These projects, many of which have been delayed due to procedural, regulatory, and infrastructure hurdles, will now fall under a phased withdrawal of the benefit, requiring developers to reassess debt service coverage and return expectations.
The ISTS waiver, first introduced by the Ministry of Power in 2016 and later extended, had been a key incentive driving renewable energy growth—particularly for solar- and wind-rich states like Rajasthan and Gujarat—by facilitating cost-effective power transmission to high-demand regions.
Under the current policy, only projects commissioned by June 30, 2025, are entitled to a full 25-year exemption from ISTS charges. Projects completed after this deadline will receive reduced benefits: 75% waiver for those commissioned by June 2026, 50% by June 2027, and 25% by June 2028. The waiver will be entirely withdrawn thereafter. Although offtakers typically bear transmission costs, developers may be liable if delays are deemed to be their fault.
Transmission charges generally range from ₹0.50 to ₹1.50 per kilowatt-hour (kWh), depending on project location and type. The reduced waivers are expected to moderate long-term cash flows, affecting debt service coverage ratio (DSCR) and project returns. For example, bearing just 25% of an assumed ₹0.65/kWh charge could lower DSCR from 1.4 times to 1.3 times.
Ankit Hakhu, Director at Crisil Ratings, noted that since approximately three-fourths of the affected capacity is expected to be commissioned by June 2026—and would still qualify for a 75% waiver—the overall sectoral impact and downside in returns from the phase-down are likely to be limited.
He added that most of these under-construction projects are being developed by established players, which offers a degree of financial flexibility. However, he cautioned that in cases where projects are impacted, returns could moderate by 80 to 370 basis points, depending on factors such as project type, bid competitiveness, and the commissioning timeline.
Some relief may be available for projects delayed due to force majeure or factors beyond the developer’s control, such as non-availability of transmission infrastructure.
“The policy permits waiver extensions for such cases, subject to regulator approval,” said Mohini Chatterjee, Team Leader, Crisil Ratings. “However, these will be decided case-by-case, making timely resolution critical to safeguard credit profiles.”
Despite the phase-down, the government has reiterated its commitment to the renewables sector. The full ISTS charge exemption has been extended for battery energy storage systems and pumped hydro projects until June 2028.
