ISTS open access restricted to a few states

06 December 2021 |

The Ministry of Power has offered a series of concessions on waiver of Inter-State Transmission System (ISTS) charges and losses. The most significant concession involves extending the waiver to open access projects – both third-party sale and captive use. The 100% waiver for ISTS charges over 25 year project life would now apply to all solar, wind, pumped hydro and battery storage projects completed by 30 June 2025 irrespective of end use of power or project allocation process. For projects completed past this date, the charges would be levied in a staggered manner based on project COD (see table below). ISTS losses (about 3-4%) would also be waived in full for projects auctioned by 15 January 2021. Minimum renewable power input threshold for pumped hydro and battery storage projects to claim ISTS charge waiver has been reduced from 70% to 51%.

Table: Timeline and quantum of ISTS charges for renewable projects

Source: Ministry of Power notification

As per another amendment, projects where scheduled COD deadline has been extended beyond 30 June 2025 due to force majeure or unavailability of power evacuation infrastructure shall also be eligible for 100% transmission charges waiver. Moreover, the waiver of short-term open access charges for storage projects would now apply to both charging and discharging (only charging cycles, as per earlier notification).

Hitherto, only competitively bid projects selling power to DISCOMs were eligible for ISTS charges waiver. The concessions follow directly from the government’s keenness to spur renewable power growth in face of various slowdown risks facing the industry. DISCOMs have been reluctant to sign PSAs because of concerns around demand uncertainty and high landed cost of power. Some projects auctioned last year are yet to find willing buyers. Having consistently resisted demand for ISTS charge waiver for open access projects in the past, the government has now given in in the hope that industrial consumers can fill the demand void.

While some analysts are arguing that the waiver is a game changer for the sector, we believe that the move would have limited overall impact. One, it is likely to increase resistance from state governments and DISCOMs to open access project approvals even further. Two, the ultimate reduction in landed cost for open access power, net of ISTS losses and additional levies imposed by power producing states, would be relatively miniscule at about INR 0.20/ KWh, or just about 3-4% of total cost. Three, there is no provision of banking in the ISTS network. The real benefit would be restricted to few states like Haryana and West Bengal, where setting up large scale intra-state projects is not considered viable because of scarcity/ high cost of suitable land.

The waiver would favour utility scale project developers over their C&I specialist competitors. Someone setting up say, a 500 MW, project in Rajasthan as part of SECI tenders will find it much easier and cheaper to bolt on additional capacity for C&I consumers.

Addition in open access renewable capacity, currently estimated at 11,910 MW (solar 4,595 MW, wind 7,315 MW), has faltered in the last few years. But it would be far more preferable if the government focused on pushing through recent proposals to streamline project approval process and provide visibility on grid charges rather than providing financial incentives. Growth of ISTS waiver-based capacity would exacerbate execution challenges in hot spots like Rajasthan and Gujarat, and risks inviting opposition from states reluctant to bear the cost of these waivers.

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