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					</table>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 (<a href="https://cea.nic.in/" target="_blank" rel="noopener">CEA</a>) 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 <a href="https://www.mercomindia.com/india-on-track-to-energy-capacity-by-2030-joshi" target="_blank" rel="noopener">targeted</a> 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:
<ul>
<li>Obligations related to right-of-way (ROW) and transfer of land</li>
<li>Treatment of warranties and defects and liability assurances from suppliers</li>
<li>License transfer</li>
<li>Approval for tariff (in case of RTM model) to provide tariff certainty</li>
<li>Formulation of a settlement plan for pre-identified asset-specific risks</li>
</ul>
RoW issues, landholder opposition, compensation disputes, litigation, and delays in obtaining forest, wildlife, and tree-cutting approvals are among the <a href="https://www.mercomindia.com/renewable-capacity-growth-severely-hit" target="_blank" rel="noopener">reasons</a> for transmission projects overshooting their deadlines.

How to Monetize Brownfield Transmission Assets to Attract Private Investment

The Ministry of Power (<a href="https://powermin.nic.in/" target="_blank" rel="noopener noreferrer">MoP</a>) announced that the Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, has approved the asset monetization of the Power Grid Corporation of India Limited (<a href="https://www.powergridindia.com/" target="_blank" rel="noopener noreferrer">PGCIL</a>) through the Infrastructure Investment Trust (InvIT) model.
The financial instrument I’nvIT’ was launched as a part of a brownfield asset monetization strategy to enhance infrastructure investments, which would provide an opening for the general public and institutional investors to invest in the infrastructure sector.
The InvIT model has been designed in a way that’s similar to mutual funds. In this, small sums of investor’s money are pooled together to invest in a project. This provides a steady cash flow over a period of time, a part of which goes back to the investors in the form of dividends.
According to the press release, PGCIL, a state-owned power transmission company, will be the first public sector undertaking (PSU) in the power sector to undertake asset recycling through the monetization of its assets by the InvIT model. The company plans to utilize the proceeds from asset monetization for its new and under-construction projects as well as capital expenditure.
The approval will facilitate PGCIL to monetize its assets that are held in the form of special purpose vehicles (SPVs) like high voltage transmission lines and substations. The company is expected to monetize assets with a gross block worth over ₹70 billion (~$ 950.86 million) in the first lot. It also has a capital expenditure plan of ₹205 billion (~$2.78 billion) for the next two years.
“Asset recycling is a key strategy of the government of India to release the capital invested in operational assets, and the proposed InvIT of the PGCIL would attract both domestic as well as global investors including sovereign wealth funds. Sale of assets to InvITs is a way of accessing long-term, relatively cheap finance required for infrastructure projects in the transmission sector,” said the government’s press statement.
Mercom earlier <a href="https://mercomindia.com/powergrid-separate-transmission-business/" target="_blank" rel="noopener noreferrer">reported</a> that the PowerGrid Corporation of India Limited had announced its plans to separate its power transmission business to form a 100% subsidiary that would carry out transmission-related functions, as per the Ministry of Power’s directions. The newly formed subsidiary would have separate accounting and board structures.
In July 2020, Tata Power <a href="https://mercomindia.com/tata-power-invit-renewable-business/" target="_blank" rel="noopener noreferrer">announced</a> that its board of directors had given its in-principle approval for setting up an InvIT for the company’s renewable business. This was part of the company’s long-term strategic plan to reduce debt, strengthen its balance sheets, and improve overall return metrics.

Cabinet Approves Asset Monetization of Power Grid Corporation Through InvIT Model

POWERGRID can monetize its transmission line towers by offering it to mobile telecom service providers on commercial basis under section 41 of the Electricity Act, 2003, which allows for effective utilization of assets to benefit the society at large, a committee constituted by the Central Electricity Regulatory Commission (<a href="http://cercind.gov.in/" target="_blank" rel="noopener noreferrer">CERC</a>) said in its recommendation.
The committee was mandated to investigate the technical and financial aspects of the proposal after POWERGRID filed a petition with the CERC to share its transmission infrastructure with telecom operators.
Telecom service providers are reluctant to establish telecom network in remote areas due to non-availability of electricity board power supply, difficulty to lease land, high maintenance costs, low revenue due to low population etc.
POWERGRID, in the petition has mentioned that majority of its 2,50,000 transmission line towers are in remote areas and the same could be used to improve the IT infrastructure in rural areas. This can help government of India’s flagship “Digital India&#8221; program.
The petition also cites the National Digital Communications Policy -2018 recommendation to reduce the carbon footprint by deploying solar power in place of running of diesel genset for more than 12 hours/day. It says-
“Department of Telecom has emphasized for leveraging existing assets of the broadcasting and power sector to improve connectivity, affordability and sustainability and facilitate the establishment of Mobile Tower Infrastructure by promoting and incentivizing deployment of solar and green energy for telecom towers.”
Therefore, it is an initiative to explore the possibility to offer a cost-effective solution by providing transmission infrastructure and reliable power to the telecom operators.
According to the CERC (sharing of revenue derived from utilization of transmission assets for other business) Regulations, 2007, POWERGRID is required to share the revenue derived from such business with the beneficiaries of ISTS.
The committee in its recommendation has suggested that in initial stages, sharing of revenue after meeting cost may be in the ratio of 50:50 with the beneficiaries. However, it may be reviewed after one year to ascertain the financial viability of the business by POWERGRID.
Many DISCOMs have also replied to the petition and expressed their concerns.
The Uttar Pradesh Power Corporation Ltd. (UPPCL) submitted that POWERGRID should ensure non- hindrance of transmission services due to frequent maintenance of mobile telecommunication equipment.
BSES Rajdhani Power Ltd in its submission said –
“PGCIL has proposed to supply power to telecom asset/ transmission system which would mean that PGCIL is indulging in the trading of electricity despite being a transmission licensee. As per Section 38 of the Electricity Act, PGCIL can only undertake the functions assigned to it under the Electricity Act i.e. transmission of electricity.”
It further added, “If PGCIL seeks to engage in trading/supply of electricity, it would require distribution licensee and distribution system which cannot be done under the current regulatory framework.”
However, the committee in its recommendation has observed that providing electricity by POWERGRID for the telecom equipment installed on its transmission towers out of the electricity which was otherwise wasted does not amount to &#8216;generation&#8217; or &#8216;trading&#8217; in electricity and thus the prohibition prescribed in Section 38  would not apply.
Comments are invited from the stakeholders by March 1, 2019.
<a href="https://mercomindia.com/leh-kargil-connected-national-grid/" target="_blank" rel="noopener noreferrer">Recently</a>, Mercom reported that Leh and Kargil, two of India’s most difficult and inhospitable terrains, were connected to the national electricity grid after 72 years of independence. It was made possible by the PGCIL, a state-run transmission utility.

CERC Encourages POWERGRID to Monetize Transmission Lines Through Telecom Providers

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