Emeren Group Ltd (SOL) 2022 Q2 法說會逐字稿

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. Yujia Zhai, Managing Director of the Blueshirt Group. Please go ahead, Mr. Zhai.

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.renasolapower.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. Yumin Liu, Chief Executive Officer; Mr. Ke Chen, Chief Financial Officer; and Mr. John Ewen, CEO of North America.

Before we continue, please turn to Slide 2. 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 ReneSola 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 ReneSola Power's filings with the SEC. Please do not place undue reliance on these forward-looking statements, which reflect ReneSola Power's opinions only as of the date of this call. ReneSola 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. Yumin Liu. Yumin?

Thank you, Yujia. And thank you for joining our second quarter earnings call. Today, I would like to start by giving a quick update on our second quarter results and then touch on recent trends 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 will be joined by our U.S. CEO, John, for the Q&A.

Q2 revenue was $8.2 million, driven primarily by the energy production from our China IPPs and the product sales in the U.S. The lower-than-expected revenue was due to the delays in closing of the product sales in the U.S. 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 the solar industry is benefiting from strong tailwinds such as rising PPA price and a favorable regulatory environment in Europe and in the U.S. 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 EUR 198 per megawatt hour from about EUR 55 per megawatt hour 2 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 the 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, SEIA, 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 from 4% today. We believe these favorable regulatory movements in solar industry will drive up our revenue and margin opportunity of our pre-NTP product pipeline across Europe and North America.

In terms of China, the resurging COVID and lockdowns in Q2 continued to affect our business activities and supply chains. In Q2, we only installed 3 megawatts and only 6.6 megawatts during the entire first half. Nevertheless, for the remainder of the year, we do expect activities to begin picking back up.

For the full year 2022, we want to reiterate our expectation of building up 3 gigawatts of product 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 the 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 profitability -- 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 risk of recession. We remain cautious and extremely focus 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, Yumin. And thanks, everyone, again for joining us on the call today. As a reminder, some of the metrics we use to discuss 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 investors, along with the GAAP measure. Our non-GAAP to GAAP reconciliation is included in our shareholder letter.

Let's begin with our Q2 financial highlights 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 3 NTP projects in U.S.

GAAP gross margin for the quarter was 45%, above our guidance range for the full year, as revenue mostly was attributed to higher margin IPP assets. Q2 operating expense was $3.9 million, slightly higher than $3.4 million in Q1 2022, and lower of $4 million from 1 year ago.

The sequential increase in our OpEx was primarily due to the costs associated with implementation of our new ERP system and a onetime financing-related costs for our Europe market. On a non-GAAP 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 net loss in Q2, 2022 was $0.2 million loss. Earnings per ADS was 0 compared to net loss per ADS of $0.03 in Q1 and net income per ADS of $0.10 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 balance sheet, shown on Slide 20. Our financial position remains solid and strong. Cash balance was $208 million, slightly lower than the end of the first quarter 2022. Our debt-to-asset ratio at the end of Q2 remained a low and healthy level of 8.3%.

Furthermore, last week, we announced a share repurchase agreement with ReneSola Singapore that we'll buy back 7 million ADS at the price of $6 per ADS, totaling $42 million through a privately negotiated transaction.

Separately, Shah Capital, one major shareholder of ReneSola Power, will purchase 1 million ADS from ReneSola Singapore at a price of $6 per ADS. This share buyback highlights our Board and management team's 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-iterating our expectation for full year revenue to be in the range of $100 million to $120 million. For full year gross margin, we continue to expect it will be 20% to 25%. For full year net profit, we continue to target $9 million to $10 million, which is in line with our prior guidance of at least 30% growth. 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 will now like to open up the call for any questions that you may have for us. Operator, please go ahead.

Thank you. (Operator Instructions) Our first question comes from Philip Shen with ROTH Capital Partners.

First one is on the implied Q4 revenue guide. 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, $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 it's even higher now? And what percentage of Q4 could actually push into 2023?

Last quarter, you guys talked about having a substantial number of smaller 1-megawatt projects that would not make or break the guidance. And so you would spread the risk more evenly with many of these megawatt projects. And so, I 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?

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 is being worked out by the European team, we feel very confident that we'll achieve the numbers as we guided.

As you mentioned, another point to mention is, as those are all the small-scale projects, mostly 1-megawatt deals, after we acquired or procured most of the BOS and 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.

Can you give us a sense for what percentage of your Q4 guide -- implied Q4 revenue comes from these 1-megawatt in smaller projects? Is it half of it? Is it 20% of it? Or is it maybe something like 75% of it?

Its actually, I think about 80%.

And then as it relates to the 2023...

Phil, let me add one more point. Also in Q4, we will continue our product sales process in both U.S. and Europe. So, that's what I mean, like around 20%-25% of the top line will be coming from the sales.

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 '23, 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?

I have to say -- before I turn this number thing to Ke, that I have to say that we are extremely confident and optimistic about the future in '23 and '24. As of the current energy demand, very high energy demand and also very high energy prices in the 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. Ke, please.

And we are 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 Yumin, in his prepared remarks, and most of this increase will come from -- 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 very confident about this 20% to 30% growth both on top and bottom line.

As it relates to margins, the margin for Q3 is a little bit lower than really a bunch lower than what we would expected 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?

When we divide our business activities into the 2 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, but the margin is a lot lower than the regular product 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 product sales.

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 will say, starting in 2023, as I mentioned in my notes earlier that the -- 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 -- will be coming from the IPP.

As I mentioned that 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, bottom line and also help on the margin. That is the general strategic move by the company considering the all the changes or favorable changes, especially the high price, high PPA price in Europe. And we are, literally speaking, instead of making the quick sales either at NTP or pre-NTP, or COD, we are holding some assets for our IPP strategy. That will contribute to our numbers in 2023, mostly.

One last one for me, and I'll pass it on. As it relates to the recent repurchase -- share repurchase transaction announced last week. I was wondering if you could give us a little more color. It looks like both Mr. Lee and Mr. Shah are increasing their ownership. And to what degree -- and sorry if you addressed this in your prepared remarks, but to what degree does this impact the pace of your corporate repurchases? I'm guessing it doesn't, but I was wondering if you could give us an overall more color? And then how you expect the repurchase outlook to be ahead.

Sure Phil, just want to clarify. Actually, Mr. Lee sold us his shares, so the company purchased his shares so basically Mr. Lee reduced his shareholding. But on the other hand, the shah capital increased their 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 corporative buyback, this does not have direct impact for the corporate buyback.

Yes. Sorry about mixing that up. Yes. ReneSola bought from SOL Singapore. Yes?

Yes.

Our next question comes from Pavel Molchanov with Raymond James.

When you start with Europe, you mentioned that you're sort of cautious and you're 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 comments 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. Okay? You are absolutely right. That is also our major consideration of the major reason for IPP consideration. Instead of selling our projects to the customer or 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 the strong balance sheet the company has right now, that is the strategy we hope 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 the we are cautious about the potential recession as we see the currency fluctuate against the dollar, I'm talking about Euro against the U.S. dollars. We are a U.S. dollar-denominated listing company.

So we do see some reflection of the potential currency loss, although it's on books only. But those are the things we remain to be cautious. But in general, we absolutely are in a very favorable 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?

Yes and no. In general, we do not do any rooftop deals in Europe. Only exception is France. In the favorite policy support in France, that the rooftop deals has a very high PPA price or FIT also enjoys very favorite approvals, our fast approvals or permits, okay? 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 fields are small, like 1-megawatt, 0.5-megawatt in Poland and Hungry. But at the same time, as I mentioned, we are -- our team is building those projects in Europe, and we plan to keep them. And 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.

And lastly, 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.

Our next question comes from Amit Dayal with H.C. Wainwright.

Just with respect to the outlook, going into 2023, once this big 4Q, '22 is out of the way, can you give us some sense of how quarters will look like or the cadence of the quarters beginning in Q1, 2023? Is it $20 million to $30 million revenue type quarters or maybe bigger or smaller? Just trying to get a sense of how we should think about the financials beginning in Q1, '23?

Okay. I think we mention on the same topic earlier that the -- we, at this time, are very confident that our construction will be moving smoothly as we planned as the BOS and modules have all been procured and some are inventory, some are on the shipment.

So, we expect the construction completion of those small-sized projects be done by the end of the year. That contributes to our top line revenue for the Q4 and the major part of those revenue will come -- some will come from Q3 and depending on the closing or the completion of the construction, but most of them will come from Q4, okay?

So that's a major part of the story that -- as I addressed Phil's earlier question that the -- around 80% of the Q4 revenue will be from the EPC activities in Europe. okay? And we feel confident that we will make it.

Yes. I was trying to get a sense of after Q4, right? I mean you're having a pretty big quarter, the...

Okay. I see your point.

In Q1 '23, obviously, there might be a step down?

Yes.

But do we go to like $20 million type per quarter or higher or lower than that? Just trying to get a sense of how Q1 onwards next year in revenue.

Yes. Let me cover this. Amit, 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 continues to build up. So again, we're talking about monetize this pipeline year-over-year increase. So that's a general trend on a year-over-year basis.

On a quarter-over-quarter basis, again, we will still see some variability. But like we just mentioned, we're going to have some IPP assets from Europe, so that will stabilize our, I mean, revenue and net income quarter-over-quarter. Again, just purely from an NTP sales point of view, I think if you just look at that part only, that will be like $15 million to $20 million quarter-over-quarter range. But again, we have 3 businesses: 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.

With respect to the IPP...

Let me add one point that the construction of the European portfolios will continue. The major part of it will be complete -- 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 Ke mentioned, with the three different contributions from the IPP from NTP sales and from EPC, we do see strong numbers coming from our bigger increased product pipeline.

And I can take my follow-ups on that offline. And with respect to the China IPP, you were earlier targeting 100 megawatts when you scale it down to 50 to 70 megawatts because of COVID challenges over there. Is this still -- is this 50 to 70 megawatts still in play? Or should we expect that to be a little bit lower given what is happening in China still?

As I mentioned that for the first 6 months, when we did over 6-megawatts. And for the following the second half of the year, we expect that another like 30-plus megawatts can be done. That's why I mentioned the speed of the China development will be picked back up. But the -- it's -- nobody can predict how things may happen if the further lockdowns or COVID cases go up, okay? But the -- 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.

And this is, like you said, not really demand-driven, but more just a situation driven circumstances?

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

Amit, yes, just to give you a data. By 2 days ago, the data showed 30% of China GDP, the city involved under lockdown. So that's very difficult for us. Again, we have showed - we have 136-megawatt pipeline, but it's just very difficult to carry out at this moment.

I understand. And then just last one for me. Can you give us a sense of what you expect your cash position to be at the end of 2022 after all these share repurchases and et cetera are addressed?

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

$200 million?

Yes. Keep that in mind without merger acquisition.

(Operator Instructions) Our next question comes from Donovan Schafer with Northland Capital Markets.

I wanted to ask you about a lot of -- clearly, you guys have a lot of cash on your balance sheet. And so you're not in need of raising any cash and you're more thinking about things from the standpoint of being an acquirer and not the target of someone else making acquisitions.

But it is interesting, there have been articles in PV Magazine and some other outlets about RWE acquired a Polish developer, AlphaSolar for the 3 gigawatt pipeline, alternative synergy acquired, probably pronouncing this wrong because I think it's polish, but Projekt Solartechnik to get their pipeline in Poland and then Sonnedix acquired a company called Sun Power Energy. Certainly, I pressure that's a -- 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 there are these acquisitions and in that case, I think it's a 1-gigawatt pipeline. You guys have 700 megawatts, you're kind of close to 1 gigawatt in Poland. And I know all the projects can kind of be at different stages of development. But I'm just curious is have you been approached by other companies that would want -- that have been trying or offering, trying to buy out your whole kind of Poland portfolio or maybe even in Hungary. Are you getting interest there? Is it something you would consider? And since you have a lot of cash, 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 cost. Some do, but most don't. But it'd be nice if there is almost a way to kind of compare your portfolio to some of these acquisitions or some of these transactions and trying to come up with kind of like what's the value of this footprint and all these projects you guys have set up in Poland? So if you can just talk about that that would be great.

Yes. The -- it is -- you asked a very, very interesting question. We talked upon it a little bit earlier that 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.

For the M&A activities, we have been -- our U.S. and European team have been actively acquiring product assets. And we normally acquire mostly early to middle stage projects and add 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'll answer your first question, have we been approached? Yes, 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, okay? And when we 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. Okay?

What I feel another part of the -- it may not be directly addressing your question. But the -- we have a pipeline close to 3-gigawatts. And by the end of the year, we hope to build up over 3-gigawatts of pipeline. While we are acquiring projects and development platforms, we believe this 3-gigawatt of pipeline has a very nice valuation to the company, okay? 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.

And I kind of -- I'm thinking this may be also sort of related to back Yumin when you took over as CEO at the end of -- at the tail-end of 2019, you guys shift -- you shifted or you announced and doubled down and emphasize a much greater focus and strategy around NTP sales versus COD sales because that allows you to get better gross margins. And 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 you announced that you're going to build these 100-megawatts in Europe because the pricing looks so good right now. And I know that means you're going to be kind of investing the capital to take those projects from a greenfield or kind of some 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 is 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 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 the 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 that the -- as I mentioned earlier, we will maintain our mainstream of activities on NTP sales across the board, okay? 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 will be the mainstream activities of our company. And I believe that also benefited the company from a lot higher gross margin and also a lot faster payback time of our investment. Another point. On IPP front that literally we started our Light IPP strategy about 6 months ago. When we look at 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 the -- 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 2 years when we run those projects under our IPP portfolio. 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.

Yes. And I think I've heard something where with pricing being so high right now as an IPP merchant pricing was good, but you might even be able to sign some contracts where you could get offtakers who will commit to a 2-year contract, maybe a 3-year contract, but not like a long 10-year, 20-year contract. So if you're getting that kind of -- if you can lock that in and get the payout in 2 or 3-years, why not you might as well do that and then you still have an asset you could sell when those contracts roll off after 3 years. And so...

Sorry to interrupt. The short term, you are absolutely the expert on top of this PPA or the merchant price, that the PPA price in Europe, in some countries, we are talking about 5, 6x compared to the, I mean, the 1-, 2-year PPA price or a 3-year PPA price is about 5, 6x than the normal long-term 10-, 12-year PPA price, okay? So it is very logical and making lots of sense for us to sign a short-term PPA, 1-year or 2-years equal to the original 10-year considerations.

Yes, that makes a ton of sense. And then just from a kind of thinking for 2023, 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 2 of them are. And it's the same number of megawatts as the shareholder letter last quarter, but it's just been 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 last quarter, but you've just sort of decided to change that instead of doing an NTP sale, you're going to hang on to these ones. So is that going to near term mean lower revenue? Because if you flip and sell the whole project, 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 instead, that could put this 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 like kind of a longer-term ROI basis. I'm just -- would you get a higher gross margin because you're getting you're getting, I guess, higher gross margin in second half of '23 and maybe '24? Because you're getting electricity production, high-margin IPP sales, but in maybe the first half of '23, you're getting lower than what the kind of revenue you get otherwise because you're hanging on -- your 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 more 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, okay?

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 2 years. The simple logic is I can sell for, for example, $100, but in 2 years, I can get the said $100 back. And from the year 3, it's my free solar farm. So, was literally really for sustainable cash flow and sustainable stronger company.

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

Thank you, Operator. We believe both 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 the every staff of the company and all share 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.