In two months from now, the waiver of charges on transmitting renewable energy across states via the central transmission system (ISTS charges) will be withdrawn partially — by a fourth — so the cost of renewable energy is expected to rise correspondingly. The waiver was introduced in 2017, and the phased withdrawal had been flagged in advance.
There will be a 25 per cent withdrawal annually and the waiver will be fully gone by June 2028 — renewable energy projects commissioned beyond this date will pay full ISTS charges if they transmit across states. This can raise the cost of green power by ₹2.5-3 a kWhr, as per the calculations of research and consultancy firm JMK Research and Analytics.
The industry is asking for an extension of this exemption till 2030, to align with the government’s target of 500 GW non-fossil fuel installed power capacity by that year. This call is being supported by consultants such as JMK Research and the Institute for Energy Economics and Financial Analysis. The government, which has so far taken a ‘don’t keep asking for more’ stance, is expected to ultimately give in to the industry’s demand.
More output
There are good points on either side. Those who want the waiver to continue stress that it has worked well, met its objective of increasing RE adoption — so why rock the boat when it is sailing well?
JMK Research has found that RE projects hooked to ISTS are in production longer than those linked to State transmission systems. The ‘capacity utilisation factor’ with ISTS is 5–10 per cent higher compared with intrastate transmission systems.
“Connectivity to ISTS substations on the CTU network enables developers to split the project capacity into multiple locations, addressing RE’s seasonal and weather variability challenge,” says JMK Research. This results in smoother power output and higher CUF.
Further, projects connected to the CTU network have direct access to power markets on exchanges, eliminating the need for approvals from State governments. Although there are no banking provisions for ISTS-based projects, selling excess power on the exchanges serves as an essential safety measure and provides flexibility for optimal planning and project utilisation, says JMK. The consultancy gives the example of the automobile industry, which often experiences a seasonal shutdown of 1-2 months towards the end of the year. By connecting to the ISTS network, automobile manufacturers can sell their excess power during this period without facing restrictions from local State authorities.
Free flow of power
Getting more generators and consumers hooked to the central transmission utility aligns with the ‘one nation, one grid’ doctrine, allowing free flow of power within the country. The government tried to ease things by bringing in the General Network Access rules in October 2023. This allows a generator to ask for access to the central transmission system with flexibility in the quantum of power injected and the duration of connectivity, and without need to specify consumers. GNA and ISTS waiver removal are at odds with each other — the former promoting, and the latter discouraging the adoption of renewable energy. Exemption from ISTS charges has lowered the cost of direct purchase from generators compared with discoms. Typically, it is the commercial and industrial (C&I) consumers who avail themselves of open access power. This segment is crucial for providing visibility of a remunerative demand.
Around 300 GW more renewable energy capacity would be needed between now and 2030, if India is to meet the 500 GW target. It is estimated that the C&I segment will want 120 GW — leading to an investment of $89 billion. ISTS waiver is important to keep this market interested.
Stress on equity
Some industry insiders point out that the waiver pushed players to the interstate transmission system. There was little incentive for State governments to strengthen their own evacuation infrastructure. If the exemptions are removed now, developers, especially in the wind power segment, would have no option but to hang on to the interstate system, despite the higher cost, because there is a paucity of evacuation facilities within the State.
On the flip side, waiver of ISTS charges socialises the cost of transmission, spreading it to every citizen, going against the principle of equity. The government may see waivers as useful in enlivening a nascent industry but not something that can go on forever, even while it may see no harm in extending the waiver for a few more years.