Azure Power Global Limited (AZRE) Q1 2022 Earnings Call Transcript

Azure Power Global Limited (AZRE)
Q1 2022 Earnings Call
Aug 31, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, good day, and welcome to the Azure Power's fiscal first-quarter 2022 earnings conference call. [Operator instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vikas Bansal, head, investor relations at Azure Power.

Thank you, and over to you Mr. Bansal.

Vikas Bansal -- Head, Investor Relations

Thank you. And good morning, everyone, and thank you for joining us. On Monday evening, the company issued a press release announcing results for the first-quarter fiscal 2022 ended June 30, 2021. A copy of the press release and the presentation are available on the Investors section of Azure Power's website at azurepower.com.

With me today are Ranjit Gupta, CEO; Murali Subramanian, COO; and Pawan Agrawal, CFO. Ranjit will start the call by going through recent key highlights; Murali will then follow up with an update on our projects under construction, technology awareness, and industry update. Pawan will then provide an update on the quarter. And then we will wrap up the call with Ranjit updating quarter two fiscal year '22 and fiscal year '22 guidance.

After this, we will open up the call for questions. Please note, our safe harbor statements are contained within our press release, presentation materials, and available on our website. These statements are important and integral to all our remarks. These are risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements.

So we encourage you to review the press release we furnished in our Form 6-K and presentation on our website for a more complete description. Also contained in our press release, presentation materials, and annual report are certain non-GAAP measures that we reconciled to the most comparable GAAP measures, and these reconciliations are also available on our website, in press release, and presentation materials, and annual report. It is now my pleasure to hand it over to Ranjit.

Ranjit Gupta -- Chief Executive Officer

Thank you, Vikas, and a very good morning, everyone. As you all know, India faced COVID-19's ugliest face in the third quarter during April and May. There were massive medical emergencies witnessed across the country during its peak around mid-quarter, which along with local restrictions, greatly restricted man and material movement. The daily infection rate receded around the end of June and in the meanwhile our vaccination drive also picked up pace.

As we speak, well above 600 million doses have been administered in India till date and about a third of the eligible adult population have at least got one dose. At Azure, we have stood by our employees and stakeholders in this fight against the pandemic through several initiatives focused on supplementing medical supplies, tracking the health and wellbeing of team members and their families, organizing awareness and mental wellness talks, and providing whatever support was needed by team members. We also organized two vaccination drives for our employees, and I'm happy to report that 99% of our eligible employees are now vaccinated. I know that some countries across the world are still battling the pandemic and I wish them all the best in dealing with COVID-19.

Moving on, I'm happy to report that we became signatory to UN Global Compact this quarter. We have fully aligned ourselves to the strength and flows of human rights, labor, environment, and anti-corruption. Our ESG risk score by Sustainalytics has further improved, and Sustainalytics now puts us in the low risk category compared to medium risk category. MSCI, the leading ESG rating agency, rated Azure Power as AA, which places us in the top quartile of all global utilities they cover and probably the highest among our peers in the country.

We also recently retired verified carbon units, VCU, to offset our scope 1 and 2 emissions of 2019, 2020, and we will continue to do so in future in our path toward carbon neutrality. We continue to strive hard to improve our ESG performance and demonstrate our leadership. We have a couple of major organizational updates to report subsequent to quarter end. IFC and IFC GIF, which have been longtime supporters of Azure since our early days and has a major role to play in our journey recently sold their entire balance 19.4% stake in the company to almost one of the largest Canadian pension funds with net assets of over CAD 100 billion.

The confidence that global long-term patience infrastructure capital investors like all have placed in Azure demonstrate the strength of our company and cements our status as one of India's premier renewable energy power producers with strong governance and profitable growth track record. Presence of CDPQ [Inaudible] investment view also strengthens our position in terms of meeting capital requirements for our pipeline of [Inaudible]. We also recently paid our third green bond in the debt capital markets, primarily to retire our first green bond. The issue received tremendous response from [Inaudible] participation from top global asset managers with book building in excess of five x diversified order books across geographies.

The issue closed at the lowest ever coupon in the high yield segment for any business out of this from the lowest offering from any Indian renewable energy company till date and shall result in over 200 basis points of annual savings and landed interest cost for our 611 megawatt of underlying assets. Both these events have further solidified Azure's position as a destination of choice for both equity and debt capital investments. We also reported last quarter on our agreement to sell rooftop portfolio to Radiance Renewables. This is the first ever asset sale in Azure's part of history and signifies our commitment toward capital discipline while recycling capital into higher return target projects.

We are in the process of obtaining the contents of offtakers and lenders and see the transaction closing over the next few months. I had mentioned in my previous remarks how we are looking to increase our addressable market by foraying into wind and solar wind hybrid space. Continuing with that, we participated in a few auctions in last couple of months and have won some capacity for which we are awaiting [Inaudible]. We firmly believe that as the industry moves toward providing dispatchable renewable energy to the grid, wind and storage will be two important technology additions we have to plan for our portfolio.

I had mentioned in my previous remarks how green hydrogen and plummeting storage costs have the potential to disrupt our industry. We continue to monitor developments in both these exciting technologies, and we'll keep you posted as we take steps to deploy them to improve our [Inaudible]. On the 4 gigawatt project, for which we have a Letter of Award from SECI but are yet to sign Power Purchase Agreements, we had a positive update from SECI informing us that they have signed power sale agreements with a couple of distribution companies for a total of 800 megawatts. This is probably the first tranche of 3,000 megawatts of PSA that SECI is looking to close as part of the manufacturing industry.

We expect to have PPAs signed for about a third of the 800 megawatts soon. As the second wave has seen, we have seen renewed interest in buying power from distribution companies. Despite the pandemic, power demand recovery in India has clearly bounced back with peak demand capping 200 gigawatts last month. This has encouraged discounts to invest in buying power for their future needs.

Today, we have 23% more megawatts operating than we did at the same time last year, excluding the rooftop portfolio. There has been an 11% year-on-year increase in EBITDA from operating assets, and a 12% increase in cash flow to equity from operating assets during the quarter period. We continue to see steady improvement in this metric. The government continues to support the renewable energy sector in India.

India recently achieved 100 gigawatts of installed renewable energy capacity in the country, making it the fourth largest in the world. Honorable Prime Minister, at his Independence Day speech from the ramparts of Red Fort, reiterated the government's vision of 450 gigawatts of renewable energy capacity by 2030 and more importantly, announced a path toward India's self-reliance in energy by 2047, .i.e. 100th year of Indian independence. This is a significant announcement given that the climate change imperative coupled with energy self-reliance target greatly enhances the renewable energy around this part.

Most of India's oil and gas needs are met through imports, and the only way toward energy independence is to bank most heavily on renewable energy. Another significant positive development, a recent landmark judgment from the Appellate Tribunal for Electricity in the country allows compensatory tariff for solar power curtailment in the state of [Inaudible]. This has provided a tremendous boost to investor confidence in the sector and bodes well for our growth trajectory toward 450 gigawatts installed capacity in the country by 2030. For the first time in India, the Appellate forum for electricity has laid down the law that the developer will have to be compensated on account of illegal curtailment even in the absence of a compensation clause with a Power Purchase Agreement.

We continue to look for suggestions from our investors and stakeholders on how we can further improve our disclosures and make it easier for you to understand the value of this. With that, I would like to turn it over to Murali.

Murali Subramanian -- Chief Operating Officer

Thank you, Ranjit. As we last reported, the second -- the second wave of COVID at its peak, infected our projects under construction, not only disrupting the supply chain, but also impacting construction activity at several of our sites. Subsequently, however, both COVID and the supply situation have improved significantly. As of today, we have completed and commissioned 400 megawatts in our 600-megawatt Rajasthan project and another 100 megawatts has also been completed and is now awaiting commissioning.

The remaining capacity in this project is expected to go live in the next quarter. Thanks to the MNREs notification granting extensions to all projects with commissioning due dates on or after 1st April 2021, we don't expect to incur any penalties for delays. Construction work on 300 megawatts Rajasthan 8 is now underway full swing and construction active in 300-megawatt Rajasthan 9 project has commenced in ripe earnest. Work in Assam, that has picked up after the initial COVID-related delays again took a hit due to the second wave of COVID and inclement monsoon weather.

Despite this, after the initial 25 megawatts, we have commissioned another 12.5 megawatt capacity in May. The next 12.5 megawatts is currently under commissioning. The full 90-megawatt Assam project is expected to be completed and commissioned by the end of this calendar year. We have provided some highlights of our ESG accomplishments on Page 6.

As Ranjit mentioned earlier, we received a AA rating from MSCI for ESG and our ESG risk score by sustainalytics has improved the low risk category. We highlighted our ISO 45,001 certification earlier this year, which demonstrates Azure's focus on occupational health and safety. I'm happy to report we have also recently won the Green Tech Effective Safety Culture Award for 2021 from Green Tech Foundation, which signifies the efforts we have put end to ensure safety culture is embedded across our project locations and sites. Our carbon fee generation has avoided about 1 million tons of CO2 equivalent this quarter, bringing the total to 10.5 million tons equivalent since inception.

We remain net carbon neutral. We have plans for planting 15,000 trees in the immediate vicinity of a 600-megawatt Rajasthan 6 project sites during this year. We also remain actively engaged with the communities where we operate and provide proactive support toward medical and health facilities, especially on the pandemic front. We are now looking to roll out our sustainability charter this fiscal and shall continuously strive to implement best practices to enhance our sustainability.

On the technology front, Azure continues to be an early adopter. We were among the first companies in India to install a large scale project based on more solar panels. And we have just started construction of another large scale project using bifacial tracker technology, where we expect yields in excess of 30% for our Rajasthan 9 project. These are industry leading efforts to ensure our projects are built and operated with the best returns metrics.

Looking at industry and regulatory updates on Page 7, India's achievement of 100 gigawatts installed renewable energy capacity has been a big milestone and the country continues to offer solid growth opportunities along with adequate confidence measures for investors in the sector. The government of India announced recently details of the USD 40 billion reforms linked package for distribution companies, which will improve the health of the financially weaker DISCOMs. It is also expected to help clear the backlog of PSAs with the power supply agreement to be executed with DISCOMs, who have not been signing PSAs, which was actually triggered by the second COVID wave and falling tariffs. The good news is that overall power demand in India has started to grow now as the country emerges from the second wave.

We are pursuing new opportunities such as wind and hybrid, and we assure you that we shall only bid for projects with commercially viable tariffs. We continue to believe that we will be able to obtain the core gigawatt PPAs at value accretive tariffs, which would add to our contracted pipeline and provide returns about the cost of our capital. With that, I turn it over to Pawan to discuss the quarterly results.

Pawan Agrawal -- Chief Financial Officer

Thank you, Murali. Turning to Page 9, as of 30th June 2021, we were operating 2,052 megawatts on a PPA or AC basis, which is 23% higher than what we were operating a year before. Our portfolio of 6,955 megawatts remained stable from the previous quarter. While this portfolio megawatt numbers excludes rooftop portfolio, which is in the process of getting transferred to Radiance, our financials number continue to consolidate rooftop till the transfer process is completed.

On Page 10, looking at the quarter, our revenues continue to increase as we construct more projects. After adjusting for stock compensation expenses, our EBITDA has been USD 50.7 million or 14% higher against 13% increase in revenues from the same quarter in the prior year. Turning to G&A on Page 11, our G&A increased marginally by 5%. Excluding non-cash items, the G&A was flat year on year.

As we remain focused on controlling our costs, we continue to expect our FY '22 cash G&A to rise about 10% from FY '21 levels. As already shared, we have recently issued a green bond of USD 414 million at the lowest ever coupon in highest segment out of India. All our recent refinancings, both in the domestic as well as overseas markets, have resulted in substantial savings in interest rates, thereby improving our equity return. Refinancing at lower cost reflects improved credit profile of the group supported by strong sponsors such as [Inaudible].

We continue to expect lower interest rates for our on-going as well as new financing and refinancings. Turning to stock compensation expenses, as the sales price rise, our stock compensation expenses will increase well when trading out G&A. For first quarter of fiscal 2022, we had our expenses of ESD 1.3 million. Just like the challenges in the past few quarters, our DSOs have been fairly consistent at around 120 days on an average in the recent quarters.

We believe there will be further improvements in the future with commissioning of projects with high capability counterparty and as we continue to focus on improving our collections. On Page 12, you can see that EBITDA from operating assets increased about 11% year on year, and that cash flow to equity from operating assets rose about 12%. Net debt for operating assets was about $1.19 billion, and EBITDA for the last 12 months was about $182 million, resulting in net debt EBITDA ratio for operating assets of around 6.6 x as of 13th June 2021. Finally, looking at Page 13, providing balance sheet information, we had about $90.6 million of cash and cash equivalents and our net debt stood approximately at $1.34 billion.

As a reminder, for those that are calculating our debt ratios, the hedging assets of $105.8 million included in other assets on our balance sheet should be netted against our total debt as this is directly linked to the foreign exchange hedges we have put in place related to our green bonds. During the second quarter, we have used parts of these assets related to our first green bonds to reduce the leverage on the green bond portfolio. With this, now I pass on to Ranjit to provide some commentary on our guidance.

Ranjit Gupta -- Chief Executive Officer

Thanks, Pawan. I'm very happy to report that despite major disruptions during the quarter due to COVID, we have been able to achieve upper end of both our revenue and PLF guidance for this quarter provided during last quarter. Even though we have just started on the recovery path from the second wave as of now, we would reiterate our numbers for the current fiscal but we'll keep the market posted in our upcoming update. For second quarter of '22, we expect the revenue to be between INR 3,600 and INR 3,800 million and the PLF to be between 20.5% to 21.5%.

With this, we will be happy to take questions. Thank you very much.

Questions & Answers:

Operator

[Operator instructions] The first question is from the line of Philip Shen from ROTH Capital Partners. Please go ahead.

Justin Clare -- ROTH Capital Partners -- Analyst

Hi, everyone this is Justin Clare on for Phil today. So I first wanted to start off. So there's the 800 megawatts of projects related to the manufacturing link tender that have recently had the PSA signed and I wanted to understand the next steps in this process here. It sounds like you could sign a PPA in the near term but are you in negotiations right now for that PPA? And could this happen in the next week or month or what's the timeframe expected?

Ranjit Gupta -- Chief Executive Officer

Hey, Justin. Thanks for the question and this is the most important question for us. We are very, very happy that SECI has signed this 800 megawatts of PSA. So one third of the 800 megawatts, which is our allocation, two thirds will go to our peers.

So one third will come to us, the one third allocation of 800 megawatt PPA, there is nothing being negotiated or anything of anything of that sort. They keep going through their internal process to get approvals to find the PPA and it's a question of today, tomorrow, day after when they will invite us to sign the PPA is what we have been told. So SECI is going through their internal process for approval, and then they will invite us for the power purchase agreement.

Justin Clare -- ROTH Capital Partners -- Analyst

OK. Got it. So then I wanted to understand, it sounded like you might have to take a markdown on that PPA, or at least there was that possibility. Could you talk about that potential still and I think in the past you -- it could be 10% to 15%.

So what is that likelihood for the markdown? What could the amount be? And then, is there a negotiation going on that or is it really that SECI is going to come to you with what the PPA will be?

Ranjit Gupta -- Chief Executive Officer

Yes. Definitely, there is no negotiation going on whatsoever. The PSAs have already been signed at a tariff of INR 2.61 with the distribution company, so the PPAs will be signed at the INR 2.61 minus the SECI's -- the SECI margin and there is no negotiation involved whatsoever here.

Justin Clare -- ROTH Capital Partners -- Analyst

Got it. OK. That's clear. Thank you.

And then -- so there's the 800 of PSAs that have been signed so far. What's your expectation for the remainder of the capacity related to the manufacturing linked tender? And then, is it that you will get one-third of that capacity? So each time there's a PSA signed, you would expect to get one-third of that or is there some other way that that might work?

Ranjit Gupta -- Chief Executive Officer

So, Justin, whenever a PSAs signed, we expect to get one third. Apart from the 800, there is another 1,150, which has been approved by the respective board of the distribution company, so we are expecting those PSAs to be inked soon. That will take up to around 2,000 megawatts and another 1,000 megawatts. There are two other 500-megawatt distribution companies that SECI's in talks with where the initial approvals are being taken at the distribution company board.

So those will take a little bit longer, maybe a few weeks. But the first 1,000 megawatts and 1,150 megawatts that I'm talking about should happen faster than that. Should happen in the next week or two.

Justin Clare -- ROTH Capital Partners -- Analyst

OK. Great. Thanks for taking my questions. I will pass it on.

Operator

[Operator instructions] The next question is from the line of Puneet from HSBC. Please go ahead.

Puneet Gulati -- HSBC -- Analyst

Yes. Thank you so much and congratulations, Ranjit. You moved to first step. My question is when do we have to start investing on the manufacturing side after the PSA is signed?

Ranjit Gupta -- Chief Executive Officer

So thanks for the question, Puneet. So, as far as the manufacturing is concerned, right, there is a manufacturing contract agreement that needs to be signed with SECI. So as soon as the manufacturing contract agreement is signed, then I think we have two years from that date to build the plant. So once the manufacturing contract agreement is signed, then we will -- I guess, the order placement, etc., will take place and I would think that the investments will happen about a year or 15 months after the manufacturing contract agreement is signed, I think.

Puneet Gulati -- HSBC -- Analyst

OK. And would it also be proportional to the way you signed it or you're to still invest a full 500 megawatt?

Ranjit Gupta -- Chief Executive Officer

So this is the discussion that we are doing with SECI, and we will do it with our technology partners also, the manufacturing partner, to see what makes sense for them. How does it go with their modular construction plan. So we will have to see it. I'm sure, it cannot be done for example, in 50 megawatt kind of bundle So we'll have to figure out what is the right size, which we can actually set up.

So the SECI has also told us and we have also told SECI that let's get the PPA signed first and then we will discuss it. There is no fear in hurry. We are committed to building the manufacturing capacity. And therefore, SECI also understands that that it is going to help us if we do the manufacturing capacity.

So they are happy to discuss this first after getting the PPA signed.

Puneet Gulati -- HSBC -- Analyst

And my second question is you said even at INR 2.61 minus maybe INR 7 is it isn't attractive enough. But when I look at the project costs, which you disclosed this time, it was $0.52 on DC basis. Back in September 2019, it was about $0.46. So it is still worse off and tariffs are low.

What has changed favorably on the -- if at all, on this? Anything else?

Ranjit Gupta -- Chief Executive Officer

So it's a little bit unfortunate that the DC cost is being portrayed the way they have been portrayed. And the reason is that very few megawatts were commissioned in this quarter and this number is actually an accounting number. Given whatever on -- as of March 31st, what was capitalized in that book, on June 30th, what is capitalized on a book, you take that two numbers divide that by the number of megawatts that have been commissioned, then you come out with the number. So that number doesn't fully reflect the cost of -- when the numbers are small -- when the commission numbers are small, it doesn't fully reflect the actual cost of the project because as you see, the AC costs per megawatt in this quarter is $0.53, right, and the DC cost is $0.52.

So the AC costs and DC cost is almost the same. So it's just unfortunately, the way the accounting is done. So the costs are not at the level of pre-COVID yet and the costs are slightly higher than that. But they are coming down.

Puneet Gulati -- HSBC -- Analyst

What's the example of these numbers?

Murali Subramanian -- Chief Operating Officer

Can I just add to that? It's Murali here. You see, the thing that's happening is you can't just do a like-for-like DC costs because what constitutes a DC has also changed. Back in the day it was a polycrystalline module with six cells. Today, we are looking at monopod modules, we're at bifacial, we're looking at trackers.

A lot of things have changed. So the yield per megawatt has also gone up. The coefficients have improved. The overall performance has actually gone up.

So the cost per watt may be a metric if the technology is standard. But if the technology changes and the yields change, then there will -- we have to account for this.The second thing, of course, is that -- as we all know, interest rates have dropped since what it was two years ago but, of course, that's a different discussion. So these are the other things that's changing in the environment.

Puneet Gulati -- HSBC -- Analyst

So for the balance, 903 megawatts, which is [Inaudible] commission, how -- what kind of PLF should one expect?

Ranjit Gupta -- Chief Executive Officer

I'm sorry. Can you please repeat that question?

Puneet Gulati -- HSBC -- Analyst

For the balance 903 megawatt, which you still have to commission, what kind of PLF should one expect from those projects?

Ranjit Gupta -- Chief Executive Officer

So, the current project that is -- which is under commissioning, of which 400 is commissioned, 100 is ready, and another 100 is on the way, there we -- this is based on 1.5 times overloading so we would expect a PLF in the range of 29% to 30%. The next project is built with 40% overloading. So the PLF may drop a little bit. And then the next project, which is coming up with trackers and bifacial will be well north of 30% and may be in the range of 31% to 32%.

Puneet Gulati -- HSBC -- Analyst

And the costs for bifacial would still be the same or will that go up?

Ranjit Gupta -- Chief Executive Officer

No. The cost of bifacial would go up. And because its trackers, it could go up. And so that's why, just looking at the cost per watt may not be fully -- it probably wouldn't give the entire picture.

Puneet Gulati -- HSBC -- Analyst

[Inaudible] Thank you so much. My last question is post your green bond issuance. What is the average interest cost and how does the majority profile look like now?

Pawan Agrawal -- Chief Financial Officer

So the interest cost of this bond that we've raised, is that -- actually the coupon is coming closer to 8% is less than 8%. And then, we -- as you see, the refinancing projects and after it became majority and almost being dead under the kind of response we're getting from lenders is very encouraging. So in the process of refinancing are getting -- interest rates for our new refinancing at -- as low as 7.5%. So it is ranging from 7.5% to 9% based on project to project or at which -- like whether we have completed the refinancing or we're in the process of refinancing.

Puneet Gulati -- HSBC -- Analyst

Thank you so much and all the best.

Operator

[Operator instructions] The next question is from the line of Maheep from Credit Suisse. Please go ahead.

Maheep Mandloi -- Credit Suisse -- Analyst

Hey, good evening. Maheep here from Credit Suisse. Thanks for taking the questions. Just on the PSA for the rest of the one gigawatt, maybe if you can talk about what PSAs do you expect on that? Is it still in that INR2.61 per kilowatt hour with that SECI margin of $0.07 -- sort of seven PSA or it's looking -- how you're thinking about that?

Ranjit Gupta -- Chief Executive Officer

Hi, Maheep. Thanks for the question. So the first 60,000 megawatts tranche is likely to be at the INR 2.61 status. The 1,000 megawatts or the 850 megawatts that I'm talking about approval that has -- we are told they have been approved by the respective boards of the distribution companies are at the INR 2.61 PSA mark.

Maheep Mandloi -- Credit Suisse -- Analyst

Perfect. And for these future projects like how you thinking about the PSAs, PPAs for the future auctions because the solar plus wind hybrid, which you won recently this month was signed at INR2.35, right? So does that threshold, that INR 2.61 for future auctions or how you are thinking about it?

Ranjit Gupta -- Chief Executive Officer

Once the first 3,000 megawatts assigned, then we will -- then SECI starts the process of marketing the next tranche. That's when we will know because I guess, the projects at that time, whatever is the solar tariff around at that time, let's say four or five months down the road, that's how SECI will look at because that's what the distribution companies will ask. The current status that we're talking about are reflective of the pricing that was there a few months back. And when we do the new tranche, the second tranche, it will be reflective of the solar tariffs around there.

Maheep Mandloi -- Credit Suisse -- Analyst

Got it. And maybe just in terms of the timing here, I know that all of these signings or auctions of PSAs with the SECI, and it's obviously a lot when the government has to deal with this right now but in terms of timing or maybe from an equity point, capital needs point of view, when do you really expect to meet that $150 million of equity for these projects? And that we -- how do you -- what plans do you have right now? So what do you thinking about potential options to fund your first gigawatt for yourself?

Ranjit Gupta -- Chief Executive Officer

So, Maheep, as far as the construction is concerned, right, as soon as close to 300 megawatts of the first tranche with the 800 megawatts we get one-third get signed, we will start the process of financial process and so on. As I had mentioned in my last call, we have already started acquiring the land. So the land acquisition is well underway. So we are in a really great position to start planning the product construction on the ground as soon as the power purchase agreements are signed.

As you know, we have two years to then be able to build this project. So, that means that typically the equity requirements, it don't happen about nine to 12 months before the project is commissioned. So therefore, the equity need for us would come in a year from now, assuming that the power purchase agreement is signed this week. Then we will need the equity in about a year from now.

So well before that, we will go out to our investors, to the shareholders, to the stakeholders and figure out how we want to then raise the money but we have plenty of time.

Maheep Mandloi -- Credit Suisse -- Analyst

Got it and that's helpful. And maybe just one last one from me and then jump back in the queue. Like just in terms of the overall supply environment for solar and now you're increasingly getting into wind. How are you thinking about the -- even module supply and prices in turbine supply and prices for next two years?

Ranjit Gupta -- Chief Executive Officer

As far as the wind turbine module prices are concerned, wind turbines, sorry, wind turbine machines are concerns, the pricing is a bit more stable. The technology is a little bit more stable. It is largely dependent on the price of steel whatever little variation happens on quarter-to-quarter basis on the turbine manufacturing is on the account of steel. So that we -- that is how we expect.

And it is easier to -- more easy to predict the cost of wind turbine. As far as the modules are concerned, we understand that they are heavily dependent on the cost of polysilicon. At the moment, we are also in some stabilization in polysilicon pricing. We are seeing that supply is easing up.

And what we hear from the manufacturers is that they expect prices to return to pre COVID level over the next couple of quarters. So, that is what we have [Inaudible] that is what we have to go on. We are going to -- I mean, in India, most of the modules which are going to be procured over the next year or so, will be done through Indian manufacturers. So we are in touch with them too to figure out what their view is on module pricing.

Everybody here seems to be within a couple of quarters as the polysilicon manufacturing comes online, so we will see a moderation in pricing.

Maheep Mandloi -- Credit Suisse -- Analyst

That's really helpful. And actually just a follow-up on that, if I may. What tariffs are embedded in the 2.35 PSA? And that's last one from me.

Ranjit Gupta -- Chief Executive Officer

Very difficult for us to answer that. I don't even know whether I should answer that, so I would like to pass on that, Maheep.

Maheep Mandloi -- Credit Suisse -- Analyst

Sorry, gentlemen. I got to take up offline. Thank you.

Operator

[Operator instructions] The next question is from the line of Moses Sutton from Barclays. Please go ahead.

Moses Sutton -- Barclays Investment Bank -- Analyst

Hi. Thanks for taking my questions. Just continuing on the inverter loading ratio. What should we be using in our models? I think you noted a project is down to 1.4.

Should we assume 1.5 long term? Would you be doing 1.5 for bifacial? And then even on top of that, are you even thinking of using symptom map modules down the road as First Solar has decided to start local manufacturing?

Murali Subramanian -- Chief Operating Officer

So the similar function of this specific site, it's a function of how much clipping that we see, right? So when we built the 600 megawatt Rajasthan 6 project is located in Bikaner where the installation is the 2% or 3% lower than just couple of the 100 kilometers west, where we are building our eight project. So now over to the -- we drop it from 1.5 to 1.4. That's one parameter. The other parameter is of course, the cost of everything involved.

And we trade off the clipping losses versus the incremental investment for the yield, right? And then we -- on your next question, which is on the bifacial side, yes, the module costs are a little bit more expensive. We're also going with bifacial and tracker. We've done some more pilots and we've reviewed the performance of certain other pilots across the country. And we understand the gain that is possible with a tracker on a bifacial modules mounted on the tracker.

So there we are in the range of 1.3 to 1.35 as the overloading. So when it comes to First Solar. Sorry, I thought there was a question on thin film. So on First Solar, I think, let them come on.

I think that they are still planning to then come in with this Series 7. Let's see how that -- the facility sort of gets underway and when they will be ready for production. And at that time, depending on the market, we'll take a view of how that would sort of fit in.

Moses Sutton -- Barclays Investment Bank -- Analyst

Thanks. That's very helpful. And should we think for the inverter loading ratio, should we think of that 1.3, 1.4 range as a better assumption beyond April 2022, when a good portion of what you're building is going to get affected by the safeguard duties or should we not think of it that way?

Murali Subramanian -- Chief Operating Officer

No. I don't think we can think of it that way. Because it's largely driven by the conditions and the yields and the cost of panel, bifacial, tracker, etcetera. It's the cocktail of all of these things which would eventually lead to our decision in terms of whether it's going to be 1.3 or 1.4.

Whenever we have greater yields with bifacial and tracker that then the inverter loading drops. And if you go to the southern latitudes like, say, in Karnataka or Tamil Nadu, you might still go with 1.5, because the overall radiation is a bit low. And so the real effective energy that we clipped, maybe a little lower rate.

Moses Sutton -- Barclays Investment Bank -- Analyst

Got it. Got it. And then for the solar wind hybrid projects, what's the IRR, which you think as the hurdle rate for the business there? Is it bit lower than the mid teens so you can sort of get your footprint there or is it in line with the rest of the portfolio?

Murali Subramanian -- Chief Operating Officer

I think the IRRs would not be too different. They would all be very similar. Although, I don't know how to model some of these things. But there is a phrase that's commonly used, the risks adjusted return.

So I think the adjusted return would all be very similar. So what we do is in case of wind project, we -- the way we model the wind, we built it for the fact that wind can have certain more uncertainties compared to solar. The deviation in installation is varies between just a few percent year-on-year. Whereas in wind, the deviation can then be just a little higher.

So to account for this additional deviation, the energy yield estimates are slightly lower. That's already factored in the EVA study, the yield assessment study. So once that is taken into account, the construction yields are fairly similr. There is nothing more or less.

In fact, solar, the land acquisition chances can be a little more because you need continues land. Whereas in wind the installing of turbines and building the foundations are a little bit more tricky compared to solar. So these things trade off each other and they are not deal breakers. They're not materially different from each other in the overall scheme of things.

So therefore, once you account for the resource variability in wind, which is slightly higher than solar, then beyond that point, I would assume that the returns would be similar for solar, our a wind, or a hybrid.

Moses Sutton -- Barclays Investment Bank -- Analyst

OK. No. Very helpful. And then last one on trackers, we've seen a lot of noise with steel and freight impacting the economics on trackers.

Capex in India is a lot lower than the fully stacked capex in some other countries. How should we think of the tracker cost either on a U.S. cents per watt or as a percentage of the total capex on the project? Of course, this is for projects that are in the upper range, because they're using bifacial already from the cost profile but how should we think of the type of tracker and each cost profile within the broader stack?

Murali Subramanian -- Chief Operating Officer

Good question. The bulk of a tracker is beyond the IT or the technology. The bulk of the cost is actually coming in steel. And unfortunately, that's over the last six to eight months that we have seen very significant rise in steel prices and, therefore, this has pushed up the cost of trackers more than what -- you would have hoped same time last year, for example, right? If you don't account for the increased cost of steel, then the cost of a tracker -- so even if I didn't install a tracker, I have a basic cost, right? So I'm really only doing the incremental cost.

So if I didn't account for the increased increase in steel, then the incremental cost would have probably been in the range of $0.05 or $0.06, which is the steel probably that center.

Moses Sutton -- Barclays Investment Bank -- Analyst

Great. Very helpful. Thank you.

Operator

[Operator instructions][Operator signoff]

Duration: 55 minutes

Call participants:

Vikas Bansal -- Head, Investor Relations

Ranjit Gupta -- Chief Executive Officer

Murali Subramanian -- Chief Operating Officer

Pawan Agrawal -- Chief Financial Officer

Justin Clare -- ROTH Capital Partners -- Analyst

Puneet Gulati -- HSBC -- Analyst

Maheep Mandloi -- Credit Suisse -- Analyst

Moses Sutton -- Barclays Investment Bank -- Analyst

More AZRE analysis

All earnings call transcripts