With just over two months to go before the interstate transmission system (ISTS) charges waiver ends, the Indian renewable energy project developers are keeping their fingers crossed for an extension.

The ISTS-charges waiver will end on June 30, 2025. While the waiver is in effect, commercial and industrial consumers can access renewable energy from various states at a more affordable price.

The waiver was intended to foster renewable energy transition by lowering generation costs and help India reach its 500 GW goal of non-fossil fuel energy capacity by 2030.

In 2024, the Central Electricity Regulatory Commission expanded the transmission charges waiver eligibility by adding renewable energy generation systems based on offshore wind to the energy sources list, which already includes hydropower generation.

About 3 GW projects were auctioned in 2023, which are yet to sign power purchase agreements (PPA). Rajasthan has the highest capacity, with 18% of the projects with PPAs yet to be signed, followed by Madhya Pradesh with 7% and Karnataka with 4%. Around 13 GW projects, which were auctioned in 2023, have signed PPAs but have not been commissioned yet due to several factors.

These projects will lose the benefit of the waiver, pushing their project costs significantly.

“The uncertainty around the ISTS waiver extension has brought project development to a near standstill. Without an extension, India’s 2030 renewable energy targets are at serious risk. Many projects won’t be financially viable, and the momentum the industry has built over the years could slow dramatically. With so much geopolitical uncertainty already in play, this the time for India to shine as a leading destination for renewable energy investments by providing policy support, stability and clarity that the market is urgently seeking,” said Raj Prabhu, CEO of Mercom Capital Group.

 

Developers Push for Extension

The government has already extended the waiver multiple times since 2016. The last waiver extension was issued in 2022 for projects to be commissioned by June 30, 2025. After this deadline, 25% of the applicable ISTS charges will be levied on projects commissioned between July 1, 2025, and June 30, 2026. Increased by 25% annually, 100% of ISTS charges will be levied from July 1, 2028.

Developers, independent power producers (IPPs), and other market players hope for another extension.

A developer commented, “We are in a ‘wait and watch’ situation. We see the power ministry has stated that where there is a genuine delay, supported by evidence, some concessions will be provided, but it has refrained from granting a blanket extension of the exemption.”

The developer contended that another extension is crucial. IPPs and developers have experienced massive delays in converting bids to power purchase agreements (PPAs). “There is a huge backlog of auctions where PPAs are yet to be signed due to delays relating to land acquisition and permits, infrastructure deficits, etc.”

These delays can cause huge losses to the bidders. “If a developer placed a bid assuming the ISTS waiver would apply, and if the waiver is no longer available, it would be unfair to penalize the developer, especially since the bidder didn’t cause the delay,” goes the refrain of renewable energy developers.

Kannan Krishnan, Managing Director, Jakson Green, made out a case for another ISTS charges waiver extension. “With more than 50 GW of PPAs yet to be signed, the burden of ISTS charges will further slow down the offtake. The government needs to extend the waiver until the PPA backlogs are cleared to enable projects to be installed.”

Timely government action is key, according to developers. As Ateesh Samant, COO of Oyster Renewable Energy, put it, “Timely communication about the extension from the government is certainly beneficial, as it allows the entire ecosystem to align expectations and planning horizons. The renewable industry has matured significantly since this waiver was first implemented, and we’re now better positioned to absorb policy transitions through technological advancements and business model innovations.”

Market Implications 

Stakeholders estimate a huge impact on the market if the waiver is not extended. Those with delayed PPAs will suffer from losses, increasing generation costs, and infrastructure bottlenecks.

“If the exemption isn’t extended, we estimate the cost impact to be around ₹0.40 (~$0.0047)/kWh- ₹0.50 (~$0.0059)/kWh. That’s significant, especially for solar projects bidding around ₹2.40 (~$0.028)/kWh to ₹2.50 (~$0.029)/kWh. Losing ₹0.40 (~$0.0047)/kWh to ₹0.50 (~$0.0059)/kWh (16% to 17% decrease) can bring the effective tariff down to ₹2 (~$0.023)/kWh. That can seriously affect the financial viability of projects,” according to one estimate by a developer.

For developers who factored in the ISTS exemption in their bids, its absence can be significant.

Developers believe that if the waiver is not extended, the government’s planned 50 GW annual tendering trajectory until 2030 could be in jeopardy.

“It could adversely affect the renewable energy sector, signaling a lack of sustained policy commitment. Such a move could undermine the confidence of offtakers and financing institutions, which is crucial for the sector’s growth. It will slow down our growth towards the ambitious target of 500 GW from non-fossil fuel sources by 2030,” said Krishnan.

Samant said that if the waiver is not extended, the market will go through a period of adjustment if not disruption. “Project economics would certainly be recalibrated, with potential tariff adjustments of ₹0.70 (~$0.0082) – ₹1.20 (~$0.014)/kWh over the next three years, when the full impact of the removal of the waiver kicks in, depending on the source of energy.”

While the deadline is only weeks away, there has been silence from the government so far.

A few developers have started to plan in case there is no extension. “We’ve been strategically preparing for multiple scenarios regarding the ISTS waiver. We’ve begun diversifying our project pipeline geographically, increasing our focus on intrastate projects where we can co-locate generation closer to consumption centers,” said Samant.

Another developer noted, “While it seems a bit unlikely that there will be an extension, the government works at its own pace. The market is currently apprehensive; there’s a widespread belief that the government might go ahead and extend it for a meaningful period. But despite that perception, decisions are not being made on that assumption.”

The Indian solar sector is no stranger to market fluctuations and policy shifts. What the industry needs now is clarity. At a minimum, the government should communicate its decision on the ISTS waiver quickly so the companies can plan effectively and minimize disruptions to ongoing and upcoming projects.