Government agencies in India’s power sector have suggested that states find methods to monetize brownfield electricity transmission assets to attract investments required for creating new transmission infrastructure.

According to the Central Electricity Authority’s (CEA) National Electricity Plan, an investment of ₹9.16 trillion (~$106 billion) is required to create new transmission infrastructure by 2032. The states would bear over 30% of this expenditure.

This initiative would require the private sector to invest considerably in the transmission sector, as public financing at this scale is not considered feasible.

India’s renewable energy capacity has been rising along with the country’s power demand. Creating the infrastructure required to integrate rising renewable energy capacity and meet the burgeoning peak power demand is crucial. The government has targeted 500 GW of non-fossil fuel renewable energy capacity by 2030, while the peak power demand is projected to be 366.4 GW in 2031-32.

According to the outcome document of a recent workshop on monetization of transmission assets, monetizing brownfield assets is “less risky and more attractive” for private investment.

However, the states would have to adopt learnings from monetization models in other infrastructure sectors, including highways and airports in non-metro cities. The highways sector employs a toll-operate-transfer model under which concessionaires are assigned the right to collect and appropriate tolls for a pre-determined concession period.

Asset Monetization Models

Two specific models for asset monetization—structured Financing models (InvIT) and Direct Contractual Approach (acquire—operate-maintain-transfer-AOMT)—were discussed. Power Grid Corporation of India has successfully implemented the InvIT model despite the complexities caused by the involvement of several participants.

The Ministry of Power has suggested that the states can modify the AOMT model.

Most assets at the state level are developed through a Regulated Tariff Mechanism (RTM) and have tariffs subjected to periodic regulatory determination, which may not be attractive to private investment.

“To provide predictability of cash flow for such RTM assets to be monetized, there should be a pre-agreed regulatory approach for tariff setting,” the CEA document said.

Investors who attended the workshop emphasized the importance of certainty and transparency around the bid process and the certainty of revenues as the key value drivers.

Credit Quality and Timely Payments

The credit quality of state counterparties and timely payments are among the investors’ considerations. They expect revenues to be predictable through the concession term and a robust payment security mechanism. They also expect high-quality technical, financial, and legal diligence for the stock of assets to be monetized and the information shared with them at the bidding stage.

Private investors also made a case for unambiguous allocation of responsibilities between the sponsoring transmission entity and the participants, as well as the quick and smooth transfer of assets for a fast operational turnaround.

States’ representatives suggested onboarding of regulators for the monetization of transmission assets. Currently, states have a single transmission company, but the need to regulate sharing transmission charges will arise once more such companies are established.

It was also suggested at the workshop that the state transmission utilities must consider taking up certain obligations before tendering or as a condition precedent to effectiveness to strengthen the project’s bankability. These include:

• Obligations related to right-of-way (ROW) and transfer of land
• Treatment of warranties and defects and liability assurances from suppliers
• License transfer
• Approval for tariff (in case of RTM model) to provide tariff certainty
• Formulation of a settlement plan for pre-identified asset-specific risks

RoW issues, landholder opposition, compensation disputes, litigation, and delays in obtaining forest, wildlife, and tree-cutting approvals are among the reasons for transmission projects overshooting their deadlines.