from such sale of electricity on the open market, after deducting actual expenses paid for the sale on the open market, if any, shall reduce the compensation payable by the procurer. Amounts owed pursuant to the foregoing will be paid by the procurer on a monthly basis with any offset payment paid by the must-run power plant to the procurer within one month of the close of the fiscal year.

Electricity (Late Payment Surcharge) Rules, 2022 (“LPS Rules 2022”)

The LPS Rules 2022 were promulgated by the MoP on June 3, 2022. The LPS Rules 2022 are applicable for payments to be made in pursuance of power purchase agreements, power supply agreements and transmission service agreements, where tariff is determined under the Electricity Act, including such agreements which become effective before the LPS Rules 2022 came into force. The LPS Rules 2022 provide that late payment surcharge, that is, the charges payable by a distribution company to a generating company or electricity trader for power procured from it, or by a user of a transmission system to a transmission licensee on account of delay in payment of monthly charges beyond the due date, shall be payable on the payment outstanding after the due date at the base rate of late payment surcharge applicable for the period for the first month of default. The rate of late payment surcharge for the successive months of default shall increase by 0.5% for every month of delay provided that the late payment surcharge shall not be more than three percent higher than the base rate at any time and shall not be higher than the rate specified in the agreement for purchase or transmission of power. All payments by a distribution licensee to a generating company or a trading licensee for power procured from it or by a user of a transmission system to a transmission licensee shall be first adjusted towards late payment surcharge and thereafter, towards monthly charges, starting from the longest overdue bill. LPS Rules 2022 also provides for regulation of access to power in case of non-payment of dues within the specified time period. The over-dues of the prior period, i.e., up to June 3, 2022, shall be liquidated through equated monthly instalments as per the provision of the LPS Rules 2022.

Ministry of Power Issues Draft Electricity (Late Payment Surcharge and Related Matters) Amendment Rules, 2023

MoP has also issued new draft Electricity (Late Payment Surcharge and Related Matters) Amendment Rules, 2023, on December 13, 2023. The draft proposes the incorporation of Temporary General Network Access (T-GNA) or General Network Access (GNA) within the regulations, expanding the scope of mechanisms to regulate access to beneficiaries in cases of delayed payment by distribution licensees or other users of the transmission system. Furthermore, the draft introduces amendments, requiring generating stations to offer un-requisitioned surplus power and power available against declared capacity in power exchanges. It outlines specific provisions for offering such power in market segments, including the Day-Ahead Market (DAM) and the Real-Time Market (RTM), while capping the price at 120% of the energy charge as determined by the Appropriate Commission. Moreover, it outlines consequences for failure to offer surplus power, ensuring that unutilized capacity does not factor into fixed charge computations. Additionally, the draft sets forth a mechanism for the distribution of gains from surplus power sales, stipulating that generators receive up to six paise per unit, with the remaining balance shared equally between distribution licensees and generating companies.

This comprehensive approach aims to streamline electricity transactions, encourage efficient surplus power utilization, and foster equitable distribution of gains within the electricity ecosystem, ultimately contributing to the stability and sustainability of India’s power sector.

Electricity (Promoting Renewable Energy Through Green Energy Open Access) Rules, 2022 (“Green Energy Open Access Rules 2022”)

The MoP promulgated the Green Energy Open Access Rules 2022 on June 6, 2022 with the objective of ensuring access to affordable, reliable, sustainable and green energy. The reduction of the open access transaction limit from 1 MW to 100 kW and appropriate provisions for cross-subsidy surcharge, additional surcharge, and standby charge is expected to incentivize consumer access to green energy at reasonable rates.

Ministry of Environment - E-Waste (Management) Rules, 2022

These rules apply to every manufacturer, producer refurbishes dismantler and recycler involved in manufacture, sale, transfer, purchase, refurbishing, dismantling, recycling and processing of e-waste or electrical and electronic equipment, including Solar panels/cells, solar Photovoltaic panels/cells/modules under Consumer Electrical and Electronics and Photovoltaic.

This rule requires every manufacturer and producer of solar photo-voltaic modules or panels or cells to also:

Renewable Energy Certificates (“RECs”)

The CERC promulgated the Central Electricity Regulatory Commission (Terms and Conditions for Recognition and Issuance of Renewable Energy Certificate for Renewable Energy Generation) Regulations, 2010 (“REC Regulations”) in 2010. The REC Regulations aim at the development of markets for power from non-conventional energy sources by issuance of transferable and saleable credit certificates. The REC Regulations facilitate fungibility and inter-state transaction of renewable energy with least cost and technicality involved. The CERC has nominated the National Load Dispatch Centre as the central agency to perform certain functions, including, inter alia, registration of eligible entities, issuance of certificates, maintaining and settling accounts in respect of certificates, acting as repository of transactions in certificates and such other functions incidental to the implementation of REC mechanism as may be assigned by the CERC. The REC mechanism provides a market-based instrument which can be traded freely and provides means for fulfilment of RPOs by the distribution utilities/consumers.

Central Electricity Regulatory Commission (Terms and Conditions for Renewable Energy Certificates for Renewable Energy Generation) Regulations, 2022

According to these regulations, renewable energy generating stations, captive generating stations based on renewable energy sources, distribution licensees, and open access consumers are now eligible to issue RECs.

The national load dispatch center has been designated the agency to implement these regulations. REC Regulations stipulated the details of Grant of accreditation, Issuance, Exchange, Redemption, Denomination, Pricing and Validity for certificates. CERC has also introduced certificate multiplier for renewable energy generating station, Hydro, municipal solid waste, non- fossil fuel-based cogeneration and biomass and biofuel. Certificate once assigned to a renewable energy generating station, the certificate multiplier will remain valid for 15 years.

Approved Models and Manufacturers of Solar Photovoltaic Modules (Requirements for Compulsory Registration) (“ALMM”) order 2019

The GoI has introduced a list of approved module suppliers who will be eligible to supply modules to project developers selected to develop solar projects in government projects, government assisted projects, projects under government schemes and programs, open access, net-metering projects, installed in the country, including specified projects set up for sale of electricity to the government. MNRE, vide its order dated March 10, 2023, had held its ALMM order in abeyance for FY 2023-24, so the projects commissioned by March 31, 2024 will be exempted from the requirement of procuring solar photovoltaic modules from the list of approved module suppliers.

Ministry of Power issues Draft Notification on Renewable Generation Obligation (“RGO”)

MoP issued a draft notification, on October 6, 2023, on Renewable Generation Obligation 2023, superseding the earlier notification dated February 27, 2023. This notification proposes to mandate Coal and Lignite based generating stations to supply a minimum share of electricity generated by using non-fossil fuel sources e.g., renewable sources, to mandate reduction in consumption of fossil sources or increase the share of non-fossil sources. This notification proposes to enforce an obligation on Designated Consumer (DC), which is a coal or lignite-based generating station, to supplement its conventional generation with a minimum supply of RE to fulfil its RGO. DC has the option of either establishing RE capacity or procuring and supplying RE energy in the requisite quantum. DC will be at liberty to supply RE on commercial principles, independent of its existing PPA of its coal or lignite-based generating station.

A captive coal or lignite-based generating station is exempted from RGO subject to its fulfilment of RE Consumption Obligation as notified by the Central Government. Further, a generating company with more than one coal or lignite-based generating station are allowed to comply with the RGO on an aggregate basis. Also, obligation fulfilled by any DC under the “Scheme for Flexibility in Generation and Scheduling of Thermal and Hydro Power Stations through Bundling with Renewable Energy and Storage Power, 2022, dated April 12, 2022 (RE Bundling) scheme)”, shall be considered as part of its RGO.

Guidelines for Procurement and Utilization of Battery Energy Storage Systems as part of Generation, Transmission and Distribution Assets, along with Ancillary Services

The GoI promulgated these guidelines in March 2022, and their objective is to facilitate the procurement of battery storage systems to be utilized either in combination with renewable energy or as a standalone asset. These guidelines will also play a critical role in achieving the nation’s renewable energy and decarbonization goals. Business opportunities identified by the MoP in this space include BESS coupled with RE and with transmission infrastructure and storage for distribution and ancillary services.

Revised Scheme for Flexibility in Generation of Thermal/Hydro Power Stations through Bundling with Renewable Energy and Storage Power

The GoI promulgated a revised scheme in April 2022. The revisions provide flexibility in generation and scheduling of power from thermal/hydro plants through bundling with renewable energy. This reduces the cost of power and helps distribution companies to meet renewable purchase obligations for distribution licensees to meet a certain minimum quantity of their power requirement from renewable sources.

Green Energy Corridor Phase-II

The Ministry of New and Renewable Energy (MNRE) has approved the implementation of the “Green Energy Corridor Phase-II - Inter-State Transmission System for 13 GW Renewable Energy Project in Ladakh (ISTS GEC-II)” on February 15, 2024. The project involves installing 713 km (or 1268 circuit kilometers) of transmission lines and two 5 GW High Voltage Direct Current (HVDC) terminals in Pang (Ladakh) and Kaithal (Haryana). It aims to facilitate power evacuation from a 13 GW renewable energy project, alongside a 12 GWh Battery Energy Storage System (BESS) in Ladakh. Power Grid Corporation of India Limited (POWERGRID) will execute the project in a single phase, scheduled for completion by the financial year 2029-30, with an estimated cost of INR 20,773.70 Crores. MNRE will coordinate with the Ministry of Power to ensure systematic planning and execution of RE generation and transmission projects. The project’s progress will be closely monitored by the Central Electricity Authority (CEA) and Central Transmission Utility of India Limited (CTUIL).

CERC notifies draft CERC (Procedure, Terms and Conditions for grant of Transmission Licence and other related matters) Regulations, 2023

The Central Electricity Regulatory Commission (CERC) has notified draft CERC (Procedure, Terms and Conditions for grant of Transmission Licence and other related matters) Regulations, 2023. As per the draft, no person shall be eligible for a grant of licence unless it is selected through the process under the competitive bidding guidelines; or an entity selected by the central government or its authorised agency to implement a project under the regulated tariff mechanism; or a bulk consumer, with a load of 50 MW and above, who intends to draw electricity for the purpose of self-consumption by constructing a connecting transmission line from the interstate transmission system sub-station to its premises. Additionally, a bulk consumer shall also be eligible to get its connecting transmission line constructed, maintained and operated by a transmission licensee instead of seeking the transmission licence itself by amendment of the transmission licence of such licensee.

CERC passes suo moto in the matter of removal of difficulties with respect to GNA regulations

The Central Electricity Regulatory Commission (CERC) issued a suo moto order addressing challenges in implementing certain provisions of the Central Electricity Regulatory Commission (Connectivity and General Network Access to the inter-State Transmission System) Regulations, 2022. Notable directives include allowing processing of power scheduling activities under the 2009 Connectivity Regulations until October 1, 2023, alongside the GNA Regulations. Entities are required to adjust bank guarantees submitted under the 2009 Regulations according to Regulation 37 of the GNA Regulations. The commission emphasized adherence to higher bank guarantee requirements between the two regulations until October 1, 2023.

Furthermore, considering the issues highlighted by RE Developers, the commission directed that change in the location of the land parcel - without any change in (a) the point of connectivity with ISTS and (b) the start date of connectivity - shall be allowed, and shall not lead to cancellation of the connectivity.

CERC issues staff paper on market coupling

The Central Electricity Regulatory Commission (CERC) has issued a staff paper on market coupling. The staff paper states that considering the fact that collective transactions account for more than 70 per cent of the electricity transacted through power exchanges, and the share of only one exchange has been increasing, the power exchanges with lower liquidity have been advocating for market coupling. The Commission provided enabling provisions in Power Market Regulations 2021 to introduce market coupling among the power exchanges to enable uniform price discovery. These provisions related to market coupling are yet to be brought into effect and form the basis for discussion in this paper. The paper, in the subsequent sections, discusses the regulatory provisions for market coupling, international experience, the objectives of market coupling in India, the issues and challenges in the implementation of market coupling, and the key points for discussion.

Environmental Laws

The Central Pollution Control Board of India (“CPCB”) a statutory organization established in 1974 under the Ministry of Environment, Forest and Climate Change (“MoEF&CC”) is responsible for setting the standards for maintenance of clean air and water and providing technical services to the MoEF&CC.

CPCB has classified industrial sectors under the red, orange, green and white categories. The newly introduced white category pertains to those industrial sectors which are practically non-polluting, including solar power generation through photovoltaic cells, wind power projects of all capacities and mini hydroelectric power. In relation to the white category of industries, only intimation to the relevant State Pollution Control Board is required, and there is no requirement to obtain a consent to operate within this category. However, to the extent they are applicable to the entities prescribed under the relevant legislation, the pollution control laws in India must be adhered to.

Energy Conservation (Amendment) Bill, 2022

The Energy Conservation (Amendment) Bill, 2022 was passed in December 2022, with the intention of encouraging the use of biofuels, green hydrogen and other renewable energy sources, as well as promoting the trading of carbon credits.

The bill includes the following key provisions:

II. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion of our business, financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in “Risk Factors” and elsewhere in this annual report. Actual results could differ materially from those contained in any forward-looking statements.

A. Overview

We are committed to remain a leader and pioneer in the renewable energy market in India. We sell renewable power to our customers in India on long term fixed price contracts, in many cases at prices at or below prevailing alternatives for our customers. Our financial strategy is to build our renewable energy assets with the most efficient cost of capital available to us. Since we have engineering, procurement and construction as well as O&M capabilities in-house, we retain the value creation at all stages of development and operation. Through value engineering, operational performance monitoring and efficient financial strategy, we are able to deliver cost-effective energy to our customers.

We recognize revenue monthly, from renewable energy sold to our customers on a per kilowatt hour basis for the electricity supplied by our renewable power plants. We sell renewable energy based on terms in PPAs.

The energy output of our plants is dependent in part on the quantum of solar irradiation at plant locations. As a result, our revenue is impacted by seasonal patterns such as shorter daylight hours in winters as well as daily and annual fluctuation in insolation. Typically, our PLF, from operational solar power plants is lowest in the third quarter and highest in the first quarter of any given fiscal year (which ends on March 31).

A significant portion of the cost of our solar power plants consists of solar photovoltaic panels (or solar modules as they are called generally), inverters and other plant equipment. Other less significant costs include the cost of land or leasehold land costs, and installation costs. Our cost of operations primarily consists of expenses pertaining to operations, maintenance and insurance of our solar power plants. These expenses include payroll and related costs for plant maintenance staff, plant maintenance, insurance and, if applicable, lease costs. The cost of financing is a significant element in the overall cost of development and operations.

Under U.S. GAAP, we depreciate the capital cost of solar power plants over the estimated useful life of 25-35 years. We typically fund our projects through a mix of project finance and sponsor equity. Our project financing agreements typically restrict the ability of our project subsidiaries to distribute funds to us unless specific financial thresholds are met on specified dates. Some of our project finance borrowings are denominated in U.S. dollars, while we seek to hedge, fluctuations in the U.S. dollar exchange rate, any unhedged foreign currency exchange exposure can adversely impact our profitability. We seek to finance longer term and at fixed rates, but some of our borrowings have variable interest rates and changes in such rates may lead to an adverse effect on our overall cost of capital.

We use certain financial and non-financial non-U.S. GAAP measures to provide a comparison of our performance. The non-financial metrics include electricity generation, PLF, MW operating, MW Contracted & Awarded and MW Operating, Contracted & Awarded. We also use certain non-U.S. GAAP financial metrics such as Cost per MW operating, Adjusted EBITDA and Cash Flow to Equity to provide a comparison of our financial results. We use non-financial metrics that are commonly used in the industry to help users compare us with our peers and better demonstrate growth in terms of our current capacity, as well as our future capacity. We understand that non-U.S. GAAP measures helps investors compare our performance period over period and assess how we have improved productivity in reducing the cost of building a plant through cost per megawatt as well as measure the output of the plants through PLFs. The non-financial metrics are used by analysts and investors in arriving at a fair valuation of us by projecting our future revenue as well as predicting our results.

We classify a financial measure as being a non-U.S. GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are not included or excluded in the most directly comparable measure calculated and presented in accordance with U.S. GAAP as in effect from time to time in the United States in our statements of operations, balance sheets or statements of cash flows. The non-U.S. GAAP financial measures are supplemental measures that are not required by, or are not presented in accordance with, U.S. GAAP. Non-U.S. GAAP financial measures do not include operating, other statistical measures or ratios calculated using exclusively financial measures calculated in accordance with U.S. GAAP. Moreover, the way we calculate the non-U.S. GAAP financial measures may differ from that of other companies reporting measures with similar names, which may limit these measures’ usefulness as a comparative measure.

Certain Factors affecting our Results

Cashflow and Liquidity Position:

Our expansion plans, if consummated, may require additional financing. We expect to incur substantial capital expenditure as well as operating and financial expenses, and, if so, our cash reserves and cash flow from operations may be insufficient to meet our planned obligations. Further, our cash flow may also be adversely impacted by any liabilities which may arise as a result of the review of certain material projects and contracts over a three-year period for anti-corruption and related compliance issues by the Special Committee and our Audit and Risk Committee and our ongoing reporting of these issues to the SEC and the Department of Justice. For more information, see “— We have conducted investigations into whistle-blower claims and other allegations against persons who served as our directors, officers and employees. We reported the allegations and our findings to the SEC and the U.S. Department of Justice and continue to cooperate with these authorities.”

Our ability to obtain additional financing on favorable terms, if at all, will depend on several factors, including our future results of operations, financial condition and cash flows, the amount and terms of existing indebtedness, general market conditions and market conditions for financing activities and the economic, political and other conditions in the markets where we operate. Our ability to raise financing on acceptable terms also depends on our credit ratings and may also be affected by the failure to deliver audited consolidated financial statements and the financial statements of subsidiaries and restricted borrowing groups in accordance with financing documents. We can make no assurances that we will be able to raise additional financing on acceptable terms in a timely manner or at all. Failure to obtain additional financing on acceptable terms and in a timely manner could adversely affect our business, results of operations, financial condition and cash flows. See “Risk Factors – Our cash reserves and cash flows may be insufficient to meet our working capital requirements and expansion plans absent further financing. Accordingly, our failure to obtain additional financing on acceptable terms and in a timely manner could materially and adversely affect our financial condition.” In addition, our ability to obtain additional financing may be dependent on the compliance review of our lenders and creditors in light of the review of certain material projects and contracts over a three-year period for anti-corruption and related compliance issues by the Special Committee and our Audit and Risk Committee and our ongoing reporting of these issues to the SEC and the Department of Justice and to Indian regulatory authorities. For more information, see “— We have conducted investigations into whistle-blower claims and other allegations against persons who served as our directors, officers and employees. We reported the allegations and our findings to the SEC and the U.S. Department of Justice and continue to cooperate with these authorities.”

Defaults under our Loan Agreements:

Timely submission of financial statements of the Group, our subsidiaries and/or our subsidiary restricted groups is a key covenant in most of our financing agreements. Due to our inability to meet these covenants to date in respect of Fiscal 2023 (and interim periods therein), we secured extensions from our lenders in respect of these covenants until December 31, 2023. We have further secured time extensions until March 31, 2024/April 30, 2024, for the Group and until April 30, 2024 for the subsidiaries to submit its financial statements for Fiscal 2023.

In addition, due to our inability to meet these information covenants to date, some of our lenders have started charging us penalty interest rates. In addition, in some of our borrowing facilities, the lenders have also revised the rates of interest upward due to delay in Fiscal 2022 and Fiscal 2023 audited financial statements and our downgrade in credit ratings. These penal rates of interest and higher rates of interest have increased our finance costs for the projects to which these loans relate. While the penal interest may cease to be charged upon finalization and submission of the delayed financial statements, the rates of interest which have been revised upwards may not revert to previous levels, and, therefore, may result in continued higher cost of funds for our debt borrowings for these projects.

In addition, any fines, penalties, ongoing obligations or other measures or relief imposed against us by regulatory authorities (including by the SEC, the U.S. Department of Justice and applicable Indian regulatory authorities) in connection with whistle-blower claims and Special Committee investigations could adversely impact our ability to maintain compliance with the covenants under our credit facilities or result in an event of default thereunder.  For more information, see “— We have conducted investigations into whistle-blower claims and other allegations against persons who served as our directors, officers and employees. We reported the allegations and our findings to the SEC and the U.S. Department of Justice and continue to cooperate with these authorities.”

Green Bond Consent Solicitation:

We issued U.S. dollar denominated 3.575% Solar Green Bonds in August 2021 and 5.65% Solar Green Bonds in September, 2019 (together the “Green Bonds”), listed on the Singapore Exchange Limited. On December 14, 2023, Azure Power Solar Energy Private Limited (“APSEPL”) and Azure Power Energy Ltd (“APEL”) completed a consent solicitation (the “Consent Solicitation”) in respect of the 5.65% Senior Notes due 2024 issued by APSEPL (the “2024 Notes”) and the 3.575% Senior Notes due 2026 (the “2026 Notes”). APSEPL and APEL sought the consent of the Noteholders of each of the 2024 Notes and 2026 Notes to amend certain terms of (A) the indenture dated as of September 24, 2019 (the “2024 Indenture”) and (B) the indenture dated as of August 19, 2021 (the “2026 Indenture” and together with the 2024 Indenture, the “Indentures”). The purpose of the consent solicitation was to: (i) undertake to make tender offers (a) to purchase an outstanding principal amount of U.S.$40,000,000 of the 2024 Notes by March 25, 2024, (b) to purchase an outstanding principal amount of U.S.$12,000,000 of the 2026 Notes by March 25, 2024 and an outstanding principal amount of U.S.$8,000,000 of the 2026 Notes by August 26, 2024; (ii) make certain amendments and provide certain confirmations with respect to the reporting covenant of each of the Indentures; and (iii) make certain amendments to the restricted payments and limitations on amendments of onshore debt covenants in the 2024 Indenture to allow for the implementation of a cash-neutral intercompany transaction (the “proposed amendments”).

The consent solicitation was announced on November 28, 2023. The deadline to submit consent instructions expired at 5:00 pm New York time on December 7, 2023. Over 99% consent instructions were received in relation to both the 2024 Notes and the 2026 Notes. On December 8, 2023, each of APSEPL and APEL executed a supplemental indenture with Azure Power Global Limited (as Parent), the trustee and the collateral agents to implement the proposed amendments. On December 14, 2023, the consent fee was paid and the proposed amendments became operative.

Pursuant to the terms of the amended Indentures, APSEPL and APEL launched tender offers for the 2024 Notes and the 2026 Notes on February 16, 2024. The early deadline of the tender offers was on March 1, 2024 and APSEPL and APEL purchased US$40,000,000 of the 2024 Notes and US$14,477,000 of the 2026 Notes respectively on March 11, 2024.

Credit Rating Downgrades:

Most of our external borrowings are required to be rated by accredited credit rating agencies. In Fiscal 2023 and Fiscal 2024, the rating agencies Fitch Ratings, Moody’s Investor Service, CRISIL and Care Ratings have each downgraded or announced a review of credit ratings with negative implications of the credit ratings of one or more of our subsidiaries. Downgrades in our credit ratings and other factors have led to interest rate increases in respect of some of our certain of our borrowings which has increased our financing costs and other similar interest rate increases are possible.

Our rated borrowing as set forth in the table below, remain on negative credit outlook by each of the respective credit rating agencies during the period, other than Fitch which removed the Rating Watch Negative.

The table below sets forth our ratings and downgrades in Fiscal 2023 and Fiscal 2024 with respect to various borrowings.

See “Risk Factors - Any downgrade of our credit rating may result in increase in interest cost or may trigger covenant defaults under our loan agreements.”

General and administrative expenses (excluding Stock Appreciation Right (SAR) expenses):

The consolidated general and administrative expenses (excluding SAR expenses) in Fiscal 2023 were higher than our consolidated general and administrative expenses (excluding SAR expenses) in Fiscal 2022 primarily due to higher legal and accounting costs related to whistle-blower and other investigations and legal costs related to defending various litigation matters.

Rooftop Portfolio and Radiance:

In April 2021, we entered into an agreement with Radiance to sell certain subsidiaries (the “Rooftop Subsidiaries”) with an operating capacity of 153 MW (the “Rooftop Portfolio”) for INR 5,350 million, subject to certain purchase price adjustments (the “Rooftop Sale Agreement”). Pursuant to the Rooftop Sale Agreement, Radiance was to acquire 100% of the equity ownership of the Rooftop Subsidiaries owned by the Group. We had recognized an impairment loss in relation to the Rooftop Subsidiaries aggregating to INR 3,255 million during the year ended March 31, 2021.

As on current date, we received aggregate sale proceeds of INR 1,412 million (excluding working capital support reimbursed by Radiance), and we transferred 66.5 MWs out of the total portfolio of 153 MWs. Out of this 66.5 MW, 33.2 MWs were from RG-II entities, for which we transferred a 48.6% shareholding to Radiance pursuant to the terms of the Green Bond Indentures, and the remaining 51.4% will be transferred to Radiance only after refinancing of the RG-II bonds. In August 2021, post refinancing of 5.5% Senior Notes and repayment of loan relating to one rooftop project of 10 MW, the restriction on transfer of shareholding was released. For another 16 MWs, which is the Delhi Jal Board rooftop project, a 49% shareholding was transferred to Radiance and the remaining 51% will be transferred in 2024 after compliance with equity lock-in conditions under the applicable PPA. The transfer of ownership of these portfolios is not anticipated to occur within 12 months due to these restrictions.

Further, during the current year in June 2022, we transferred 100% shareholding in relation to 2.5 MW operating capacity.

We and Radiance have mutually agreed to terminate the transfer in shareholding of the remaining un-transferred 86.5 MW portfolio to Radiance, and accordingly, the Purchaser will not purchase from the Sellers and the Sellers will not sell to the Purchaser the AZR Sale Shares (including any Seller Group Loans) as was agreed in the Previous MSPA and further amended under the Amended MSPA. The remaining un-transferred portfolio is being managed by Group.

Key Operating Metrics

Megawatts Operating and Megawatts Contracted & Awarded

We measure the rated capacity of our plants in megawatts. Rated capacity is the expected maximum output that a power plant can produce without exceeding its design limits. We believe that tracking the growth in aggregate megawatt rated capacity is a measure of the growth rate of our business.

Megawatts Operating represents the aggregate megawatt rated capacity of solar power plants that are commissioned and operational as of the reporting date.

Megawatts Contracted & Awarded represents the aggregate megawatt rated capacity of renewable power plants which include (i) PPAs signed with customers, and (ii) capacity won and allotted in auctions and where LoAs have been received, but does not include the commissioned and operational capacity as of the reporting date.

The following table represents the megawatts Operating and megawatts Contracted & Awarded, which together are also called our total Portfolio, as of the end of the respective periods presented:

As of March 31, 2023, we had operating capacity of 3,041 MW, and we do not expect commissioning of any further projects during Fiscal Year 2023-24. Therefore, we expect to have megawatts operating of 3,041 MW by March 31, 2024.

Plant Load Factor

Plant load factor, or PLF, is the ratio of the actual output of all our power plants, including rooftop portfolio, over the reporting period to their potential output if it were possible for them to operate at full rated capacity. The PLF is not the same as the availability factor. Our power plants have high availability, that is, when the sun is shining our plants are almost always able to produce electricity. The variability in our PLF is a result of seasonality, weather, air pollution, rotation of the earth, equipment efficiency losses, breakdown of our transmission system and grid unavailability. We compute PLF on the basis of PPA capacity in AC or alternate current, which is generally lower than the actual installed capacity in DC, or direct current.

We track PLF as a measure of the performance of our power plants. It indicates effective utilization of resources and validates our value engineering and operations research. Higher PLF at a plant indicates increased electricity generation. Monitoring PLF on real time allows us to respond rapidly to potential generation anomalies. PLF in AC was 21.6% for Fiscal Year 2023 compared with 21.6% for FY 2022.

Electricity Generation

Electricity generation represents the actual amount of power generated by our power plants including rooftop portfolio over the reporting period. This is a measure of the periodic performance of our power plants.

Summary of Operating Metrics

Key Financial Metrics

Adjusted EBITDA

Adjusted EBITDA is not a U.S. GAAP financial measure. We present Adjusted EBITDA as a supplemental measure of our performance. This measurement is not recognized in accordance with U.S. GAAP and should not be viewed as an alternative to U.S. GAAP measures of performance. The presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

We define Adjusted EBITDA as net loss/(income) plus (a) income tax expense/(benefit), (b) interest expense, net, (c) depreciation and amortization (d) loss/(gain) on foreign currency exchange (net), (e) other expense/(income) and (f) Impairment loss. We believe Adjusted EBITDA is useful to investors in assessing our ongoing financial performance and provides improved comparability between periods through the exclusion of certain items that management believes are not indicative of our operational profitability and that may obscure underlying business results and trends.

Adjusted EBITDA is also used by securities analysts, lenders and others in their evaluation of different companies because it excludes certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be highly dependent on a company’s capital structure, debt levels and credit ratings. Therefore, the impact of interest expense on earnings can vary significantly among companies. In addition, the tax positions of companies can vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the various jurisdictions in which they operate. As a result, effective tax rates and tax expense can vary considerably among companies.

Adjusted EBITDA has limitations as an analytical tool, and one should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations include:

Investors are encouraged to evaluate each adjustment and the reasons we consider it appropriate for supplemental analysis.

The following table presents a reconciliation of net (loss)/profit to Adjusted EBITDA:

Project Cost per Megawatt Operating

Project cost per megawatt operating consists of the total project cost including solar photovoltaic panels, inverters, balance of plant equipment, freehold land or leasehold land, capitalizable financing costs, and installation costs incurred for installing one megawatt of DC capacity during the reporting period. A reduction in project cost per megawatt helps reduce the cost of power and thereby improves our ability to win new projects.

Cost per MW has increased in current year as compared to previous year primarily on account of increase in module prices.

Cash Flow to Equity

Cash Flow to Equity (or “Cfe”) is not a U.S. GAAP financial measure. We present Cfe as a supplemental measure of our performance. This measurement is not recognized under U.S. GAAP and should not be viewed as an alternative to U.S. GAAP measures of performance. The presentation of Cfe should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

We believe U.S. GAAP metrics, such as net income (loss) and cash from operating activities, do not provide the same level of visibility into the performance and prospects of our operating business as a result of the long-term capital-intensive nature of our businesses, non-cash depreciation and amortization cash used for debt servicing as well as investments and costs related to the growth of our business.

Our business owns high-value, long-lived assets capable of generating substantial Cash Flow to Equity over time. We define Cfe as profit before tax (the most comparable U.S. GAAP metric), adjusted for net cash provided for used/in operating activities, other than changes in operating assets and liabilities, income and deferred taxes and amortization of hedging costs; less: cash paid for income taxes, debt amortization and maintenance capital expenditure.

We believe that changes in operating assets and liabilities is cyclical for cash flow generation of our assets, due to high growth environment. Furthermore, to reflect the actual cash outflows for income tax, we deduct income and deferred taxes computed under U.S. GAAP presented in our consolidated financial statements and instead include the actual cash tax outflow during the period, are considered as part of tax expense.

We believe that external consumers of our financial statements, including investors and research analysts, use Cfe both to assess Azure’s performance and as an indicator of its success in generating an attractive risk-adjusted total return, assess the value of the business and the platform. This has been a widely used metric by analysts to value our business, and hence we believe this will help potential investors in analyzing the cash generation from our operating assets.

We have disclosed Cfe for our operational assets on a consolidated basis, which is not the cash from operations on a consolidated basis. We believe Cfe supplements U.S. GAAP results to provide a more complete understanding of the financial and operating performance of our businesses than would not otherwise be achieved using U.S. GAAP results alone. Cfe should be used as a supplemental measure and not in lieu of our financial results reported under U.S. GAAP.

We have categorized the Cfe into “Operational Assets” and “Others”, as defined below, so that users of our financial statements are able to understand the Cash generation from our operational assets.

We define our “Operational Assets”, as the projects which had commenced operations on or before March 31, 2023. –The operational assets represent the MW operating as on the date.

We define “Others” as (i) the project SPV’s which are under construction, or under development – as provided in the Power Purchase Agreement table in this Form 20-F, (ii) “corporate” which includes our three Mauritius entities, (iii) other projects not covered under operational assets, and (iv) other entities under the group which are newly incorporated.

We define “debt amortization” as the current portion of long-term debt which has been repaid during the period as part of debt repayment obligations, excluding the debt which has been repaid before maturity or refinanced. It does not include the amortization of debt financing costs or interest paid during the period.

Other items from the Statement of Cash Flows include most of the items that reconcile “Net (loss) gain” and “Changes in operating assets and liabilities” from the Statement of Cash Flows, other than deferred taxes, non-cash employee benefit and amortization of hedging costs.

Following is the Cfe statement for the periods March 2022 and 2023:

Summary of key financial metrices

The following are the key metrics used to evaluate our business performance:

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP. We have identified certain accounting policies that we believe are the most critical to the presentation of our consolidated financial information over a period of time. These accounting policies may require our management to take decisions on subjective and/or complex matters relating to reported amounts of assets, liabilities, revenue, costs, expenses and related disclosures. These would further lead us to estimate the effect of matters that may inherently be uncertain.

The judgment on such estimates and underlying assumptions is based on our experience, historical trends, understanding of the business, industry and various other factors that we believe are reasonable under the circumstances. These form the basis of our judgment on matters that may not be apparent from other available sources of information. In many instances changes in the accounting estimates are likely to occur from period-to-period. Actual results may differ from the estimates. The future financial statement presentation, financial condition, results of operations and cash flows may be affected to the extent that the actual results differ materially from our estimates.

Our significant accounting policies are summarized in Note 2—Summary of Significant Accounting Policies in our consolidated financial statements included in this annual report.

Components of Results of Operations

Operating Revenue

We recognize revenue on PPAs when the power plant generates power, and it is supplied to the customer in accordance with the respective PPA. Revenue is recognized in each period based on the volume of electricity supplied to the customer at the price stated in the PPA, once the energy kilowatts are supplied and collectability is reasonably assured. The energy kilowatts we supplied are validated by the customer prior to billing and recognition of revenue.

Where PPAs include scheduled price changes, revenue is recognized by applying the average rate to the energy output estimated over the term of the PPA. We estimate the total kilowatt hour units expected to be generated annually during the tenure of PPA using budgeted PLFs, rated capacity of the project and annual estimated decrease in rated capability of solar panels. The contractual rates are applied to this annual estimate to determine the total estimated revenue over the term of the PPA. We then use the total estimated revenue and the total estimated kilowatt hours to compute the average rate used to record revenue on the actual energy output supplied. We compare the actual energy supplied to the estimate of the energy expected to be generated over the remaining term of the PPA on a periodic basis, but at least annually. Based on this evaluation, we reassess the energy output estimated over the remaining term of the PPA and adjust the revenue recognized and deferred to date. Through March 31, 2023, the adjustments have not been significant, and the difference between the actual billing and revenue recognized is recorded as deferred revenue.

Cost of Operations (Exclusive of Depreciation and Amortization)

Cost of operations primarily consists of expenses pertaining to operations and maintenance of our solar power plants. These expenses include payroll and related costs for maintenance staff, plant maintenance, insurance, and, if applicable, lease costs.

General and Administrative Expenses

Our general and administrative expenses include payroll and related costs for corporate, finance and other support staff, including bonus and share based compensation expense, professional fees and other corporate expenses.

Depreciation and Amortization

Depreciation and Amortization expenses are recognized using the straight-line method over the estimated useful life of our solar power plants and other assets. Leasehold improvements related to solar power plants are amortized over the shorter of the lease term or the underlying period of the PPA for that particular solar power plant. Leasehold improvements related to office facilities are amortized over the shorter of the lease period or the estimated useful life. Freehold land is not depreciated. Construction in progress is not depreciated until such projects are commissioned.

Impairment loss/(reversal)

Impairment loss/(reversal) relates to fair valuation impact of our non-core solar rooftop portfolio, for which we entered into an agreement for sale during April 2021 and impairment in relation to 3,033 MW projects (part of manufacturing linked tender).

Interest Expense, Net

Interest expense, net consists of interest incurred on term loans for projects under our fixed and variable rate financing arrangements including interest expense and cost of hedging foreign currency risk on the Green Bonds, and interest expense on non-convertible debentures. Interest cost also includes the cost of swaps and option contracts entered to mitigate the foreign exchange risk for solar green bond transactions. We have designated the swaps and option contracts as a cash flow hedge and are tested for effectiveness on a quarterly basis or as determined at the time of designation of hedge. Interest expense also include bank fees and other borrowing costs, which are typically amortized over the life of the loan using the effective interest rate method. Interest expense is presented net of capitalized financing costs and interest income earned from bank deposits.

Interest incurred in connection with a project that has been commissioned is expensed while interest incurred prior to commissioning is capitalized.

Other expense/(income)

Other expense/(income) primarily consists of mutual fund income net of certain expense.

Gain/Loss on Foreign Currency Exchange (Net)

We are exposed to movements in currency exchange rates, particularly to changes in exchange rates between U.S. dollars and Indian rupees. While our functional currency is the U.S. dollar, the functional currency of APIPL is Indian rupees and a portion of APIPL’s borrowings from financial institutions are denominated in U.S. dollars. Foreign exchange gain/loss includes the unrealized and realized gain/loss from foreign currency fluctuations on our non-functional currency denominated borrowings.

We also enter into foreign currency option contracts to mitigate and manage the risk of changes in foreign exchange rates on our borrowings denominated in currencies other than our functional currency. Some of these hedges do not qualify as cash flow hedges under Accounting Standards Codification, or “ASC”, Topic 815, “Derivatives and Hedging.” Changes in the fair value of these option contracts are recognized in the consolidated statements of operations and are included in loss on foreign currency exchange.

Income Tax Expense/(Income)

Our income tax expense/ (income) consists of current and deferred income tax as per applicable jurisdictions in Mauritius, India and the United States. Income tax for our current and prior periods is measured at the amount expected to be recovered from or paid to taxation authorities based on our taxable income or loss for that period.

Deferred income taxes and changes in related valuation allowance, if any, reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We use the asset and liability method in accounting for income taxes. Under this method, deferred income tax assets and liabilities are determined based on the difference between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

The tax rates on reversal of temporary differences might be different from the tax rates used for creation of the respective deferred tax assets/liabilities.

As of March 31, 2022, and 2023, we had net deferred tax assets of INR 1,920 million and INR 1,137 million (US$13.8 million), respectively, and net deferred tax liabilities of INR 1,936 million and INR 3,338 million (US$40.6 million), respectively.

We apply a two-step approach to recognize and measure uncertainty in income taxes in accordance with ASC Topic 740. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. We re-evaluate these uncertain tax positions on an annual basis. This evaluation is based on factors including changes in facts or circumstances, changes in tax law and effectively settled issues under tax-audit. Such a change in recognition or measurement could result in the recognition of a tax benefit or an additional charge to the tax provision in the relevant period. As of March 31, 2022, and 2023, we did not have any material uncertain tax positions.

We establish valuation allowances against our deferred tax assets when it is more likely than not that all or a portion of a deferred tax asset will not be realized. The valuation allowance as on March 31, 2022 and 2023 were INR 2,281 million and INR 2,455 million (US$29.9 million), respectively.

A portion of our Indian operations qualifies for tax holiday related to their operating income attributable to undertakings, as defined, in operating solar power plants under section 80-IA of the Indian Income Tax Act, 1961. This holiday is available for a period of ten consecutive years out of fifteen years beginning from the year in which the undertaking first generates power (referred to as the Tax Holiday period), however, the exemption is available only for projects completed on or before March 31, 2017. We assess the election of the Tax Holiday period on an annual basis for each of our undertakings. We believe these undertakings will generate higher taxable profits due to lower interest cost as debt balances are paid down in the later years of operations and therefore, we plan to defer the Tax Holiday election to later years in order to maximize the benefits. As of March 31, 2023, we are claiming tax holiday benefits for fourteen of our subsidiaries. Deferred tax assets are recognized to the extent probable of realization outside the anticipated Tax Holiday period. For example, if we choose years six through 15 as the tax holiday period, we recognize deferred tax assets only to the extent that they will be realized either in years one through five or from year 16 onwards. As a result, all temporary differences do not result in creation of a deferred tax asset or liability.

Under certain of our subsidiaries, which are not eligible for deduction under section 80IA of the Income Tax Act, we had opted for the reduced corporate tax rate of 22% as per the provision of the Taxation Laws (Amendment) Act, 2019.

APIPL and AZR provide engineering, procurement and construction (“EPC”) and related support services to other group subsidiaries and as a result incur income taxes on profits from the services provided. The services provided to the group subsidiaries are in the nature of capitalizable costs and are therefore capitalized as part of property, plant and equipment in the standalone financial statements of such subsidiaries. However, these capitalized costs are eliminated for the purposes of the consolidated financial statements. The costs capitalized in the standalone financial statements are however eligible for income tax deductions in the tax records of the respective group subsidiaries. We started recording Deferred Tax Asset on the intra-entity transfer of assets pursuant to ASU 2016-16, from April 1, 2017. We assess that the probability of realizing the benefit on an annual basis and its recognition is limited to the extent probable of realization outside of the anticipated Tax Holiday period. Our estimate is that such benefit is limited to approximately 30% to 55% of the tax expense incurred by APIPL and the subsidiary. As a result, while all the profits on inter-company transactions are eliminated during consolidation, it does not result in a complete reversal of tax expense on such inter-company transactions. Accordingly, while we may not be profitable, we report income tax expense / benefit that may fluctuate from period to period. Further, EPC services by APIPL to other group subsidiaries were provided up-till financial year ended March 31, 2020 only. Now all subsidiaries are managing these EPC services by themselves with dedicated team of field-service engineers, technicians and other employees.

Contracts Designated as Cashflow Hedges for Solar Green Bonds

We issued U.S. dollar denominated 3.575% Solar Green Bonds in August 2021 and 5.65% Solar Green Bonds in September, 2019 (together the “Green Bonds”), listed on the Singapore Exchange Limited. We used the net proceeds from the Green Bonds to repay project level debt of certain projects in India, in the form of intercompany Non-Convertible Debentures (“NCD”) and External Commercial Borrowings (“ECBs”) denominated in INR. We hedged the exchange rate risk on the proceeds invested from the Green Bonds through cross currency swap for payment of coupons and through call spread option contracts for repayment of principal (collectively, “option contracts”). We have designated these option contracts as a cashflow hedge. We expect that these option contracts mitigate the exchange rate risk associated with the forecasted transaction for semi-annual repayment of coupon and principal and also for repayment of the principal balance at the end of five years.

The cashflow from the underlying agreement match the terms of a hedge such as—notional amount, maturity of the option contracts, mitigation of exchange rate risk, and there are no significant changes in the counter party risk, hence they are designated as a cashflow hedge in accordance with ASC Topic 815— Derivatives and Hedging. Fair value of the hedge at the time of inception of the contract was nil and the cost of the hedge is recorded as an expense over the period of the contract on a straight-line basis. Changes in fair value of the option contracts designated as cash flow hedge are recorded in Other Comprehensive Income/(Loss), net of tax, until the hedge transactions occur.

We used the derivatives option pricing model based on the principles of the Black-Scholes model to determine the fair value of the foreign exchange option contracts. We classify the fair value of these foreign exchange option contracts as Level 2 because the inputs used in the valuation model are observable in active markets over the term of the respective contracts. Fair value of the hypothetical derivative is computed based on the above inputs from Bloomberg or other reputed banks.

Property, Plants and Equipment

Our Company’s principal executive offices are located at 8th Floor, Tower A, DLF Infinity, Cyber City, Phase II, Gurugram 122002, India and occupy approximately 29,000 square feet of space. Our power projects are located primarily on land leased from the state governments and third parties and freehold land purchased from private individuals and entities. Further, we source the land required for construction of plants under the land lease arrangement or procure at the required locations of the plant. Our land lease arrangements range typically from 2 to 35 years, but our PPAs are generally for a term of 25 years. We believe that our facilities are in good condition and generally suitable and adequate for our needs in the foreseeable future. However, we will continue to seek additional space as needed to satisfy our growth.

Power Purchase Agreements

The material terms of the PPAs we have entered into and bids we have won as of the date of this annual report for our utility scale projects are summarized in the following table.