100% waiver of inter-state transmission system (ISTS) charges for full 25 year project life is set to be phased out shortly. The waiver is available to all renewable and storage projects completed by June 2025 with charges expected to be reinstated annually in increments of 25% for projects completed thereafter. Green hydrogen and offshore wind projects have been given longer completion deadlines of December 2030 and 2032 respectively to avail the waiver.
The ISTS charge waiver, worth a saving of about INR 0.40-0.71/ kWh depending on project location, was first proposed by the government in 2020. The objective was to make cheap renewable power accessible to both DISCOMs and corporate consumers particularly in states with scarcity of suitable land and/ or poor renewable resource. The waiver was initially intended for projects completed by June 2023 but was subsequently extended as the government deemed it critical to growth of the renewable sector.
The waiver has been an instrumental policy initiative in supporting growth of both utility scale and open access projects. In the period between November 2020 and June 2023, ISTS-connected projects accounted for 49% of total awarded capacity. Key beneficiaries have been consumers in Gujarat, Rajasthan, Maharashtra, Uttar Pradesh, Telangana, Chattisgarh and Odisha. ISTS-connected projects accounted for 64% of total commissioned capacity between 2021-2023. In 2023, almost 200 applications totalling project capacity of 51 GW were approved for ISTS connectivity mostly in Rajasthan, Gujarat, Andhra Pradesh, Karnataka and Maharashtra.
Figure: ISTS offtaker and project location
Source: BRIDGE TO INDIA research
Note: Project auction data excludes 6 GW capacity for which location is unavailable. Projects located in Gujarat are intended mainly for supply within the state.
For corporate consumers looking to increase renewable power consumption, the ISTS charge waiver is doubly attractive because of low cost of power from resource-rich states and constraints faced in intra-state open access. Five large corporates including ArcelorMittal, Vedanta, Grasim, Reliance and Adani alone have applied for nearly 4 GW GNA capacity.
Although a successful policy initiative, the ISTS charge waiver has not been without its share of problems. Heavy regional concentration of renewable project capacity has put immense pressure on land and transmission network. Scarcity of transmission capacity in crucial states has led to cascading delays in project completion and failure of states to meet RPO targets. Long lead times for development of transmission infrastructure mean that there is unlikely to be any improvement soon. Projects granted connectivity approval in 2023 have been given tentative commissioning dates between 2025-2028. The government has been forced to extend scheduled SCOD and promise ISTS charge waiver irrespective of actual COD to the affected projects. For open access projects, uncertainty of actual connectivity date often leads to bitter commercial disputes between project developers and offtakers due to disagreements over sharing of risk between the parties.
The industry, anxious about the negative impact of ISTS waiver expiry, is lobbying the government for further extension. But we believe that this policy has run course and another extension is unlikely. While the ISTS model is here to stay because it is simply unviable to set up projects in many states, power consumers need to adjust to the reality of paying for ISTS charges or bearing higher cost of power from intra-state projects, where possible.
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