Industry experts: Call to extend renewable energy tariff waiver until 2030

In May 2023, the Indian government announced a significant policy to promote renewable energy by waiving Inter-State Transmission System (ISTS) charges for 25 years for offshore wind power projects commissioned on or before December 31, 2032. This initiative aims to encourage the development of offshore wind energy and facilitate the growth of green hydrogen and green ammonia projects. For projects commissioned after this date, a graded ISTS charge system will be implemented. 

Renewable energy investments and development

Additionally, the waiver of ISTS charges for green hydrogen and green ammonia production units has been extended. Projects commissioned on or before December 31, 2030, will benefit from this waiver for 25 years from their commissioning date. Projects commissioned after this period will be subject to a phased introduction of transmission charges. Power producers have advocated for further extensions of these waivers to sustain the momentum in renewable energy investments and development. They argue that prolonged incentives are essential to achieving India's ambitious renewable energy targets and ensuring the financial viability of green projects. As of now, the government has not announced any additional extensions beyond the current deadlines.

Electricity distribution companies

The current ISTS waiver helps renewable energy developers avoid Rs 0.4-1.8 per unit in charges that would have incurred on moving electricity from producing state to consumption centres. This, sources said, is a substantial chunk of the total tariff. If ISTS waiver is not extended, it will lead to significant increase in tariff and make power generated from renewable sources uncompetitive vs other sources like coal, sources said adding this will also lead to an increase in procurement costs of electricity distribution companies.

Power purchase agreements

Many LOAs (letter of awards) would not convert to power purchase agreements (PPAs) if the waiver is rescinded in June 2025, industry players felt.On other hand, the cost of extending the waiver is nominal while the benefits are huge. It will help DISCOMs sign the pending 40 GW of PPAs as they would save 60-90 paise per unit.Further, industries will be motivated to decarbonise and opt for renewable energy projects. Both will help the country move towards the 500 GW mission.According to official data, transmission charges (without waiver) are approximately Rs 52,691 crore per year while the quantum of ISTS waiver is only around 7 per cent at Rs 3,602 crore.

Ministry of New and Renewable Energy

For any extension of ISTS waiver, heads of both Ministry of New and Renewable Energy (MNRE) and Ministry of Power are expected to meet soon to decide on the future course of action, sources added.India faces transmission constraints in its endeavour to meet renewable energy targets. Only Madhya Pradesh will have spare capacity in the future, while Rajasthan and Gujarat will not. States need to plan renewable and other power procurement as per the resource adequacy framework.

Transmission charge waivers

At the meeting, concerns were raised about delays in closing letters of award (LOA) with power purchase agreements (PPA), leading to developer liabilities. New guidelines will aim to close LOA with PPA within a year. Additionally, it was pointed out at the meeting that transmission charges for developers were reduced to address such delays.There's a need to extend ISTS transmission charge waivers for renewable energy to keep distribution companies power procurement costs low. A phased reduction of these waivers could be considered to address the problem of socialisation of costs. However, this could lead to PPAs not materialising owing to increase in RE procurement cost, they said.