Debate Over ISTS Connectivity – Balancing Grid Efficiency and Renewable Energy Growth

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• India’s renewable energy sector (private developers, Renewable Energy Implementing Agencies (REIAs), industry bodies) has raised strong objections to a proposed regulatory framework by the Central Electricity Regulatory Commission (CERC).
• The proposed framework could lead to the forfeiture of Inter-State Transmission System (ISTS) connectivity if developers fail to execute long-term Power Purchase Agreements (PPAs) within a stipulated time.
• The issue is significant in the context of India’s ambitious target of 500 GW of non-fossil fuel capacity by 2030 and ongoing challenges of grid congestion, transmission bottlenecks, and delays in project execution.

Background

• Existing framework:
  • Under General Network Access (GNA) regulations, renewable projects can secure connectivity through Letters of Award (LoAs), signed PPAs, partial land acquisition, bank guarantees in lieu of land documents.
  • This flexibility aimed to facilitate early-stage project development.
• How the current model works:
  • REIAs like SECI, NTPC, NHPC, and SJVN act as intermediary procurers – buy power from developers via PPAs, sell to discoms through Power Sale Agreements (PSAs).
  • Typically, PPAs are signed only after PSAs, making early PPA linkage difficult.
• CERC’s proposal:
  • PPA-linked connectivity: Grant future transmission connectivity only against signed PPAs, not LoAs.
  • Auction-based allocation: Introduce auctions for allocating connectivity, along with firm commissioning timelines.
• Rationale behind these proposals: 
  • Address underutilisation of transmission infrastructure. 
  • Nearly 31.8 GW of renewable capacity already has connectivity but lacks PPAs. 
  • Around 42 GW of RE capacity remains without PPAs, making PPA delays a systemic bottleneck (ICRA).

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Key Concerns Raised by the Renewable Energy Sector

• Penalising developers for factors beyond control:
  • Industry associations argue that PPA delays are largely due to procedural inefficiencies and slow tariff approvals by state-owned DISCOMs, not developer inaction.
  • Penalising developers undermines the principle of regulatory certainty.
• Impact on India’s clean energy targets:
  • The proposed measures could slow capacity addition, threatening the 2030 non-fossil energy target.
  • Despite rapid renewable growth, transmission infrastructure (495,000 circuit-km grid) has struggled to keep pace.
• Risk of higher tariffs and market concentration:
  • The National Solar Energy Federation of India (NSEFI) opposed auctioning grid connectivity at a premium, warning it would – 
    • Increase renewable energy tariffs.
    • Favour large, cash-rich players, marginalising smaller developers.
  • Grid connectivity, they argued, should not become a tradable asset.

Sector-Specific Issues

• Solar energy sector: Emphasised that delays stem from state-level regulatory and approval bottlenecks. Warned against market distortion through premium-based auctions.
• Wind energy sector: 
  • Wind associations termed proposed timelines unrealistic, citing long manufacturing cycles, import dependence for turbines and key components.
  • Opposed the 18-month project completion deadline, seeking a 24–30 month timeframe.

SECI’s (Solar Energy Corporation of India) Position

• Warned that auctioning connectivity would push up future tariffs.
• Recommended reallocation based on project readiness, such as land acquisition, financial closure, and equipment procurement.
• This approach prioritises execution capability over bidding power.

Challenges and Way Ahead

• Transmission bottlenecks and idle capacity: Accelerated transmission infrastructure development – Proactive expansion of ISTS to match renewable ambitions.
• Delayed PPAs: Due to DISCOM inefficiencies. Reform DISCOM processes – Time-bound tariff approvals and PPA execution, strengthening financial health of DISCOMs.
• Mismatch between generation growth and grid expansion: Flexible, technology-specific timelines – Differentiated norms for solar, wind, and hybrid projects.
• Risk of policy uncertainty and investor confidence erosion: Integrated policy coordination – Closer coordination between CERC, Ministry of Power, and MNRE, align transmission planning with renewable capacity addition.
• Potential monopolisation of grid access: Non-market-based allocation of connectivity – Prioritise project readiness and execution milestones, avoid auctioning connectivity as a revenue-maximising tool.

Conclusion

• The controversy over ISTS connectivity rules highlights the broader tension between grid efficiency and renewable energy expansion. 
• While addressing idle transmission capacity is necessary, punitive measures risk undermining investor confidence and slowing India’s clean energy transition. 
• A coordinated, flexible, and developer-sensitive regulatory approach, focused on structural reforms rather than penalties, is essential to achieve India’s renewable energy and climate commitments.

Source: IE