The government’s decision to remove the waiver of Inter State Transmission System (ISTS) charges for renewable energy (RE) generation projects will push up the costs for developers and consumers.
The waiver, aimed at promoting RE and reducing the overall cost of these projects, was first implemented in 2018 under the National Tariff Policy and extended to solar and wind power projects commissioned before December 31, 2022. The government later extended the waiver to include projects commissioned by June 30, 2025.
Now, with ISTS waiver being removed in phases for projects commissioned after June 2025, the transmission charges will have to be borne by the developers and, in turn, by consumers as tariffs may rise.
The hike will take RE tariffs closer to conventional energy sources, though still cheaper, thus reducing their price attractiveness a tad. Sans the waiver, RE off-takers must account for additional costs, impacting overall project economics.
While the waiver will be removed for most projects, in cases where project delays have been caused by transmission providers or other justifiable causes, as assessed, an extension of up to two periods of six months each may be granted to developers.
Notably, projects for green hydrogen or green ammonia plants will continue to enjoy the waiver until 2032 and 2030, respectively.
Table: Levy of ISTS charges on solar, wind, hydro PSP and BESS
Source: Ministry of Power; PSP – pumped storage plant; BESS – battery energy storage system
That still leaves most RE developers to contend with higher tariffs, and resultantly, skewed project economics. To address the challenge, developers will need to optimise project locations. While solar resources are widely available across India, wind resources are more concentrated in just six states, which hold ~90% of the country’s wind potential. States with lower renewable resource potential typically rely on ISTS connected projects.
Figure: Landed costs for an open access (third party) RE project with ISTS charges
Source: Grid-India, SERC tariff orders, Bridge to India – CRISIL MI&A Research
Notes: • Landed tariff is the rate of power paid by the consumer. The calculation includes power purchase cost plus charges applicable to consumers connected at up to 33 kV
• Open access charges include state transmission utility charges and losses, wheeling charges and losses, cross-subsidy surcharge and additional surcharge along with ISTS losses
• ISTS charges are calculated based on the average of the past 12 months’ transmission charges as published by GRID India. The per-unit charge is determined by dividing the total transmission charges (without waiver) by the energy generated from the RE project at 30% capacity utilisation factor.
On average, ISTS charges, calculated based on the previous 12 months, can lead to an increase of Rs 1.4 to 1.8 per unit in the landed tariff. This amount is equivalent to around half of the base tariff for RE alone, which is Rs 2.6 to 3.6 per unit.
To mitigate the effect of transmission charges, developers should focus on strategies to enhance transmission asset utilisation.
Co-locating RE projects, such as combining solar and wind projects or integrating energy storage systems with renewable energy, can reduce the impact of these charges. For example, by achieving a capacity utilisation factor of 50% through oversizing and integrating energy storage, generators can reduce the impact of transmission charges by 40% on a per-unit basis.
Hence, the reimposition of ISTS charges will have a significant impact on the landed price of RE for open access consumers. The increased cost from ISTS transmission charges will close the gap between renewables and coal assets, and the industry will need to optimise project locations and improve generation efficiency to maintain current levels of attractiveness.
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