We can’t ignore what it costs to carry renewable energy

On the other side, a number of distribution companies (discoms) have been pleading that repeated extensions to the waiver of these charges for RE projects connected to the inter-state power grid has led to an overall increase in their transmission cost burden, on account of the waiver amount being socialized by such a policy. 

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I would like to clarify two points upfront. Promoting the expansion of India’s RE capacity is of utmost importance from the perspective of energy security as well as environmental sustainability. It will be very difficult to meet increased demand for electricity without expanding solar plus storage capacity, given the sluggish progress in all other generation sources. 

Equally crucial is the timely expansion of our grid capacity to ensure the reliability of supply, resilience of power systems and development of Indian electricity markets. However, new transmission assets are expensive, which puts upward pressure on consumer tariffs. We also need to consider their environmental footprint in congested corridors. So we need a well-reasoned strategy.

After India’s revised Tariff Policy was notified in 2016, the first notification for a waiver of transmission charges (and of those for losses en route) was for wind as an RE source, issued in 2016 for projects to be commissioned by 2019. The same was extended in 2017 to solar projects. This dispensation was extended several times: in 2019 for projects set up by 2022 and in 2020 for projects set up by 2023. In 2021, the waiver was again extended for projects set up by June 2025, but without a waiver of transmission-loss. 

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Ideally, capacity-expansion planning and project site decisions should be governed by economic principles, so that electricity can reliably be delivered at the least possible cost to consumers, thus improving the living standards of people at large and helping industrial users stay competitive. Higher-level policy considerations, such as alignment with the country’s goal to decarbonize its economy,  should of course be respected. Deviations from this framework result in avoidable higher costs and an unfair preference to a few technologies and project locations. 

Repeated extensions of the waiver dispensation had started showing several unintended consequences. Going by industry estimates, it implied a subsidy of ₹0.5 to ₹1.6 per unit to RE projects connected to the interstate grid. This led to a neglect of distributed RE projects in states that have several economic and social benefits. 

We were compelled to take up exorbitant high-voltage direct current (HVDC) projects for the evacuation of RE from heavily congested corridors at an estimated cost of ₹2.72 per unit for plain vanilla solar projects. 

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The development of RE in the country became highly skewed, with the top two states accounting for 35GW each, out of a total capacity of about 160GW. A frenetic rush to set up RE plants only in a few districts of India led to a ‘right of way’ crisis, which drew the attention of the Supreme Court in its ‘Great Indian Bustard’ ruling of 2021, which directed that overhead power lines be placed underground in some wildlife habitats (the order was modified in 2024).  

Meanwhile, the cost of the policy kept piling up. According to an estimate, by April 2024, the waived amount had already touched 7% of the total monthly transmission  cost at the inter-state level, and was expected to balloon rapidly in the years ahead, given that India’s transmission investment pipeline had swollen to ₹1.25 trillion. 

The transmission waiver had thus become unsustainable from the viewpoint of balanced and affordable RE development in the country. It was going against the principle of a just energy transition and the imperative to keep energy affordable for India’s masses. 

In other words, the government’s decision of not extending the waiver for plain solar and wind projects was justified and well reasoned. The RE industry cannot complain of policy uncertainty, as the notification issued for its fourth extension in 2021 not only gave a four-year window, it also offered a glide path for a phased withdrawal of that benefit (for future projects commissioned up to June 2028). Such concessions should be given only in a limited manner for emerging technologies. Energy storage projects have been given a waiver if these come up in the next three years. Extensions should be rare. 

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Our regulatory framework should be sensitive to the cost of electricity. In the Central Electricity Regulatory Commission’s general network access regulations, transmission charges being levied only on the demand side means that generators are not bothered about the consequences of their site decisions on overall system costs. 

On the face of it, one can say all transmission costs are ultimately paid by consumers, but this is not so simple; remember, bulk electricity prices increase with overall system costs. The framework of regulation must let transmission costs send price signals to generators that reflect the burden on the system’s overall costs. This is the practice in many well-governed power systems.

The author is former union power secretary, Government of India.