India's Renewable Energy Projects Face Reduced Cash Flows as Transmission Charge Exemption Ends

Strategic Insights -

As of June 30, 2025, the 100% inter-state transmission system (ISTS) charge exemption for utility-scale renewable energy projects in India will expire, potentially impacting cash flows for around 26 GW of under-construction projects. The exemption, introduced in 2016, allowed solar- and wind-rich states to supply electricity to high-demand regions at competitive rates. However, a planned phase-down of the exemption will result in reduced transmission charge benefits for projects commissioned after June 30, 2025.

Key Takeaways:

  • Around 26 GW of under-construction utility-scale renewable energy projects in India may face reduced cash flows following the expiry of the 100% ISTS charge exemption.
  • Projects commissioned by June 30, 2025, will retain the full 100% waiver for 25 years, while those completed after this date will receive decreasing levels of waiver.
  • Ankit Hakhu, Director, Crisil Ratings, expects a limited sectoral impact and material downside in returns due to the phase-down, with only 25% of the affected capacity expected to be commissioned after June 30, 2026.
  • Transmission charges vary from 0.50 to 1.50 per kilowatt-hour (kWh), and the gradual withdrawal of the waiver could reduce long-term project cash flows and impact financial metrics such as the debt service coverage ratio (DSCR).
  • Some delayed projects may still qualify for the full exemption if the delays are caused by specific allowable circumstances.
  • The government has extended the full ISTS charge exemption for battery energy storage systems and pumped hydro projects until June 2028.

Statistics:

  • 26 GW: The amount of under-construction utility-scale renewable energy projects in India that may face reduced cash flows following the expiry of the 100% ISTS charge exemption.
  • 25 years: The duration for which projects commissioned by June 30, 2025, will retain the full 100% waiver.
  • 0.50-1.50 per kWh: The range of transmission charges that projects may face.
  • 80-370 basis points: The potential reduction in project returns for impacted projects, depending on project type, bid competitiveness, and date of commissioning.
  • 1.4-1.3: The potential decline in debt service coverage ratio (DSCR) for projects impacted by reduced waivers.

Sources:

  • "Reform of ISTS charge exemption on transmission charges of renewable energy projects" by Ankit Hakhu, Director, Crisil Ratings ( ).
  • "ISTS charge waiver for renewable energy projects: Implications for under-construction projects" by Mohini Chatterjee, Team Leader, Crisil Ratings ( ).