Emeren Group Ltd

Hello, ladies and gentlemen. Welcome. Thank you for standing by for Renesola Power's second quarter 2022 earnings conference call. Please note that we are recording today's conference call. I will now turn over the call to Mr. Yuji Izai, managing director of the Blue Shirt Group. Please go ahead, Mr. Izai.

Thank you, operator, and hello, everyone. Thank you for joining us today to discuss our second quarter 2022 results. We released our shareholder letter after the market closed today. It is available on our website at ir.renesolapower.com. There is also a supplemental slide deck posted on the website that we will reference during our prepared remarks. On the call with me today are Mr. Yuen Lu, Chief Executive Officer, Mr. Ke Chen, Chief Financial Officer, and Mr. John Yuen, CEO of North America. Before we continue, please turn to slide two. Let me remind you that remarks made during this call may include predictions, estimates, and other information that might be considered forward-looking. These forward-looking statements represent Rena Sola Power's current judgment for the future. However, they are subject to risks and uncertainties that could cause actual results to differ materially. Those risks are described under risk factors and elsewhere in Rena Sola Power's filings with the SEC. Please do not place undue reliance on these forward-looking statements, which reflect Rena Sola Power's opinions only as of the date of this call. Minnesota Power is not obligated to update on any revisions to these forward-looking statements. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in U.S. dollars. With that, let me now turn the call over to Mr. Yumen Wu.

Yumen? Thank you, Yuja, and thank you for joining our second quarter earning call. Today, I would like to start by giving a quick update on our second quarter results. and then touch on recent trend in solar industry and the general energy market. After that, Ke, our CFO, will review our financial results for Q2 in detail and cover our guidance for Q3 and the full year. Then we'll be joined by our US CEO, John, for the Q&A. Q2 revenue was 8.2 million, driven primarily by the energy production from our China IPP assets, and the project sales in the US. The lower than expected revenue was due to the delays in closing of the project sales in the US. Gross margin for Q2 was 45% on higher mix of IPP revenue. EBITDA was 2.4 million. Looking forward, we are extremely optimistic about growth opportunities as a solar industry is benefiting from strong tailwinds such as rising PPA price and a favorable regulatory environment in Europe and in the US. These tailwinds plus our robust product pipeline and our strong execution track record gives us confidence that we will be able to achieve our strategic goals. To be more specific, Let me start with our largest market, Europe. In Q2, European Power Purchase Agreement or PPA prices for solar projects increased by 19% from the previous sequential quarter and 47% year-over-year. Even with these price increases, solar PPAs continue to remain attractive relative to the significantly higher wholesale energy price. For instance, in June, Poland's average wholesale price of electricity increased over 300% to about 198 euros per megawatt hour from about 55 euro per megawatt hour two years ago, before the Russian-Ukraine conflict began. This emerging energy crisis continues to urgently drive the EU energy policies towards energy independence and is providing a major tailwind to renewable energy projects across Europe. In our second largest market, the United States, we are seeing a similar price trend in solar industry due to high demand for solar PPAs. In Q2, solar prices increased by over 8% from the previous quarter for all U.S. independent system operators in general. Further, on the regulatory front, we welcome the passage of the Inflation Reduction Act into the law in mid-August, which earmarks $369 billion for U.S. energy security and fighting climate change and makes it the biggest investment in clean energy ever made in U.S. history. The law includes many tax incentives for solar and storage deployments, including independent storage facilities, investments in domestic solar manufacturing, and other critical energy provisions. The Solar Energy Industry Association believes this law will create a stable policy environment for solar energy development and will set the foundation to drive the solar industry towards its goal of 30% of the U.S. electricity generation by 2030, about 4% today. We believe this favorable regulatory movement in solar industry will drive up our revenue and margin opportunity of our pre-NTP and NTP project pipeline across Europe and North America. In terms of China, the resurgent COVID and lockdown in Q2 continue to affect our business activities and supply chains. In Q2, we only installed three megawatts and only 6.6 megawatts during the entire first half. Nevertheless, for the remainder of the year, we do expect activities to begin peaking back up. For the full year 2022, we want to reiterate our expectation of building up three gigawatts of project pipeline with a significant portion of the growth coming from Europe due to favorable policy support and increasing energy demand. We target growth of the company mid- to late-stage pipeline to 5 gigawatts by the end of 2024. In addition, as part of our long-term growth plan, We are also building IPP projects and looking for M&A opportunities across Europe to take advantage of our higher solar PPA prices and the favorable regulatory environment. We are targeting to have approximately 100 megawatts in Europe by mid 2023. To sum up, the future looks bright for solar energy. We believe we are well positioned to capitalize on accelerating solar adoption across Europe and North America. Even our deep expertise in developing and operating solar projects, our extensive network of industry partnerships throughout Europe, our well-capitalized balance sheet, and our unmatched track record in closing financing transactions and profitably monetizing projects we are increasingly optimistic about our goal of becoming a leading global solar developer. While we are extremely optimistic about the long term, we are also aware that the current energy crisis and inflation in Europe is causing significant instability in the region and increasing risks of recession. We remain cautious and extremely focused over the near term as the situation in Europe evolves. With that, I will now turn the call to our CFO, Ke Chen. Ke, please.

Thank you, Yiming. And thanks everyone again for joining us on the call today. As a reminder, some of the metrics we discussed today are non-GAAP financial measures. We use non-GAAP measures because we believe they provide useful information about our operating performance that should be considered by investor along with the GAAP measure. A non-GAAP to GAAP reconciliation is included in our shareholder letter. Let's begin with our Q2 financial high on slide 17. Revenue was 8.2 million up 134% sequentially and down 56% year-over-year. Revenue for the quarter was primarily driven by our China IPP assets, as well as the sale of three NTP projects in U.S. GAAP's gross margin for the quarter was 45% above our guidance range for the full year, as revenue mostly was attributed to high-margin IPP assets. Q2 operating expense was $3.9 million, Slightly higher than $3.4 million in Q1 2022 and lower than $4 million from one year ago. The sequential increase in our OPEX was primarily due to the cost associated with implementation of a new ERP system and the one-time financing related cost for our European market. On a long gap basis, Q2 operating expense was $3.3 million compared to 2.7 million in Q1, 2022 and 2.9 million in Q2, 2021. Moving down to our bottom line. GAAP lead loss in Q2, 2022 was 0.2 million loss. Earnings per ADS was zero compared lead loss per ADS of 3 cents in Q1 and lead income per ADS of 10 cents in Q2, 2021. Cash used in operating activity was $7.9 million. Cash used in investing activity was $2 million. And cash used in financing activity was $4.9 million. Now let's review the balances shown on slide 20. Our financial position remains solid and strong. Cash balance was $208 million, slightly lower than end of the first quarter 2022. our debt to asset ratio at the end of Q2 remain low and household level of 8.3%. Furthermore, last week, we announced a share repurchase agreement with Renaissance Singapore that will buy back 7 million ADS and price of $6 per ADS, totaling 42 million US dollars through a privately negotiated transaction. Separately, Shar Capital, One major shareholder of Renault Solar Power will purchase one million ADS from Renault Solar Singapore and a price of six per ADS. This share buyback highlights our board and management teams' confidence in our business and the growth opportunity ahead of us. Now let's cover guidance as shown on slide 25. For the second half of 2022, We anticipate the project sales will accelerate throughout the remainder of this year. We are re-illustrating our expectation for full-year revenue to be in the range of 100 to 120 million. For full-year gross margin, we continue to expect will be 20 to 25%. For full-year net profit, we continue to talk 9 to 10 million, which is in line with our prior guidance of at least 30% gross. For Q3, we expect revenue will be between $22 million to $25 million, and our Q3 gross margin to be between 20% to 24%. Thank you, and now we would now like to open up the call for any questions that you may have for us. Operator, please go ahead.

Thank you. As a reminder, to ask a question, you will need to press star 1 1 on your telephone. We stand by while we compile the Q&A roster. Our first question comes from Philip Chen with Roth Capital Partners. You may proceed.

Hi, everyone. Thanks for taking my questions. First one is on the implied Q4 revenue guide. You know, last quarter, I think there was a $70 million implied Q4 based on the Q2 and Q3 outlook you gave from the Q1 call. Now it's a little bit higher with the Q2 falling short of guidance, you know, 75 million-ish. And so, just wanted to understand what the risks were or are to the Q4 guide or to the Q4 outlook given, you know, it's even higher now and what percentage of Q4 could actually push into 2023. Last quarter, you guys talked about, you know, having a substantial number of smaller, you know, one megawatt projects that would not make or break the guidance. And so you would spread the risks, you know, more evenly with many of these megawatt projects. And so just wanted to check in to see if that's still true. And if you think the risk is greater now for Q4 versus last quarter. Thanks.

Thank you, Phil. It's a good question. At this time, we are in the busy construction process for our projects in Europe, especially in Poland and Hungary. We are extremely confident that with the smooth construction being worked out by the European team, we feel it's very confident that we'll achieve the numbers as we guide it. As you mentioned, another point to mention is, as those are all the small-scale projects, mostly one-megawatt deals, after we acquire or procure most of the BOS modules, and most of the modules are already stored in our inventory, and some are being shipped, we feel confident the construction will be in place on time.

Great. Okay, thanks. Can you give us a sense for what percentage of your Q4 guidance, implied Q4 revenue, comes from these one megawatt and smaller projects? Is it half of it? Is it 20% of it? Or is it, you know, maybe something like 75% of it?

Literally, I think, about 80%.

Okay. Great. That's really, really useful. Thanks.

And then as it relates to the 2020... And by the way, let me add, Phil, let me add one more point. Also in Q4, we will continue our project sales process in both US and Europe. So that's what I mean, like around 20, 25% of the top line will be coming from the sales.

Great. Okay. Thank you, Yiming. And then as it relates to 2023, last quarter, you guys highlighted that the business could grow revenue maybe 20-plus percent year-over-year in 2023, as well as the bottom line. Whether that's EBITDA or EPS, maybe you can help us understand which one. But do you still feel confident with that? Do you think it's a different number at this point? Thanks.

Lee, I have to say, before I turn this number thing to Kurt, that I have to say that we are extremely confident and optimistic about the future in 2023 and 2024 as of the current energy demand, very high energy demand, also very high energy prices in Europe. And also that our execution of the development activities in all the 10 countries we have activities has been very smooth and strong. Okay, Phil, please.

Yes, Phil. Thanks for that question. And we're very confident about 2023, both for the top line and the bottom line, and also EBITDA. We are confident that the growth of 20% to 30%, like we mean in his prepared remarks, and most of this increase will come mainly from Europe. And we will see most of this benefit to reflect in 2023, starting, I mean, starting 2023. So at this point, we're confident about this 20 to 30 percent growth, both from top and bottom line.

Great. Thank you, Ke. As it relates to margins, you know, the margin for Q3 is a little bit lower than, you know, really, you know, a bunch lower than what we would expect it to be. And so can you talk through, give us a little more color as to why, and then What kind of margin would you see in Q4 with 80% of the volume coming from these smaller projects? Could we get back to that 35, 40% type level? Thanks.

That's a good point. When we divide our business activities into the two pieces, one is the NTP or pre-NTP sales, we see very high margins. And literally speaking, That is way beyond 35%, as you mentioned. When we talk about we do EPCs, control the whole EPC thing for some selected or the long-term strategic customers, the margin goes down. Although the revenue definitely go up. For example, I mentioned 75, 80% of the revenue in Q4 will be from the EPC services. the margin is a lot lower than the regular project sales margin. In our guidance, as we see that in Q3, Q4, as we have seen the major part of the revenue coming from the EPC activities, the margin also is relatively lower than the regular project sales.

Got it. Yep, and I think we have a lower margin for you in Q4, so that continues to stand. And then when you think about 2023, when you think about the mix of projects and the mix of the revenue in 23, do you expect the vast majority to be NTP or vice versa?

I would say starting in 2023, as I mentioned in my notes earlier, that we do have NTP sales. That's the major part of our business. And another one is we do some EPC for selected customers. But the third piece of the revenue will be coming from the IPP. As I mentioned, we'll have around or over 100 megawatts by first half of 2023. So that portion of the IPP activities will contribute to both top line and bottom line and also help on the margin. That is the general strategic move by the company considering the older changes are favorable changes, especially the high price, high PPA price in Europe. And we are literally speaking, instead of making the quick sales, either NTP or pre NTP or COD, we are holding some assets for our IPP strategy that will contribute to our numbers in 2023 mostly.

great okay thank you human one last one for me i'll pass it on as it relates to the recent uh repurchase um share repurchase uh transaction announced last week uh was one if you could give us a little more color uh it looks like um you know uh both mr lee and and uh mr shaw are increasing their ownership um and uh to what degree and sorry if you address this in your preferred remarks but To what degree does this impact the pace of your corporate repurchases? I'm guessing it doesn't, but was wondering if you could give us overall more color and then how you expect the repurchase outlook to be ahead. Thanks.

Sure. Phil, I just want to clarify. Actually, Mr. Lee sold his shares, so the company purchased his shares. So basically, Mr. Lee reduced his shareholding. But on the other hand, the shock capital increase there shareholding. So I just want to clarify that. And again, the company shareholder structure will be more clear and the strategy and management confidence is there. So this is a very positive deal for the company. In terms of the corporate buyback, this does not have a direct impact for the corporate buyback.

Great. Yeah, sorry about mixing that up. Yes, Rene Solar bought, you know, from SOL Singapore. Yep. Okay. I see it here. Okay, great. Well, thank you for all the color and detail. I will pass it on.

Thank you, Phil. Thank you.

Thank you. Our next question comes from Pavel Malkinov with Raymond James. You may proceed.

Thanks for taking the question. Let me start with Europe. You mentioned that you're sort of cautious and seeing potential headwinds because of the war and the energy crisis, but shouldn't it be the opposite? In other words, shouldn't prospective customers be demanding the fastest possible construction of projects to help them get through the winter season?

You made a very, very interesting comment or a good question. Yes, in general, we see the tailwind is very strong in regards to the energy demand or demand of solar farms in Europe. You are absolutely right. That is also They are major consideration of the major reason for IPP consideration. Instead of selling our projects to the customer, our customers, we plan to keep them. We have the around 100 megawatts. We were before the IPP strategy, we were going to sell them entirely. But now we decide to keep them. not only benefiting from the high merchant price or PPA price, but also helping the Europeans to get over the difficult winter season. As of this strong balance sheet the company has right now, that is the strategy we get personally involved in helping Europeans to get over the challenging time of the energy crisis, if I call it. On the other hand, the reason I mentioned that we are cautious about the potential recession, as we see the currency fluctuate against the dollar. I'm talking about Euro against the US dollars. We are a US dollar denominated listing company. So we do see some reflection of the potential currently loss, although it's on books only. But those are the things we remain to be causes. But in general, we absolutely are in the very favorite position to grow our pipeline, not only grow the pipeline, grow the team, but also grow our IPP portfolio in Europe.

Are you able to deliver any projects, maybe rooftop?

systems 500 kilowatts something like that on an emergency accelerated basis for example before the end of the year uh yes i know the uh in general we do not do any rooftop deals in europe only exception is france in the favorite policy support uh in france that the uh The rooftop deals has a very high PPA price or FIT, also enjoys very favorite approvals or fast approvals or permits. So our team is working or considering working on some rooftop deals. But in other countries in Europe, we only do ground mounted. Even those deals are small, like one megawatt, half a megawatt in Poland and Hungary. At the same time, as I mentioned, our team is building those projects in Europe, and we plan to keep them. I don't have the exact number, but we'll have solar farms under our IPP portfolio in Europe coming online starting end of this month.

Okay. Good to hear. What are your latest thoughts on acquisition activity?

We need to say that we have been very cautiously working on the M&A front, but we are in some final stage on M&A activities, especially the ones we are working on in the last several months in Europe.

Okay, so we will hear about that later in the year?

You will hear it very soon.

All right. Thank you, guys.

Thank you. Thank you, Paolo. Thank you. One moment for questions. Our next question comes from Amit Dao with HU InRight. You may proceed.

Thank you, Graf and everyone. Just with respect to the outlook, you know, going into 2023, you know, once this big 4Q22 is out of the way, can you give us some sense of how quarters will look like or cadence of the quarters beginning in Q123? Is it, you know, $20 to $30 million revenue type quarters or... you know, maybe, you know, bigger or smaller. Just trying to get a sense of how we should think about the financials, you know, beginning in Q1-23.

Okay. I think we mentioned on the same topic earlier that we, at this time, are very confident that our construction will be moving smoothly as we planned as the BOS, the modules, have all been procured and some are inventory, some are on the shipment. So we expect the construction completion of those small size projects be done by the end of the year. That contribute to our top line revenue for the Q4. And the major part of those revenue will come, some will come from Q3 and pending on the closing of completion of the construction, but most of them will come from Q4. So that's the major part of the story that, as I addressed Phil's earlier question, that around 80% of the Q4 revenue will be from the EPC activities in Europe. And we feel confident that we'll make it.

Yeah, I was trying to get a sense of, you know, after Q4, right? I mean, you're having a pretty big quarter. the the okay i see your point in q123 you know obviously there might be a step down yes but then do we go do we go to like 20 million dollar type quarter or you know higher lower than that just trying to get a sense of you know how q1 onwards next year yes let me cover this um i mean we again we

have not given out like quarter over quarter guidance in 2023 yet. We're talking about the whole year in 2023 will be 20 to 30% increase from 2022 because our pipeline continued to build up. So again, we're talking about the monetize this pipeline year-over-year increase. So that's a general trend on year-over-year basis. on quarter over quarter basis, then we will still see some variability. But like we just mentioned, we're gonna have some IPP assets from Europe, so that will stabilize our revenue and left income quarter over quarter. Again, just purely from NTP sale point of view, I think if you just look at that part only, that will be like 15 to 20 million quarter over quarter. But again, we have three business, NTP sales, COD sales, and IPP assets. So I will just give you that part of, again, variability in our revenue range, quarter over quarter.

I understand. That's fine.

With respect to the IPP- Let me add one point. The construction of the European portfolios will continue. The major part of it will be completed by the end of the year, but throughout to the future quarters, especially the Q1, Q2 of 2023, we will also have EPC activities, including the ones we plan to keep in our IPP portfolio. So in any case, as Claude mentioned, with the three different contributions from the IPP, from the NTP sales, and from EPC, we do see strong numbers coming from our bigger, increased product pipeline.

Right. I get it. And I can take my follow-ups on that outline. With respect to the China IPP, You know, you were earlier targeting 100 megawatts, then you scaled it down to 50 to 70 megawatts because of, you know, COVID challenges over there. Is this still, is this, you know, 50 to 70 megawatts still in play or should we, you know, expect that to be a little bit lower given what is happening in China still?

Thank you. It's a very good question. As I mentioned that for the first six months, when they did, it was over six megawatts. And for the following months, the second half of the year, we expect that another 30 plus megawatts can be done. That's why I mentioned the speed of the China development will be picked back up. But nobody can predict how things may happen if the further lockdowns or COVID cases go up. But on the current schedule, you are right. I don't think we can continue our guided target that's around 60, 70 megawatts. The number in China completed by the end of the year should be around 30 to 40 megawatts.

Okay. And this is, like you said, not really demand-driven, but more just a situation-driven circumstance.

Exactly. You know, we have a long list of projects ready to start construction, but unfortunately, we could not.

Yes, just give you the data. Two days ago, the data showed 30% of China's GDP, the city involved, are under lockdown. So that's very difficult for us. showed we have 156 megawatt pipeline, but it's just very difficult to carry out at this moment.

No, I understand. And then just last one from me. Can you give us a sense of what you expect your cash position to be at the end of 2022 after all these shares, repurchases, etc. are addressed?

Yes. Again, I will Again, there's a question about MA. Without merger acquisition, we, again, we expect around $200 million.

$200 million? Yeah.

Okay.

Thank you.

Thank you. That's all I have. Keep that in mind, though, without merger acquisition.

Okay. Yes, yes. Understood. Thank you.

Thank you, and as a reminder, to ask a question, you will need to press star 1-1 on your telephone. Our next question comes from Donovan Schaefer with Northland Capital Markets. You may proceed.

Hey, guys. I wanted to ask you about, you know, a lot of, clearly you guys have a lot of cash on your balance sheet, and so, you know, you're not in need of raising any cash, and you're more thinking about things from the standpoint, you know, of being an acquirer. and not, you know, the target of someone else making acquisitions. But it is interesting, you know, there have been articles in PV Magazine and some other outlets about RWE acquired a Polish developer, Alpha Solar for their three gigawatt pipeline, Alternis Energy acquired, probably pronouncing this wrong because I think it's Polish, but Projekt Solar Technik, to get their pipeline in Poland. And then Sonodex acquired a company called SunPower Energy. Certainly, I'm pretty sure that's a different, I'm certain that that's a different company. It's a Polish developer. It's not obviously the SPWR ticker stock in the U.S. But, you know, there are these acquisitions. And in that case, I think it was a one gigawatt pipeline. You guys have, you know, 700... megawatts, you know, you're kind of close to a gigawatt in Poland and I know all the projects can kind of be at different stages in development, but I'm just curious is, uh, have you been approached by other companies that would want, you know, that have been trying or offering, trying to buy out your whole kind of Poland portfolio or maybe even Hungary? Um, you know, are you getting interest there? Is it something, you would consider, and since you have a lot of cash, you know, maybe you're not really interested in that at all, but I'd be curious, a lot of these announcements and press releases, they don't disclose the acquisition costs. Some do, but most don't. But, you know, it'd be nice if there was almost a way to kind of compare your portfolio to some of these acquisitions. or some of these transactions and try and come up with kind of like a, what's the value, you know, of this footprint and all these projects you guys have set up in Poland. So if you can just talk about that, that'd be great.

Yeah, the, uh, it is, uh, you asked a very, very interesting question. We talked about it a little bit earlier that the, uh, the high energy demand and high PPA price, or even the merchant price in Europe and the U S literally speaking started driving the value of our pipeline up significantly. You know, for the M&A activities, we have been, our US and European team, have been actively acquiring project assets. And we normally acquire mostly early to middle stage projects. And at our expertise, and develop them to NTP or even build them to COD and sell them for a higher margin. But we are constantly doing the project sales too, as we also sell at pre-NTP, NTP or COD at different stages. So I answer your first question, have we been approached? Yeah, we've been approached all the time what we want to sell, but at this time, most likely we want to optimize the product value and find the best time to monetize our projects and the best time we sell in poland for example are either ntp or cod not earlier okay that's number one and number two is you are absolutely right we have a very strong balance sheet we do have cash in hand so in the market we have been using our connections or partnerships to drive the more opportunities to acquire. So in the market, our developers in every country are looking to acquire projects. And when you sell, when you see our announcement, we sell when we believe we have optimized the projects and sell at the best margin benefiting the company. What I feel, another part of the, I may not be directly addressing your question, but we have a pipeline close to three gigawatts, and by the end of the year, we hope to build up over three gigawatts of pipeline. While we are acquiring projects and development platforms We believe this three gigawatts of pipeline has a very nice valuation to the company. While its current valuation in different development stage is not good enough for us until we can do the thorough optimization of the development on those projects before we monetize them.

Okay, that's helpful. And I'm thinking this may be also sort of related. So back when you took over as CEO at the tail end of 2019, you guys shifted or you announced and doubled down and emphasized a much greater focus and strategy around NTP sales versus COD sales because, you know, that allows you to get better gross margins. Um, and you know, as long as you can kind of find enough, a big enough pipeline. And so then that's what really drove the shift to a real focus on pipeline. Now, uh, you know, you announced, um, that you're going to build these a hundred megawatts in Europe because the pricing looks so good right now. Um, And I know, you know, that means you're going to be kind of investing the capital to take those projects from, you know, a green field or kind of from scratch all the way to completion and then holding it on your own portfolio. So I guess is that kind of, does that create sort of almost like a barbell type strategy? Because I think of COD as sort of in the middle, like you develop it and then you sell it when it's constructed, but you don't hang on to it. So is this kind of, You're going to develop some of the better cash flow assets that you think can turn into cash flow generating assets. Those go into the IPP bucket and you hang on to them. And then those continue to generate cash flows to kind of fund operations and keep the kind of NTP type engine going and trying to minimize as much of just the COD Is that kind of logic there? Is that how the IPP bucket and doubling down on that is still consistent with trying to do more NTP type sales?

Yes, absolutely the case. As I mentioned earlier, we will maintain our mainstream of activities on NTP sales across the board. And only for some selected strategic customers, we provide the EPC support. Literally on EPC before COD in Poland, in Hungary, and some other countries, we not only do EPC, we provide financing, short-term bridge and long-term financing. We put the whole package together and make sure the whole package, without really going any further, can generate electrons and be accepted totally by the end customers of ours. Okay, so in any case that that will be the mainstream activities of our company. And I believe that also benefit the company from a lot higher gross margin and also a lot faster payback time of our investment. Another point on IPP front that the literally we start our light IPP strategy about six months ago when we look at the The energy price, PPA price, or merchant price in Europe is going sky high. Then our team has done the thorough analysis. We believe that although we can monetize our projects in the countries in a very high margin, but in literally speaking, we could recycle or receive the same return in less than two years when we run those projects under our IPP portfolio. Okay. We are thinking about the long-term strategy of the company, not really making any quarter strong, but instead we hope to make a stronger company in the long term.

Yeah. And I think I've heard something where with pricing being so high right now as an IPP you know, merchant pricing was good, but you might even be able to sign some contracts where you could get off takers who will commit to a two year contract, maybe a three year contract, but not like a long, you know, 10 year, 20 year contract. So if you're getting that kind of, if you can lock that in and get the payout in two or three years, you know, why not? You might as well do that. And then you still have an asset you could sell when those contracts roll off after three years. You are right.

Sorry to interrupt. The short term, you are absolutely the expert on top of this PPA or the merchant price. The PPA price in Europe, in some countries, we are talking about five, six times compared to the one, two-year PPA price or three-year PPA price. is about five, six times than the normal long-term 10, 12-year PPA price. So it is very logical and making lots of sense for us to sign a short-term PPA one year or two years equal to the original 10-year considerations.

Yeah, okay. That makes a ton of sense. And then just from kind of thinking For 2023, you know, some people were asking about that. With, I saw that the IPP projects, it looks like there, it's a lot of it is sort of in the same, it's Hungary and Poland, I think is where two of them are. And it's the same number of megawatts as the shareholder letter last quarter. But it's just been, you know, sort of reclassified from an RTB or a COD sale. to IPP. So it's sort of the same projects that you already, that you already knew. I'm assuming it's the same projects you knew you were planning on doing, you know, last quarter that you've just sort of decided to change that instead of doing an NTP sale, you're going to hang onto these ones. So is that going to near term mean, you know, lower revenue? Cause you know, if you flip and sell the whole project, you know, in the first or second quarter of 2023, that gives you a big chunk of revenue. But if you decide you're going to hang on to it instead, that could put all else equal. You'd end up with relatively lower revenue than you would get if you just flipped and sold the project. But you're making that decision more on a longer-term ROI basis. Would you get a higher gross margin? Because you're getting, I guess, a higher gross margin in the second half of 2023 and maybe 2024 because you're getting... electricity production, you know, your high margin IPP sales, but in maybe the first half of 23, you're getting lower than what the kind of revenue you'd get otherwise, because you're hanging on, you're investing EPC effort in developing these projects, but you're not just flipping them and monetizing them. Is that kind of going to impact the financials?

Absolutely. I think you hit the very interesting point that you read our minds, and also you can become our chief strategist of the company. Exactly that's the case that we would have made a lot higher, not a lot higher, but definitely higher revenue and higher margin for this year if we continue our NTP sales strategy in Europe. But as I mentioned, the one strong quarter, it does not really benefit the whole company in the long run. and we believe the IPP strategy holding around 100 megawatts of projects, which we can sell them as early as Q4 or even some in Q3, we made the right decision by keeping them. As I mentioned, that those IPP assets can generate the same bottom line to the company in less than two years. The simple logic is I can sell for, for example, $100, but in two years, I can get the same $100 back. And from the year three, it's my free solar farm. So the decision was made literally, really, for sustainable cash flow and sustainable, stronger company.

Okay, great. Well, thank you for the kind words. I don't see myself as being the strategist, but I appreciate that, and I'll take the rest of my questions offline. So take care.

Thank you. Thank you.

Thank you, and I'm not showing any further questions at this time. I would not like to turn the call back over to Yeoman for any closing remarks.

Oh, thank you, Operator. We believe broad social and governmental support for renewable energy will create a robust environmental supporting environment supporting the growth of the solar projects, which in turn should drive exciting growth for us in the quarters ahead. Our strategy is sound and our track record of execution is strong. We have never been more excited about the future. We appreciate the dedication and commitment of every staff of the company and all shared stakeholders' support and confidence in us. Thank you all again for your participation. This concludes our call today. You may all disconnect.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Thank you, Josh.

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