2022 Deadline for ISTS Waiver Not Enough for Solar Projects Stuck in Limbo Amid COVID-19

The coronavirus crisis has disrupted the momentum in all segments of the renewable industry. The Ministry of Power’s (MoP) waiver on Interstate Transmission System (ISTS) charge is currently only applicable to projects commissioned before December 31, 2022, but transmission projects are expected to get delayed beyond this date due to the ongoing pandemic. The deadline was revised from March 31, 2022, set previously.

This may throw a wrench in the works of major power projects, causing tariffs to rise. The additional charges effective without the waiver will have to be invariably borne by the project developers. This will also be a cause of concern to the lenders, ultimately slowing down the progress of the country’s progress towards achieving its goal of 175 GW of renewable energy by 2022.

The Ministry of New and Renewable Energy (MNRE) had addressed the issue of the time gap between the commissioning of the transmission system and renewable energy projects where the cost of transmission for the delay is to be borne by the generators even when they are not at fault.

Stakeholders Mercom spoke to unanimously agreed that the industry needs a longer deadline extension to give them some breathing room to get their projects back on track following the havoc caused by the global pandemic.


Is the Extension Enough?

While the extension is important, it is not is sufficient. Industry representatives said that even a six-month or a one-year extension might not help developers much as it would be of little use in cases where delays caused by the unprecedented crisis end up extending commissioning dates by more than a year.

“The waiver should be immediately extended by a few years or so in light of the ongoing COVID-19 pandemic. The lack of clarity about this would cause uncertainty for the current bid submissions in the market. This needs early confirmation so bids can be planned accordingly,” said Samitla Subba, Vice President- Corporate Affairs (Policy and Communications) at Azure Power, an independent power producer.

Meanwhile, other industry stakeholders argued that waivers should be given based on bidding dates instead of scheduled commissioning dates. They said that providing waivers based on scheduled commissioning dates involves too much uncertainty and that using bid dates as the base would rule out this problem.

“Instead of extending by just six months, it is more effective if they let the developers know that bids up to a particular date will be granted waiver considering the fact that many projects are delayed due to reasons that are not in the control of the developers,” said Gaurav Sood, Chief Executive Officer at Sprng Energy, a renewable energy platform set up in India by private equity fund manager Actis.

According to an executive from a solar power development firm, power sale agreements (PSA) for about 20 GW of solar projects have not been signed yet. “For these, the tariffs need to be adopted, and then power procurement approvals need to be obtained. We don’t know when all these procedures are going to conclude,” he added.

The executive further explained that in case the ISTS waiver is lifted, the cost impact will be around ₹1 (~$0.013)/kWh. So, if a developer quotes a tariff of ₹2.50 (~$0.033)/kWh, assuming the project is eligible for ISTS waiver, and for some unforeseen reason beyond the control of the developer, it gets delayed, the effective tariff will be ₹1.5 (~$0.019)/kWh. At this tariff, the projects will be totally unviable.

The National Solar Energy Federation (NSEFI) has also written to the Ministry of Power, stating that the industry needs a 12-month blanket extension for the ISTS waiver to help it recuperate from the COVID-19 crisis. The Federation also proposed that the waiver be linked to the bidding mechanism such that waivers are given based on the date bids are allocated by the implementing agencies.

Major Projects at Stake:

According to Mercom’s data, 49.5 GW of transmission projects (to evacuate both solar and wind) are under various stages of implementation across Rajasthan, Andhra Pradesh, Gujarat, Karnataka, Maharashtra, and Madhya Pradesh. Unless the waiver is extended, these projects are at risk of losing eligibility.

Here is a summary of the transmission projects dedicated to solar projects across the country:

Solar Energy Zones

The PowerGrid Corporation of India Limited’s (PGCIL) transmission projects in Rajasthan (8.9 GW) could face a delay. The projects include a tender for establishing transmission systems to evacuate 8.1 GW of solar power from special economic zones in the state. The initial deadline of December 2020 seems unlikely to be met due to the pandemic. The Central Electricity Regulatory Commission has also passed an order granting regulatory approval to the PGCIL for setting up these transmission systems.

Rajasthan’s Fatehgarh, one of the most attractive locations in the country for solar projects with its high solar irradiation levels, currently does not have any available transmission infrastructure, according to the developers Mercom spoke to. The first and second phases of the projects were scheduled to be commissioned by December 2020, and March 2022, respectively. However, the second phase of the program might be delayed because of setbacks due to the COVID-19 crisis and potentially become ineligible for the ISTS waiver.

ISTS transmission projects of around 32.5 GW are expected to come up in the western and southern regions. Around 12.5 GW of projects in Phase-I are under construction, and 20 GW in Phase-II are yet to be tendered.

In April, REC Transmission Projects Company Limited announced that it would be calling for bids to develop seven transmission projects of 32.8 GW to evacuate renewable energy projects, especially solar. Following that, in May, PFC Consulting reported that it would issue tenders to build transmission systems for the evacuation of power from solar energy zones (34.9 GW). These tenders are yet to be issued.

Other locations in the state which do have sufficient transmission bandwidth have much lower solar irradiation. As a result, tariffs will be on average ₹0.05 (~$0.0007)/kWh higher since the power generation potential is lower.

Facilitating Capacity Addition:

The problems belying India’s transmission infrastructure will need more than a simple waiver to solve. More than commissioning delays, a more serious problem plaguing the power sector is the lack of transmission capacity.

Transmission charges are based on the distance between the power injection and withdrawal points. The longer the distance, the higher the charges. A more robust transmission network would go a long way in bringing down these charges, and consequently, tariffs.

It is understood that if the generated power cannot be evacuated efficiently, developing more capacity would be pointless.

An executive from an Indian renewable energy company explained that the sector would benefit much more from a three-year extension to ensure ISTS readiness for the large number of power projects lined up in the country and cited PGCIL’s transmission projects in Rajasthan as an example.

“PGCIL has to immediately come up with a plan to expand the ISTS network in Rajasthan. It is critical that we move the ISTS readiness ahead of the solar projects because the normal timeline for PGCIL to complete any ISTS system is at least three years. This includes setting up transmission lines and substations. On the other hand, solar projects have a maximum timeline of about three months. If you want to have more generation capacity, you need to facilitate it,” the executive added.

The lack of transmission infrastructure to support new renewable energy capacity additions has been a growing concern for solar and wind companies in the country, especially over the last few years, in light of the surge in renewable energy projects.

Mercom has previously written about how India’s transmission and distribution system requires significant expansion, considering the expected surge in power demand over the coming decade and the rapid installation of solar and wind projects.

Now, the Union Minister of Power, R.K. Singh, has hinted at the possibility of an extension on the waiver by at least six months during a session organized by the Federation of Indian Chambers of Commerce and Industry (FICCI). But would that be enough? This is the pressing question.