Adani Energy Solutions Ltd Management Discussions

Global Economic Overview

The global economy displayed a surprisingly resilient performance in 2023, marked by a steady but slow recovery with regional variations. According to the International Monetary Fund (IMF), global growth maintained stability, holding at a modest rate of 3.2%. Despite escalating geopolitical conflicts, higher inflation, prolonged higher interest rates, and volatility in energy prices and food markets, global economic growth has decelerated but not halted. Furthermore, the Red Sea crisis has resulted in the largest rerouting of global trade in decades, causing delays and heightened expenses for shipping companies avoiding a route that traditionally handles 12% of the worlds maritime trade. With the crisis unfolding, its widespread impact on global supply chains is becoming increasingly apparent.

On the brighter side, economic growth in several emerging markets and developing economies has surpassed expectations in 2023. Another silver lining is the strongest recovery of the US economy among major economies, marked by a stronger performance in private consumption, swift containment of a looming banking crisis, tight labour market, and rising wages. The GDP of the US increased from 1.9% in 2022 to 2.5% in 2023. Despite experiencing a contraction in GDP growth of 0.4% in 2023, the Euro Area has shown fortitude in navigating through unprecedented shocks arising from the prolonged Russia-Ukraine war, the trailing effects of tight monetary policy, previous energy costs, and planned fiscal consolidation, managing to avert recession. Furthermore, Chinas economy expanded to 5.2% in 2023 from 3.0% in 2022. The shakier economic growth of China in 2023 is attributed to depression in the real estate market and tepid demand.

As per the International Energy Agency (IEA), the worlds demand for electricity grew by 2.2% in 2023, less than the 2.4% growth observed in 2022. While China and India experienced robust growth in electricity demand in 2023, advanced economies posted declines due to a subdued macroeconomic environment and high inflation, which reduced manufacturing and industrial output.

Global inflation continues to recede at a faster pace from 8.7% in 2022 to 6.8% in 2023. Despite headline inflation experiencing a decline from its unprecedented peaks, core inflation has remained persistent and is expected to decline gradually. Advanced economies are returning to their inflation targets sooner than emerging market and developing economies, fostering optimism for continued easing of financial conditions and improvement of monetary policy frameworks.

Moreover, the average price of Brent crude oil decreased to USD 83 per barrel in 2023, down from USD 101 per barrel in 2022. However, the spot price of Brent crude oil averaged USD 90 per barrel in April 2024 due to escalating tensions in the Middle East, attacks on Russian refineries and voluntary OPEC+ production cuts through Q2 2024. Despite these challenges, crude oil price volatility has remained low for the majority of 2024, attributed to substantial spare crude oil production capacity.

(Source: IMF Economic Outlook, April 2024; IEA; EIA)

Outlook

The Reserve Bank of Indias Monetary Policy Committee (MPC) projects global growth to remain steady in 2024. The IMF forecasts a global growth of 3.2% for both 2024 and 2025.

Region-wise Growth (%)

Region	2023	2024 (P)	2025 (P)
Global Economy	3.2	3.2	3.2
Advanced Economies (AEs)	1.6	1.7	1.8
Emerging Markets and Developing Economies (EMDEs)	4.3	4.2	4.2

(P- Projections) (Source: International Monetary Fund)

The global economic outlook in 2024 will be impacted by elevated interest rates as the war against inflation is not over and continues to be threatened by multiple factors including persistent core inflation, withdrawal of fiscal support amid high debt weighing on economic activity, low underlying productivity growth and economic uncertainties. Furthermore, heightened geopolitical tensions could elevate energy and commodity prices, raise the risks of supply disruptions, and pose downside risks to the global economy. However, with faster disinflation and steady growth, the possibility of a severe economic downturn has diminished, and risks to global economic expansion are broadly balanced. Global headline inflation is expected to decrease to 5.9% in 2024 and 4.5% in 2025.

As per IEA, global electricity demand is expected to rise at a faster average rate of 3.4% annually through 2026 primarily driven by improving economic outlook, ongoing electrification of residential and transport sectors, demand drivers including data centers, etc. The share of electricity in final energy consumption is estimated to have reached 20% in 2023, up from 18% in 2015. While this is in progress, electrification needs to accelerate rapidly to meet the worlds decarbonisation targets.

(Source: IMF Economic Outlook, April 2024; RBI MPC Meeting 2024; IEA)

Indian Economic Overview

Amid a challenging global economic landscape and deteriorating geopolitical conditions, India has been a bright spot. It is the fifth-largest economy in the world and is poised to retain its position as the worlds fastest-growing major economy. Its GDP growth remained buoyant at 7.6% in FY 2023-24 as against 7% in FY 2022-23, supported by robust domestic demand, moderate inflation, a stable interest rate environment, and strong investment activity. Furthermore, an accelerated pace of economic reforms and increased capital expenditure facilitated construction activities and created extensive employment opportunities across the country. The IMF commended Indias economic resilience, robust growth, and notable progress in formalisation and digital infrastructure. Moreover, Indias G20 presidency in 2023 has demonstrated its capability to cater to global needs and provided a platform to address global concerns. India positioned itself as an attractive destination for investments in energy transition initiatives.

Growth of the Indian Economy

	FY 2021-22	FY 2022-23	FY 2023-24 (E)
Real GDP growth (%) at constant (2011-12) prices	9.1	7.0	7.6

(E- Estimates) (Source: Ministry of Statistics & Programme Implementation)

As per the Second Advance Estimates of National Income, FY 2023-24, a double-digit growth rate of 10.7% in the Construction sector and an 8.5% growth rate in the Manufacturing sector have contributed to the GDP growth in FY 2023-24. Moreover, Indias IIP growth during FY 2023-24 stood at 5.8%. The Electricity sector recorded a growth of 6.9%. The Mining and Manufacturing sectors also recorded a higher growth of 8.2% and 5.4% respectively during the same period.

The growth in gross value added (GVA) at Basic (2011-12) Prices is pegged at 6.9% in FY 2023-24 as against 6.7% in FY 2022-23. Furthermore, Indias per capita income is estimated to reach 2.14 lakhs in FY 2023-24, achieving remarkable growth of 8.0%. Rising levels of disposable income have led to an upswing in household consumption, thereby stimulating demand across various sectors.

A positive trend is observed in CPI inflation, which has been on a downward trajectory and eased to 4.85% in March 2024. According to the Reserve Bank of India (RBI), CPI inflation is estimated at 5.4% for FY 2023-24 . The RBI maintains the policy repo rate at 6.50% and stays prepared to implement effective measures to reach the 4% inflation target while supporting economic growth.

The structural interventions implemented by the government will continue to strengthen the infrastructural and manufacturing base, create economies of scale, increase exports and make India an integral part of the global value chain. Make in India has made significant achievements and is now focussing on 27 sectors under Make in India 2.0 to make India a manufacturing hub. India has reported meteoric improvement in Ease of Doing Business and ranked 63^rd among 190 countries. The government has also implemented investor-friendly Foreign Direct Investment (FDI) policy, allowing 100% FDI in most sectors through the automatic route, except specific strategically important sectors. In the power sector, 100% FDI is allowed for generation from all sources (except atomic energy), transmission and distribution of electric energy, and Power Trading under the automatic route.

(Source: Ministry of Statistics & Programme Implementation; Ministry of Finance; RBI MPC Meeting 2024; Ministry of Commerce & Industry)

Outlook

Indias economic outlook is optimistic, with robust domestic demand, a broad-based revival in manufacturing and services sectors, increased capital expenditure and proactive policy measures by the government, and positive business and consumer sentiments, providing impetus to the growth momentum going forward. According to the IMF, the Indian economy is expected to advance steadily at 6.8% in CY 2024 and 6.5% in CY 2025. The RBIs forecast is more optimistic, projecting a higher GDP growth of 7.6% for FY 2023-24 and 7.0% for FY 2024-25. As per the Reserve Bank of Indias forecast, CPI inflation is expected to decline to 4.5% in FY 2024-25. However, volatile food prices hinder the trajectory of disinflation and obscure the inflation forecast.

Potential risks to Indias economic outlook arise from headwinds from geopolitical tensions, political stability, volatility in international financial markets, geoeconomic fragmentation and climate shocks. However, Indias advantageous geopolitical position will help it capitalise on supply chain diversification and reshoring, increase its global competitiveness and boost exports. Amid a volatile global macro environment, the Indian economy is poised to ascend as a global economic powerhouse and is expected to become the third-largest economy in the world by 2030. The Interim Budget 2024-25 outlines a multi-pronged economic management strategy, including infrastructure development, digital public infrastructure, taxation reforms and proactive inflation management. It sets the foundation for the vision of a Developed India by 2047. The government has raised the capital expenditure outlay by 11.1% to 11.1 lakhs crore for FY 2024-25, which would be 3.4% of the GDP. The budget places a strong emphasis on sustainable development and allocates 600 crore for the National Green Hydrogen Mission and 8,500 crore for the development of solar power grid infrastructure. Furthermore, the initiative Pradhan Suryodaya Yojana (PMSY) aims to install rooftop solar power systems in one crore households, enabling them to obtain up to 300 units of free electricity each month. Moreover, the budget emphasises expanding and strengthening the electric vehicle ecosystem by supporting manufacturing and charging infrastructure. With these measures, the increased budgetary allocation is poised to foster the development of a robust ecosystem for renewable energy.

(Source: Ministry of Finance, IMF Economic Outlook Update, January 2024; Economic Times)

Global Power Sector Overview

As per IEA, the share of electricity in total energy consumption is estimated to have reached 20% in 2023, up from 18% in 2015. Global electricity demand reflected diverging trends in 2023. It grew by a relatively modest 2.2% in 2023, down from 2.4% in 2022 due to reduced consumption in advanced economies. Growth, however, is on course to accelerate to 3.4% by 2026, with emerging markets continuing to dominate growing electricity demand. This growth will be supported by the ongoing electrification of the residential and transport sectors, anticipated recovery in industry as well as notable expansion of the energy intensive Data Center, Artificial Intelligence, and heating/cooling requirements. Further, electrification and grid strengthening need to accelerate rapidly to enhance reliability and meet the decarbonisation targets.

China posted a growth of 6.4% in electricity demand in 2023, compared to 3.7% in 2022. Growth in Chinese electricity consumption was driven higher by the services and various industrial sectors, including manufacturing of PV modules, electric vehicles, and the processing of associated materials.

Electricity demand in the United States, the worlds second largest consumer behind China, declined by 1.6% in 2023, after recording 2.6% growth in 2022. A major contributor to the downturn was the milder weather and a slowdown in the manufacturing sector. Winter months were also warmer, with the lowest number of heating degree days recorded since 2012.

Electricity demand in Japan declined by 3.7% in 2023 compared to a 1% increase in 2022. Despite high temperatures boosting cooling demand in the summer, the slowdown in the manufacturing sector and continued energy saving measures exerted strong downward pressure on electricity consumption. In the European Union, following a 3.1% decline in 2022, electricity demand fell by a further 3.2% in 2023. Lower industrial electricity demand was the most important factor, as in the previous year.

Distributed generation has been increasing in many parts of the world. This is most notably reflected in rising rooftop solar PV installations and growing amounts of self-consumption from behind-the-meter solar PV.

Global smart meter investments doubled in 2022 compared to 2015, with the number of smart meters exceeding 1 billion worldwide. China accounts for more than half of the total figure, followed by the European Union with 16%, and the United States with a share of 13%. India aims to replace 250 million conventional meters by 2026 and counts close to 10 million smart meters as of FY 2023-24.

Over the next three years, low-emissions generation is set to rise at twice the annual growth rate between 2018 and 2023 - a consequential change, given that the power sector contributes the most to global carbon dioxide (CO2) emissions today.

The share of renewables in electricity generation is anticipated to rise from 30% in 2023 to 37% in 2026, with the growth largely supported by the expansion of cheaper solar PV. Renewables are expected to generate more than one-third of the worlds electricity in 2025, overtaking coal as the largest source of supply. Low-carbon sources - renewables and nuclear together - are expected to account for 46% of the worlds electricity generation by the end of 2026, rapidly approaching the halfway mark, up from 39% in 2023.

This rapid increase in electricity demand from energy-intensive sectors like Data Centers, AI, Cryptocurrencies, and Cooling/Heating requires clean sources of energy to meet the worlds decarbonisation targets. The growth in global demand coupled with the increasing share of Renewable Energy will further accentuate the requirement of a Power Transmission and Distribution (T&D) network for evacuation of power and supplying it to demand centers. For the 2022-30 period, T&D spending is projected to increase from USD 370 billion annually to USD 460 billion annually rising at a CAGR of 3%, with distribution cornering ~70% of the projected investment.

(Source: IEA Electricity 2024, IHS Markit)

Indian Power Sector Overview

Electricity demand in India rose by 9.5% in FY 2022-23. Continued rapid economic expansion and robust demand for space cooling were the major pillars of growth. After two consecutive years of strong gains, Indias electricity consumption surpassed that of Japan and Korea combined at the end of 2023. Bolstered by a fast-growing economy and powered by increased electrification, Indias electricity demand is expected to rise by an annual average of 6.5% over the 2024-2026 period as per IEA.

(Source: IEA Electricity 2024)

As per CEA, in the FY 2023-24, India witnessed a 8.1% year-on-year increase in power consumption, reaching a total of 1,626 billion units (BU). Comparatively, the power consumption in the previous fiscal year 2022-23, stood at 1,504 BUs.

India has one of the worlds most diverse power sectors, which is both extensive and intricate. The country utilises a variety of power generation sources, including traditional sources such as coal, lignite, natural gas, oil, hydro, and nuclear power, as well as sustainable non-conventional sources like wind, solar, and even agricultural and domestic waste. In recent years, the entire electricity supply chain has undergone a phase of transformation in the process of advancing reforms in the sector. India is the only country among the G20 nations that is on track to achieve the targets under the Paris Agreement.

Considering the robust expansion, the countrys coal-fired power generation is expected to rise by an average of 2.5% annually in 2024-2026, and 68% of the demand by 2026 will be met by coal which will serve as base load.

*Source: CEA, NPP

The Government of India has set an ambitious target of 500 GW of Renewable Energy (RE) along with an aim of meeting 50% of installed capacity from non-fossil sources by 2030. Further, India has also set a target to reduce the emission intensity of its GDP by 35% by 2030 (from 2005 levels). This will enable diversification of Indias energy mix with increasing share of renewable resources.

However, with increased RE installed capacity, the intermittent nature of RE needs to be complemented by technologies having flexible features to achieve the 500 GW target by 2030. This makes it crucial to have adequate Energy Storage System (ESS) capacity in the energy mix which is envisaged to play two important roles; one corresponds to the role of meeting RE RTC (Round the Clock) power requirement, and second would be to store the surplus power of intermittent nature generated from RE projects and discharge the same later when needed i.e. utilising the surplus RE generation to meet the load as and when required.

The government is also focussing on domestic manufacturing of renewable energy sources with programmes including "National Programme on High Efficiency Solar PV Modules” with a project outlay of Rs. 19,500 crore for implementation of PLI scheme for achieving GW scale in high efficiency solar PV modules and "National Green Hydrogen Mission” which aims to make India a hub for green hydrogen and its derivatives with a target to bring in Rs. ~8 lakhs crore investments by 2030.

(Source: IBEF, CEA, Ministry of Power)

Outlook

The Indian power sector is experiencing significant changes that are redefining the industrys outlook. The future of the power industry in India appears bright, with sustained economic growth continuing to drive electricity demand. The governments Power for All initiative has accelerated capacity expansion in the country.

As per CEA estimates, Indias power generation capacity will reach 817 GW by 2030. Also, by 2029-30, CEA estimates that the share of renewable energy generation would increase from 18% to 44%, while that of thermal energy is expected to reduce from 75% to 56%.

The government aims to ensure 24x7 reliable energy access and accelerate energy transition by shifting to cleaner and renewable energy sources.

Source: (IBEF, CEA)

Indian Power Transmission and Distribution Sector Overview and Outlook

Transmission

India has often faced a situation in the past wherein its power transmission capacity has not kept up with its power generation capacity. However, in recent times, there has been a growing push to expand Indias transmission network to keep pace with rising electricity generation, escalating demand for electricity, and the development of new urban and semi-urban areas, as well as the emergence of new electricity generation locations, particularly in the renewable energy sector.

To achieve these goals, Indias national transmission grid needs to be significantly upgraded to support the widespread adoption of renewable energy. India has abundant renewable energy resources that are unevenly distributed across the country. To meet the demand from states with limited renewable energy resources, a broadening of the national transmission network was necessary, and this has been validated in practice. However, to ensure a balance between the intermittent nature of renewable energy and consistent power supply, robust interstate grid connectivity and effective electricity storage are also required. The complexities of Indias grid demonstrate that a lack of transmission network infrastructure could hinder the adoption of renewable energy, and there is an increasing risk that renewable energy utilisation could be suboptimal without proper grid discipline and a modern transmission network.

The power transmission sector will require even greater capacity to effectively transmit power from regions with high levels of renewable energy to the rest of the country. As a significant step towards successfully achieving the planned RE capacity by 2030, a transmission system has been planned for ~537 GW of RE capacity. As per CEA, the planned transmission system for 500 GW RE will require an investment of 2.44 lakhs crore. This would entail additional transmission lines of a total length of 50,890 ckm and additional transformation capacity of 4.33 lakhs MVA. Further, the inter-regional capacity will increase to about 150 GW by 2030 from 112 GW at present.

Based on the CEA Draft National Electricity Plan - Volume 2, about 1.23 lakhs ckm of transmission lines and 7.10 lakhs MVA of transformation capacity in the substations (at 220 kV and above voltage levels) are required to be added during the period 2022-27 with investment of around 4.76 lakhs crore in the power transmission sector.

India has added 14,203 ckm and 70,728 MVA of new transformation capacity in the fiscal year 2023-24 as per CEA.

Indias Transmission Line Capacity Addition

Year	FY 2019-20	FY 2020-21	FY 2021-22	FY 2022-23	FY 2023-24
Cumulative Capacity (in CKM)	4,25,071	4,41,821	4,56,716	4,71,341	4,85,544

Indias transformation capacity addition

Year	FY 2019-20	FY 2020-21	FY 2021-22	FY 2022-23	FY 2023-24
Cumulative Capacity (in MVA)	9,67,893	10,25,468	10,04,450	11,80,352	12,51,080

The transmission sector in India is becoming more competitive. The growing involvement of new transmission players is expected to reduce costs, introduce updated technologies, and encourage timely completion of projects. The private sector is playing a critical role by investing significant capital in the creation of transmission networks, taking advantage of lower global interest rates, reduced risk, annuity model and extended infrastructure yields. This approach will also free up finite resources of state governments that can now be allocated to strengthening other social sectors such as health or education.

(Sources: IEEFA, PV magazine, Ministry of Power)

• Utilities improved their AT&C losses: AT&C losses have reduced to 15.4% in FY 2022-23; 6% lower than 21.2% in FY 2020-21 and 1% lower than FY 2021-22. Improvement was driven by an increase in both billing efficiency, and collection efficiency. The billing efficiency stood at 87% (up by 1.3% from FY 2021-22) and collection efficiency stood at 97.3% (up by 4.4% from FY 2021-22). The notable increase in collection efficiency was driven by better tariff subsidy disbursal by states and improved customer collection process.

• ACS-ARR Gap: The gap reduced from 0.83/unit in FY 2020-21 to 0.55/unit in FY 2022-23.

India also has interconnection links with neighbouring countries. At present, about 4,100 MW of power is being exchanged with the neighbouring countries through cross-border links and the same is likely to increase to about 7,000 MW by the end of 2026-27. Interconnection between India and Sri Lanka is in the discussion stage along with strengthening the existing interconnections with Nepal, Bangladesh and Bhutan.

Distribution

The Indian power sector has accomplished remarkable feats over the last few years, from nearly achieving universal electrification, creating a national grid, launching power exchange markets, to turning power surplus. Despite these achievements, the industry is battling significant challenges, particularly in the distribution sector.

The Indian power distribution sector is burdened with challenges - including unreliable supply, fiscal indiscipline, and lack of desired capital expenditure spend. Despite various reforms programmes including R-APDRP, IPDS, UDAY, FRP, etc. and bailout packages of lakhs of crore, accumulated DISCOMs debt have increased to 6.87 lakhs crore in FY 2022-23. However, the governments recent efforts have led to positive momentum with measures including LPS Regulations, forcing states for subsidy disbursement on time, RDSS scheme, etc.

Power distribution is a decisive driver of the power sectors health and the government has committed to turn it around by undertaking several reform initiatives to transform the sector. As per the 12^th Integrated Rating Report of power distribution utilities by PFC:

• Government made great efforts to support the sector: The state government continued to disburse 100% tariff subsidy booked. Aggregate subsidy disbursal was higher than the subsidy booked during the year.

• State regulators were more responsive: Regulators issued timely tariff orders for 26 states and union territories (i.e. 65 utilities out of 72) for FY 2023-24, up from 20 in FY 2022-23 and only 14 in FY 2021-22.

• Debt increased but debt as percentage of revenue booked reduced: The total sectoral debt increased by 11%, from Rs. 6.17 lakhs crore in FY 2021-22 to Rs. 6.87 lakhs crore in FY 2022-23. Debt as a percentage of revenue, which was 82% in FY 2020-21, has shown improvement, decreasing to 76% in FY 2021-22 and further to 73% in FY 2022-23.

(Source: PFC 12^th Integrated Rating Report of power distribution utilities)

Government Initiatives &

Policy Interventions

Revamped Distribution Sector Scheme (RDSS)

The Government of India launched the Revamped Distribution Sector Scheme (RDSS) to help DISCOMs improve their operational efficiencies and financial sustainability by providing result-linked financial assistance to DISCOMs to strengthen supply infrastructure based on meeting pre-qualifying criteria and achieving basic minimum benchmarks. RDSS has an outlay of ~ 3.03 lakhs crore over 5 years i.e., from FY 2021-22 to FY 2025-26. The outlay includes an estimated Government Budgetary Support (GBS) of ~ 0.98 lakhs crore. The main objectives of RDSS are:

• Reduction of AT&C losses to 12-15% by FY 2024-25

• Reduction of ACS-ARR gap to zero by FY 2024-25

• Improvement in the quality, reliability, and affordability of power supply to consumers through a financially sustainable and operationally efficient distribution sector Smart metering is the critical initiative envisaged under RDSS with 250 million prepaid smart meters are targeted to be installed during the Scheme by 2026. Along with the prepaid smart metering for consumers, system metering at the feeder and DT level with communicating feature along with associated Advanced Metering Infrastructure (AMI) would be implemented under TOTEX mode (Total expenditure includes both capital and operational expenditure) thereby allowing the DISCOMs for measurement of energy flows at all levels as well as energy accounting without any human interference.

Capital investment is also budgeted for loss reduction works, system strengthening works to cater to load growth and modernisation to have a smart distribution system under RDSS. Loss reduction works majorly include the replacement of bare conductors with AB cable, HVDS systems, feeder bifurcation, etc. while system strengthening works include the creation of new substations, feeders, upgradation of transformation capacity, cables, etc. Modernisation works include ADMS, DMS, IT/OT, ERP, GIS enabled applications, ADMS etc. to make distributions systems smarter.

As a result of reform measures taken under the scheme, AT&Cs losses have come down. The direct impact of this will be on reducing the ACS-ARR gap which will ultimately benefit end consumers for getting cost effective and quality supply.

PM Surya Ghar Muft Bijli Yojana

Launched in February 2024, this scheme aims to provide free electricity to households in India. Under it, households will be provided with a subsidy to install solar panels on their roofs. The subsidy will cover up to 60% of the cost for solar systems up to 2 kW and an additional 40% for systems beyond 2kW to 3 kW. With an outlay of 75,021 crore, the scheme is expected to benefit 1 crore households across India.

The benefits of the scheme include:

• Free electricity for households

• Reduced electricity costs for the government

• Increased use of renewable energy

• Reduced carbon emissions

Electricity (Late Payment Surcharge and Related Matters) Rules, 2022

These rules give relief to the DISCOMs as well as electricity consumers, and at the same time generating companies also get the benefit from assured monthly payments, which will help the whole power sector to become financially viable. Provision has been made for one-time scheme for liquidation of arrears, enabling DISCOMs to pay total outstanding dues including Late Payment Surcharge (LPS) as on the date of notification, in up to 48 monthly instalments. No LPS on past outstanding dues will be applicable in case of timely payment of these instalments. It will bring discipline to timely payment of dues.

Electricity (Promoting Renewable Energy through Green Energy Open Access) Rules, 2022

To remove barriers in the availability and utilisation of RE and to address the issues that have hindered the growth of open access for a long time, Green Open Access Rules, 2022 have been notified in June 2022. The Rules reduce the Open Access limit from 1 MW to 100 kW, which paves the way for small consumers also to purchase RE, with no limit for captive consumers.

Renewable Purchase Obligation (RPO)/Renewable Consumption Obligation (RCO)

The Ministry of Power issued a notification in October 2023, which outlines the minimum share of renewable energy consumption by DISCOMs as a percentage of total electricity consumption, with specified targets for various types of renewable energy sources.

Rights of Electricity Consumers

• The Ministry of Power promulgated the Electricity (Right of Consumers) Rules 2020. These Rules lay down the time limits and standards for the various services to be provided by the distribution companies across the country or otherwise they will have to pay compensation to their consumers. These Rules specify the obligations of the licensee and set the practices that must be adopted by the licensee to provide efficient, cost-effective, reliable, and consumer-friendly services to the consumers.

• The Government of India has made amendments to the Electricity (Rights of Consumers) Rules, 2020 in June 2023, bringing an important change to facilitate more consumption of power from renewable sources by the introduction of Time of Day (ToD) Tariff, where electricity prices vary based on the time of day, to give price signal to change the consumption behaviour of consumers while incentivising the use of more electricity during solar hours. The ToD mechanism aims to encourage consumers to manage their load and reduce electricity bills, as well as facilitate better integration of renewable energy sources by incentivising shifting of demand to high renewable energy generation periods.

• Government has also simplified the rules for smart metering. To avoid inconvenience/harassment of the consumers, the existing penalties for the increase in consumer demand beyond the maximum sanctioned load/demand have been reduced. As per the amendment in the metering provision, post-installation of a smart meter, no penal charges will be imposed on a consumer based on the maximum demand recorded by the smart meter for the period before installation date. Moreover, smart meters shall be read remotely at least once a day and the data shall be shared with consumers to enable them to make informed decisions about consumption of electricity.

Adani Energy Solutions Company Overview and Outlook

Company overview

The transmission and distribution arm of the Adani Portfolio, Adani Energy Solutions Limited (Adani Energy Solutions) (formerly Adani Transmission Ltd) is Indias largest private transmission and distribution company and one of the largest smart meters integrators. It is focussed on pursuing the growing opportunities in the transmission, distribution, and smart metering sectors aimed at strengthening Indias energy security and making the country self-sufficient in meeting its growing energy requirements.

The Adani Group forayed into the power transmission segment in 2006, with the establishment of Adani Energy Solutions Limited (erstwhile Adani Transmission Limited) to facilitate the evacuation of power from Adanis Mundra thermal power plant. For the power evacuation, the company has commissioned 3,800 circuit kilometres (ckm) transmission line, connecting Mundra to Dehgam, Mundra to Mahendragarh, and Tiroda to Warora.

As the demand for power transmission continued to grow, Adani Energy Solutions Limited (erstwhile Adani Transmission Limited) saw expansion opportunities and was formally established in 2015 as a separate entity carved out from Adani Enterprises Limited (AEL). Adani Energy Solutions pursued various growth strategies including acquiring existing transmission assets, such as GMRs transmission assets in Rajasthan in 2016, Reliance Infrastructures transmission assets in Gujarat, Madhya Pradesh, and Maharashtra in 2017, and KECs Bikaner-Sikar transmission assets in Rajasthan in 2019.

Adani Energy Solutions Limited (as Adani Transmission Limited) expanded its presence in the power distribution sector by acquiring Reliance Infrastructures power generation, transmission, and distribution business in August 2018. Adani Electricity Mumbai Limited (AEML) currently has a distribution network covering over 400 square kilometres and serves over 12 million consumers in Mumbai suburbs and Thane district. The Company has set an ambitious target of owning 30,000 circuit kilometres of transmission assets by 2030.

Adani Energy Solutions Business Outlook

Adani Energy Solutions is well-placed to capture future growth through multiple avenues:

• Robust under-construction pipeline worth Rs. 17,000 crore in Transmission and Rs. 27,195 crore in Smart Metering

• Distribution: Expansion into newer geographies through parallel licenses (Navi Mumbai, Greater Noida, Mundra Taluka)

• Strong growth potential in the Smart Metering business

• Annual capex plan of Rs. 5,000 to Rs. 7,000 crore of which Rs. 1,300 crore to Rs. 1,500 crore to grow RAB at AEML business Attractive Industry Opportunity Backed by Strong Policy Support

• Mandatory competitive bidding introduced since 2006 (TBCB) has created a level playing field for private players

• Identified TBCB opportunity in near-term is about Rs. 1,109 billion/USD 13 billion under RFP/RFQ stage RE Penetration & General Network Access to Boost System Strengthening

• 500 GW Target by 2030

• Rs. 2.4 lakhs crore (USD 30 billion) Transmission opportunity by 2030 (as per CEARs.s report dated December 2022) which further increased to Rs. 4.76 lakhs crore as per CEAs Draft National Electricity Plan - Volume 2

• GNA Regulations for access to inter-state transmission systems since 2017 Growth Areas Adani Energy Solutions Distribution division intends to position itself as the electricity supplier of choice with:

• Further RAB additions in AEML

• Expansion of MUL DISCOM licence area

• Parallel Licensing in more than 3 new regions with potential of 9x growth in the distribution area

• Distribution Platform for Group consumers and commercial and industrial customers

Revamped Distribution Sector Scheme (RDSS)

• Target of 250 million smart meters by 2026

• Outlay of ~ 3 Tn (RDSS plan) with ~1 Tn Gross Budgetary Support

• Consumer awareness for electricity consumption

• Tendering through competitive bidding Cooling Solutions Business Outlook

Four key segments to drive centralised cooling demand:

• Commercial Real Estate - To experience growth from 0.6 billion sq. ft. (2019) to 1 billion sq. ft. (2030)

• Industrial Cooling - The global industrial cooling market is expected to reach ~USD27 billion by 2030 at a CAGR of 5%

• Data Centers - The data center cooling market will grow at a CAGR of 22% to USD700 million over the next 5 years

• Airports - The Indian air passenger traffic will double (v/s pre-COVID level) by 2030

• Tendering through competitive bidding Sources: Cooling India, ICAP, Praxis, CREDAI/CBRE, CEA, IEA, EIA, AdaniConneX, Boeing, Internal analysis

Key Operational Highlights

Adani Energy Solutions Limited (Adani Energy Solutions), with effect from July 27, 2023, is the new name for the erstwhile Adani Transmission Ltd. This has been done to reflect the Companys overarching offering in multiple facets of the energy domain.

Transmission

• Added 1,244 ckm to operational network during the year, with total network at 20,509 ckm

• Maintained robust system availability of 99.6%

• Operationalised Warora-Kurnool, Karur, Kharghar- Vikhroli, and Khavda-Bhuj lines during the year

• During the year, added KPS - 1 (Khavda Pooling Station), Sangod Transmission line, Khavda Phase - III, and Line & substation augmentation projects under RTM basis, with a total contract value of ~4,300 crore

Smart Metering

• During the year, received contracts of 21 million meters from Andhra, Maharashtra, Bihar and Uttarakhand DISCOMs

• The under-implementation pipeline now stands at 22.8 million smart meters, comprising nine projects with a contract value of over Rs. 27,195 crore

AEML Distribution Business

• Adani Electricity Mumbai made history on November 12, 2023, during the festival of Diwali by powering the city of Mumbai with 100% renewable electricity for four hours

• AEML ranked#1 utility (second year in a row) for 2023 in the 12^th edition of Integrate Rating of DISCOMs (a joint study by the MoP, McKinsey, PFC)

• AEML, was rated A in National Consumer Service Ratings by the Ministry of Power out of the 62 DISCOMs evaluated across India

Financial Performance

Particulars	FY 2021-22	FY 2022-23	FY 2023-24
Operational Revenue (Rs. crore)	11,258	12,149	14,217
Total EBITDA (Rs. crore)	5,493	6,101	6,322
Comparable PAT (Rs. crore)*	1,028	1,071	1,197

*Comparable PAT excludes all one time items like regulatory income, provisions, bilateral charges

Description

Revenue

• Revenues witnessed a double-digit growth of 17% on account of the contribution from the newly operationalised transmission assets, commissioning of elements at North Karanpura and MP-II package lines and an increase in the units sold because of higher energy consumption in the distribution business at Mumbai and Mundra

• Strong transmission system availability of 99.6% at the portfolio level

• AEML, the Mumbai distribution business witnessed an increase in the energy consumed by 9.4%. It saw one of the lowest distribution losses of 5.29% in its history and added new consumers, reaching 3.18 million on the back of reliable and affordable power supply

EBITDA

• The total EBITDA increased by 4% to 6,322 crore for FY 2023-24 with incremental revenue contribution from Warora-Kurnool, Karur, Kharghar-Vikhroli and MP-II lines and steadily regulated EBITDA from the Distribution business. The transmission business continues to maintain the industrys leading EBITDA margin of 91%

Key Ratios:

Particulars	FY 2021-22	FY 2022-23	FY 2023-24
Debt-Equity Ratio	2.71	2.68	2.70
Return on Equity/ Net Worth	11.75	10.78	9.0
Net Debt/EBITDA	4.2	4.0	3.8

Description

Net debt to equity ratios are almost stable. ROE is slightly deeper because in past we had one time revenue, if we remove than return on equity are stable.

Net debt to EBIDTA is stronger due to under construction projects operational during year.

Risk Governance and Oversight

Adani Energy Solutions manages risks through a collaborative effort with participation from the Board-level committees, departments, and skilled professionals. The Risk management process is driven and overseen by the Board at the top and assisted by the Group-level statutory Audit Committee and Risk Management Committee (RMC). These statutory committees engage with the Management Risk Committee (MRC) to supervise the risk management framework and its operation, including the review of risk functions, policies, practices, guidelines, and procedures. The Chief Risk Officer (CRO), who reports directly to the CEO, is the custodian of the Risk Identification and Management process, with dedicated responsibilities at the operational level. The engagement from the Chief Risk Officer, Management Risk Committee (MRC), Business Risk Team (BRT) and Function Risk Committees (FRCs) at the department level strengthens our risk management process.

Functional Risk Committees (FRCs)

Human Resources

Adani Energy Solutions market leadership is reinforced by its human resource practices. The Company invests in both formal and informal training, as well as on-the- job learning. It emphasises employee engagement by providing an enriched workplace, challenging job profiles, and regular dialogues with management. The Company has one of the highest employee retention rates in the industry, creating leaders from within and strengthening its prospects. As of March 31, 2024, the company had 4,959 permanent employees on a consolidated basis.

Internal Control Systems and their Adequacy

Adani Energy Solutions has effective internal control procedures appropriate for its size and operations. The Board of Directors is responsible for the internal control system and ensures that it is adequate, effective, and applied properly. The Companys internal control system is designed to ensure management efficiency, measurability, and verifiability, reliable accounting and management information, compliance with all applicable laws and regulations, and the protection of the Companys assets. This aim is to promptly identify and manage the risks faced by the Company, including operational, compliance-related, economic, and financial risks.

Cautionary Statement

The statement made in this section describes the Companys objectives, projections, expectations, and estimations which may be forward-looking statements within the meaning of applicable securities laws and regulations.