India calls end to subsidy that helped fuel clean energy boom

From Tuesday, solar or wind power projects commissioned after June will have to start paying 25% the cost of transmitting power from one state to another. The charges will rise for future plants, according to a plan prepared by the federal power regulator.

By Rajesh Kumar Singh

A key subsidy that helped propel the growth of India’s renewable industry has come to an end despite months of industry lobbying, adding financial stress to a sector that’s already grappling with a demand glut.

From Tuesday, solar or wind power projects commissioned after June will have to start paying 25 per cent of the cost of transmitting power from one state to another. The charges will rise for future plants, according to a plan prepared by the federal power regulator.

The clean—energy industry had for months sought an extension. “Our main argument was that the cost increase will make signing power purchase agreements even harder, especially for projects that have already been auctioned,” said Subrahmanyam Pulipaka, chief executive officer at National Solar Energy Federation of India.

The policy change may also hit the cost of green energy, with tariffs potentially adding 0.4 rupees per kilowatt-hour, Pulipaka said. That would be a 16 per cent increase, compared to the lowest prices from auctions in the fiscal year 2025.

High power prices and a lull in demand have already left nearly 30 gigawatts of upcoming capacity struggling to find long-term distribution, clouding India’s goal to reach 500 gigawatts of clean installations by 2030.

One potential consequence is the greater localization of green energy production, undoing the concentration of recent years, when cheaper transmission has led to most renewable projects being built in the five states with the best solar radiation, strong winds and abundant land.

“What’s probably going to happen is that more and more states are going to build their own projects and procure from those,” Pulipaka said.

States are already unhappy with the trading fees charged by federal auctioning firms and have been contemplating calling their own bids. The new transmission rules add yet another reason to go local.

The southern state of Karnataka, home to India’s tech hub Bengaluru and among the largest clean energy producers, plans to keep building projects close to home, according to Gaurav Gupta, the top bureaucrat in the state’s energy department.

“We have done it in the past and want to continue doing it,” Gupta said in a phone interview. “We want the power to be evacuated by the state’s transmission unit. That way we can save on trading fees and inter-state transmission charges.”