Over Building Transmission: A Case Study and Policy Analysis of the Indian Power

Sector
Rasika Athawale1 and Frank A. Felder2

Abstract
Policies to substantially increase the amount of renewable energy produced and electrify
much of the transportation and industrial sectors to achieve greenhouse gas reduction goals
envision an extensive transmission system expansion. One set of proposals calls for
anticipatory transmission planning: building transmission to regions with the potential to
develop renewable energy resources before their actual development. This paper conducts a
case study of transmission expansion planning in India and finds that even in a country that is
rapidly developing thermal and renewable resources and has sizeable electricity load growth,
it is possible to overbuild the transmission system. Anticipatory transmission planning, high
guaranteed returns, and weak governance result in transmission overbuilding. This cautionary
finding motivates several recommended public policy reforms to reduce future overbuilds
while supporting economically efficient and environmentally sound transmission
development.
Keywords
Anticipatory transmission planning, renewable energy, India, investments, tariff

I. Introduction
The transmission of electricity has taken center stage in global discussions surrounding the
energy transition. It is seen as a low-cost necessity for meeting reliability and decarbonization
goals by providing the capability to transmit electricity generated at large-scale wind and
solar projects and combining large balancing areas to integrate intermittency of renewable
energy (Brown and Botterud, 2021; Joskow, 2021; Golombek et al., 2022). The need for
investments in transmission infrastructure is further justified because of the increasing
electrification of energy uses, such as transportation, heating, and non-electricity industrial
processes (Weiss et al., 2019).
The call for transmission capacity expansion is almost universal and has gained further
significance as one of the economic measures to ensure sustainable recovery from the Covid-
19 crisis. Infrastructure spending on electricity grids is already on the rise in China, Europe
(IEA, 2021a), the United States (Infrastructure Investment and Jobs Act, 2021), India
(Ministry of Finance, 2019), and Africa (African Business, 2020). The IEA’s Net Zero by
2050 analysis projects annual global investment in transmission and distribution grids to
expand to USD 820 billion in 2030, almost a threefold rise from current investment levels
(IEA, 2021b).

1
India Energy Insights, [email protected].
2 Corresponding author, King Abdullah Petroleum Studies and Research Center (KAPSARC), P.O. Box88550,
Riyadh, 11672, Saudi Arabia. Mail: [email protected].

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International climate-backed finance has been thought particularly necessary for creating
inter-continental and cross-border transmission links that can connect new unmet demand
from a country or continent to the underutilized generation in another region to reduce
electricity curtailments.3 Multilateral Development Banks (MDBs) have been supportive of
investments in power transmission, especially in the low-income and middle-income
economies where the majority of transmission infrastructure capacity addition is under
progress or is being planned (World Bank, 2020; CDC Research 2021). This support is even
more the case for countries that heavily depend on fossil fuels and are short of funds for
climate mitigation and adaptation (World Bank, 2020). Anticipatory or proactive
transmission planning stands out globally as the recommended policy choice.
One region where anticipatory transmission planning, high guaranteed returns, and weak
governance have led to spectacular recent growth in transmission infrastructure is India
(Figure 1)4. The country swung from the one end of double-digit energy and peak deficit in
20085 to the other end of being a power surplus and a net exporter of electricity in 2021.6 The
current pace of investments in new transmission infrastructure is still strong and is planned to
increase further in coming years to support the massive amounts of renewable energy
capacity addition (Ministry of Finance, 2019). As a result, congestion in the inter-state grid
has been reduced progressively from 17% in FY13 to 4% in FY17 (PGCIL, 2018) to almost
nil in FY21.7
1,20,000
1,10,370
Capacity added during the Plan Period (Ckt.Kms)

1,00,000

80,000 73,682

59,074
60,000 52,034
47,927
37,921
40,000 33,104
27,421

20,000

-
At the end of During 7th During 8th During 9th During 10th During 11th During 12th FY17-FY21
6th Plan (FY85) Plan (FY85- Plan (FY92- Plan (FY97- Plan (FY02- Plan (FY07- Plan (FY12-
FY90) FY97) FY02) FY07) FY12) FY17)

3
The future of power is transcontinental submarine supergrids. Financial Review. June 24, 2021.
https://www.afr.com/companies/energy/the-future-of-power-is-transcontinental-submarine-supergrids-
20210622-p5837a
4
Financial Year (FY) starts on April 1 and ends on March 31 of the subsequent year.
5
India's Peak Power Deficit Down from 16.6% in FY2008 to 0.4% in FY2021: Ministry of Power, Mercom India,
published November 9, 2021, https://mercomindia.com/indias-peak-power-deficit/
6
India Energy Exchange with Neighboring Countries,
https://indiaenergyinsights.wordpress.com/2021/05/05/india-energy-exchange-with-neighbouring-countries/.
7
Interview with Chairman and Managing Director of India Energy Exchange published in May 2021 issue of
PowerLine. "High transmission congestion a decade back led to insufficient utilization of power generation
resources, and this necessitated the splitting of the market into five or six areas. Now, with 765 kV
transmission highways and high voltage Direct Current links across the country, we have successfully
developed a single integrated grid in the country, which is the largest in the world. Power can flow seamlessly
across the country resulting in one nation, one price on a round-the-year basis.”
https://powerline.net.in/2021/05/25/interview-with-iexs-s-n-goel-2/

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 Figure 1: Transmission Infrastructure Additions in India Since 1985 (Reference: Authors’
analysis based upon CEA data8)
That pace of growth and the inherent complexity of India’s generation and transmission grid
makes it a good candidate for a detailed investigation of its transmission planning strategy,
particularly considering the country’s future renewable resources addition commitment to
meet its net-zero energy target by 2070.9 We explore the difference between anticipatory and
reactive transmission policies in the context of resource optimization, especially in light of
top-down policy goals such as ‘One Nation, One Grid, One Price’10 and given that
government-owned companies make the majority of transmission investments (state as well
as central organizations created primarily to build, own and operate transmission capacity)
with an assured regulated rate of return at 15.5% on their investments (CERC, 2019).
From our case study of transmission expansion planning in India, we find that even in a
country that is rapidly developing thermal and renewable resources and that has substantial
electricity load growth, the transmission system has been overbuilt. This finding leads to the
following policy recommendations: (a) frequent revisiting of national and state-level plans is
recommended to minimize the risk of underutilized assets to owners, (b) enhancing
transparency via public disclosure of transmission asset utilization and sharing findings of
routine government audits to increase accountability and pressure on the transmission
planners and asset owners, and (c) improving the optimization of the transmission tariff by
regulators and central and state governments concerned with reducing the cost of power
supply to consumers.
Section II develops our methodological approach of using a transmission case study and
presents the theoretical background on optimal transmission planning policies and best
practices followed globally. Section III covers the methods and data employed to develop the
India case study. This section includes a literature review of transmission case studies, a
summary of India’s power sector reforms with emphasis on the associated role of
transmission infrastructure in renewable energy growth, an analysis of the impact of
transmission infrastructure policies on the consumer tariff, and a discussion on possible
transmission over build and its financial consequences including the risks of stranded assets.
Section IV discusses our results, followed by policy recommendations and future research
suggestions in Section V.

II. Background and Literature Review on Transmission Planning

8
Central Electricity Authority, Transmission Capacity Addition during 12th Plan in India, January 2018
https://cea.nic.in/wp-content/uploads/2020/04/trans_capacity.pdf and Central Electricity Authority,
Executive Summary on Power Sector, March 2021 https://cea.nic.in/wp-
content/uploads/executive/2021/03/executive.pdf.
9
Press Information Bureau, Prime Minister's Office, dated November 1 2021. National Statement by Prime
Minister Shri Narendra Modi at COP26 Summit in Glasgow.
https://pib.gov.in/PressReleasePage.aspx?PRID=1768712
10
Press Information Bureau, Ministry of Power dated April 18, 2016. Shri Piyush Goyal releases Report of
Technical Committee on Large Scale Integration of Renewable Energy.
https://pib.gov.in/newsite/PrintRelease.aspx?relid=138953

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Case studies are an accepted methodological approach for energy policy, specifically
transmission planning.11 For example, numerous papers published in Energy Policy use
transmission case studies, many at the national level that include electricity markets
(Makkonen, Nilsson, and Viljainen, 2015).12 The context of transmission planning lends itself
to a case study approach. Transmission planning involves integrating and trading off multiple
objectives (Foroud, 2010). Substantive categories of objectives include reliability, economics,
and sustainability. In addition, there is a process objective, which provides for stakeholder
consultation (Olsen et al., 2012; Späth and Scolobig, 2017).
One strand of the transmission planning literature uses optimization and simulation models to
analyze transmission plans under different scenarios, regulations, and market structures (e.g.,
Roh et al., 2009; Munoz et al., 2013). International transmission benchmarking is also a way
to assess over or under-investment in transmission. Still, it is highly challenging because
transmission companies are idiosyncratic, an issue that will likely increase in the future
(Haney and Pollitt, 2013). Another method is country-level analyses, which we employ, that
are mainly descriptive and qualitative (Evans, 2020; Persson and Tangerås, 2020), although
there does not appear to be a formal methodological approach for this latter category.
There are numerous technical and policy challenges with transmission planning. Technical
ones include modeling alternative transmission plans that account for electricity markets and
incorporating multiple types of uncertainties in the process (van der Weijde and Hobbs, 2012;
Madrigal and Stoft, 2012; Munoz, F. D., Hobbs, B. F., Ho, J. L., & Kasina, S. 2013; Hobbs et
al., 2016; O’Neill, 2020; Wolak, 2020; Hesamzadeh et al., 2021). These uncertainties also
include potential policy changes, carbon taxes, changes in technology, or significant shifts in
economic activity (Hesamzadeh et al., 2021), and failure to account for uncertainty using
deterministic approaches is costly (Munoz et al., 2013). To help respond to uncertainty,
analysts have proposed using real options analysis that values flexibility embedded in
transmission projects, non-wires investments, and operational measures (Rudnick and
Velásquez,2020), such as the options to defer and expand transmission (Pringles et al., 2015).
Many policy barriers exist to planning, building, compensating, and financing transmission to
support large-scale renewable integration (Joskow, 2021). Suggested reforms include
engaging with stakeholder groups that may oppose transmission, mitigating project impacts
in consultation with stakeholders, compensating affected stakeholders who are affected but
do not benefit from the transmission, and working with federal and state governments
(Joskow, 2021).
The primary policy variable that is relevant to our study of the Indian transmission context is
the integration of large amounts of renewable energy – India plans to achieve 40% of
renewable capacity by the year 2030 (Sarangi et al. 2019) – with an industry structure of
vertical separation between generation and transmission. Like many other countries, the
locations of renewable energy resources are concentrated in a few regions that require
significant investments in long-distant transmission to load centers (Rudnick and Velásquez,
2020). This involves multiple layers of government to smooth out variable solar and wind

11
They are also an accepted and widely used research method in social science (Zainal, 2007).
12
A search of papers in Energy Policy using the term “transmission case study” in the abstract or keywords
resulted in 72 results (February 2, 2022).

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resources to integrate them into the grid (Madrigal and Stoft, 2012; Bogaraj and Kanakaraj,
2021).
Expanding the transmission system also has broader economic benefits. For example, it can
reduce the exercise of market power (Wolak, 2020). In the case of India, Ryan (2021) finds
that transmission expansion allows low-cost sellers to increase supply due to a more
integrated grid, which increases market surplus by 17 percent, enough to justify its
investment. Increasing access to electricity, which properly planned transmission investments
enable, can promote economic development, particularly in emerging economies (Solarin and
Shahbaz, 2013; Bee, 2016; Upreti et al., 2018). Others, however, have questioned the
development of large-scale transmission in the context of sub-Saharan Africa, emphasizing
the cost and environmental benefits of locating generation near load (Sebitosi and Okou,
2010).
The desire to achieve significant decarbonization goals via large increases in renewables has
spurred multiple policy proposals to reform current “reactive” transmission planning,
including by international funders such as the World Bank (Madrigal and Stoft, 2012).
Reactive planning in a wholesale electricity market context consists of interconnecting
generation units with shallow or deep transmission per their requests and identifying potential
additional transmission investments based upon reliability and economic criteria (Madrigal
and Stoft, 2012).
In contrast, anticipatory and proactive planning methods have been proposed in which
transmission investments are made in expectation of the development of renewable resources
(anticipatory planning) or that guide the efficient growth of the power system (proactive
planning) (Madrigal and Stoft, 2012; Rudnick and Velásquez,2020, Xu and Hobbs, 2020).13
Underpinning this confidence is the assumption that “extra transmission is often worth the
cost” (Madrigal and Stoft, 2012, p. xvii; Wolak, 2020).14 In addition, anticipatory
transmission planning is also recommended for power systems experiencing high annual load
growth (Moreno and Rudnick, 2009).
The power sector’s regulatory and market framework is an essential determinant of
anticipatory transmission investment decisions (Rudnick and Velásquez, 2020). In many
parts of the world, the utility owns both generation and transmission, and its investments are
regulated, i.e., a top-down model. The well-known Averch-Johnson effect finds that utilities
overinvest in capital if the regulated return exceeds the market return (Averch and Johnson,
1962), which has been empirically confirmed in electric transmission utilities (Spann, 1974;
Nemoto, Nakanishi and Madono, 1993). For integrated generation and transmission utilities,
concerns about over-investment in generation and transmission arise due to this effect, but at
least in theory, generation investments would be integrated with transmission investments. In
regions where entities that are not transmission companies make generation investments, the
separation of generation investments from transmission investments and transmission cost

13
Discussion of proactive transmission planning has occurred before the emphasis on renewables applications.
See, for example, Sauma and Oren (2006) and Groppi and Fumagalli (2014).
14
Whether this assumption is correct, particularly given the generally remote location of large-scale renewable
energy resources, requires verification in each situation. It is conceivable that even if renewable resources are
not developed, the additional transmission creates additional optionality that has value. How much value is
questionable since the connection would be between an undeveloped area with no generation or load to the
grid.

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allocation, discussed further below, become important. For India, as noted above,
government-owned companies make most of the major transmission investments whereas
independent power producers make investments in generation. This separation between
generation and transmission investment provides a gap in which transmission may be built
without the corresponding generation investments. Rudnick and Velásquez (2020) find that
Texas successfully coordinated transmission with wind farm development, but that Brazil,
Chile, and Australia had mixed experiences in the planning, coordination, and cost and risk
allocation of anticipatory transmission investments.
Anticipatory transmission proposals also include provisions regarding cost allocation,
stakeholder engagement, and other supporting policies (Madrigal and Stoft, 2012; Pozo,
Contreras, and Sauma, 2013). Efficient transmission siting is essential with large amounts of
renewables, which may require significant additional investments. In most cases, including
India, transmission costs are socialized across network users and are not based upon more
efficient cost reflectiveness or, equivalently, the beneficiary pays charges (Rivier and Olmos,
2020). In contrast to India, in the United States, independent power producers pay for the
transmission interconnections for their projects, which may act as an additional deterrent to
building remote renewable generation (O’Neill, 2020). In Chile, after 2016, final electricity
consumers pay for the costs of the trunk transmission grid, which risks overbuilding
transmission if final customers are not active in the planning process (Rudnick and
Velásquez, 2020).
Key elements include public sector-led proactive planning with competition to finance and
develop projects (Madrigal and Stoft, 2012; Groppi and Fumagalli, 2014), simple and
effective cost allocation rules that broadly allocate costs, and stakeholder participation
(Madrigal and Stoft, 2012).
Specific to anticipatory transmission planning, Sauma and Oren (2006) find that reactive
network planning is suboptimal compared to proactive network planning based upon
theoretical and test system analyses. Rious et al. (2010), using a probabilistic model, find that
anticipatory transmission planning is generally optimal when the connection time for
generation is short compared to the time to upgrade a transmission line. Groppi and
Fumagalli (2014) find in a case study of an existing transmission line in Italy that such
planning is efficient under robust conditions. Wagner (2019), using a conceptual model, finds
that a benevolent transmission planner can improve efficiency by anticipating the investment
decisions of renewable developers but only assuming perfect regulation. In its absence,
transmission operators maximize their profits given the regulatory constraints that result in
excessive transmission capacity and welfare losses (Kemfert et al., 2015; Wagner, 2019).
Other studies support anticipatory transmission planning due to the insurance value of
transmission given significant uncertainties and lowering the cost of interconnecting
renewable rich resource regions (Wolak, 2020). Inadequate transmission capacity due to
delays has adversely affected renewable investors in Chile for existing and future projects
(Rudnick and Velásquez, 2020). Weibezahn et al. (2020), in contrast, suggest that there are
no simple answers to large-scale renewable transmission planning and compromises need to
be made among different options. Our contribution fills a gap in the literature by providing an
updated empirical analysis of a decade of experience in a large and emerging economy.

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III. Methods and data: India Case Study

A. Power Sector Reforms in India and the Role of Transmission

India’s electricity grid has expanded tremendously since the country’s independence in 1947.
From then until now, the installed capacity of electricity generation has increased from a
meager 1,300 MW to approximately 400,000 MW, and the geographic scope of balancing
areas has increased gradually from intra-state to inter-state and now international flows. The
five regional grids (Northern, Western, Southern, Eastern, and North-Eastern) are
synchronously connected (Gautam et al., 2020). See Figure 2 for inter-regional transfer of
electricity in FY21 (1-Apr-2020 to 31-Mar-2021), where the Northern and Southern regions
were net importers while the Western, Eastern, and North-Eastern regions were net exporters.

(931)

(52,569)
N ER
59,839 ER
SR
(98,824) WR
NR
92,486

(1,50,000) (1,00,000) (50,000) - 50,000 1,00,000 1,50,000

Figure 2: Inter-Regional Power Exchanges in FY21 in GWh Import(+) and Export(-)

(Reference: Authors’ analysis based upon POSOCO Data15)
During the 1950s, individual Indian states developed their grids based on available resources.
By the mid-1960s, during the 3rd Five Year Plan Period, the concept of regional coordination
and planning emerged with the goal of increased exchange of power between states and
regions. Most of the inter-state generating stations during that time were developed by the
central government-owned generators, namely the National Thermal Power Corporation
Limited (NTPC) and the National Hydro Power Corporation Limited (NHPC). These
generators also invested in building associated transmission, and the states that benefited
from these capacity additions cooperated in obtaining their economic benefits. In 1989 all
transmission assets of these generating companies were separated, and a national-level
central government-owned transmission provider, the Power Grid Corporation of India
Limited (PGCIL), was created. Since 1992 through a series of double circuit transmission
lines, regions have been synchronously interconnected. The Southern Region was the last one
to be interconnected. In December 2013, with the commissioning of the Raichur-Solapur 765
kV line, a long-standing dream of one-grid-one nation-one frequency was finally achieved. A

15
Data available at POSOCO Monthly Reports at www.posoco.in.

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national-level system operator and load dispatch center, POSOCO (Power System Operation
Corporation Limited), was formed as a 100% subsidiary of PGCIL in March 2009.
In addition, India has been at the forefront of creating a cross-border energy grid for trading
electricity with its neighboring countries. Starting in 2014, the participating nations signed an
agreement to facilitate the integrated operation of a regional grid across the South Asian
Association for Regional Cooperation (SAARC 16) region and cross-border electricity trade.
India was a net exporter (108 GWh) of electricity during FY21. It imported power from
Bhutan and exported power to Nepal, Bangladesh, and Myanmar. See Figure 3 for
international transfers in FY21.

2,000
1,625 1,641
1,526
1,500 1,302
1,027
1,000 839

448
500
260 248
153 113 137

0
Apr' 20 May'20 June'20 Jul'20 Aug'20 Sept'20 Oct'20 Nov'20 Dec'20 Jan'21 Feb'21 Mar'21

(500)
(470)
(608) (602)
(684)
(1,000) (794) (828) (835) (820)
(868) (915) (900)
(1,102)
(1,500)

Figure 3: Transnational Energy Exchange in FY21 in GWh Import(+) and Export(-)

(Reference: Authors’ analysis based upon POSOCO data16)
Meanwhile, the Electricity Act, 2003 introduced new concepts and reforms such as
delicensing of generation, renewable purchase obligations for distribution utilities and large
consumers, open access in transmission and distribution grids, competition and private sector
participation in transmission capacity addition, and power exchanges for short-term and inter-
country electricity trade. These reforms have been fundamental in attracting investments for
the growth of the power sector, which is evident from the pace of capacity addition in

16
Data available at POSOCO Monthly Reports at www.posoco.in.

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generation (see Figure 4) and transmission (Figure 5). At the same time, some of these
reforms have also led to an overbuild in transmission and the creation of underutilized assets,
which are discussed below.
Figure 4: Electricity Generation Growth (Reference: Authors analysis based upon CEA
data17)

1,32,79,315
1,06,86,448
1,40,00,000

87,26,092
1,20,00,000
Length of T&D Lines (Ckt.Kms)

69,39,894
1,00,00,000

60,30,148
51,40,993
44,07,501
80,00,000

32,11,956
60,00,000
21,45,919
15,46,097

40,00,000
5,41,704
1,57,887
85,427
29,271

20,00,000

0
1950 1956 (1st 1961 1966 1974 1979 1985 1990 1997 2002 2007 2012 2017 FY2020
Plan end) (2nd Plan (3rd Plan (4th Plan (5th Plan (6th Plan (7th Plan (8th Plan (9th Plan (10th (11th (12th
end) end) end) end) end) end) end) end) Plan end) Plan end) Plan end)

Figure 5: Transmission and Distribution Growth (Reference: Authors’ analysis based upon
CEA data18)

IV. Transmission Planning Philosophy and Process

Having faced an electricity deficit since the 1980s, India’s transmission planning philosophy
emphasizes the optimum utilization of generation resources. The transmission planning
philosophy and process followed suggests the use of anticipatory transmission planning with
guidance to overbuild transmission such that any addition to generation capacity should not
remain unutilized for lack of interconnection. Table 1 below lists relevant provisions
regarding transmission planning from key legislation and policy documents that point to
these objectives.
Table 1: Anticipatory Transmission Planning Provisions from Key Legislation and Policy
Documents
S. Legislation/Policy Transmission planning related provisions19
No. Reference
1. The Electricity Section 3 (1) “The Central Government shall, from time-to-
Act, 2003 time, prepare, review or revise and notify the National
Electricity Policy and Tariff Policy in consultation with the
State Governments and the Authority for development of the

17
Data from CEA (2020).
18
Ibid.
19
Text in bold is made by the authors to highlight wordings that imply anticipatory transmission planning
philosophy.

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 power system based on optimal utilization of resources
such as coal, natural gas, nuclear substances or materials,
hydro and renewable sources of energy.”
2. National Section 3.2 “CEA shall prepare short-term and perspective
Electricity Policy, plan. The National Electricity Plan would be for a short-term
2005 framework of five years while giving a 15 year perspective
and would include; “… suggested areas/locations for capacity
additions in generation and transmission keeping in view the
economics of generation and transmission….”
Section 5.3 “Keeping in view the massive increase planned in
generation and also for development of power market, there is
need for adequately augmenting transmission capacity.
Network expansion should be planned and implemented
keeping in view the anticipated transmission needs that
would be incident on the system in the open access regime.
A well-planned and strong transmission system will ensure not
only optimal utilization of transmission capacities but also of
generation facilities and would facilitate achieving the
ultimate objective of cost-effective delivery of power."
3. National Tariff Section 7 “The tariff policy, in so far as transmission is
Policy, 2016 concerned, seeks to achieve the following objectives:
1. Ensuring optimal development of the transmission
network ahead of generation with adequate margin
for reliability and to promote efficient utilization of
generation and transmission assets in the country.
2. Attracting the required investments in the transmission
sector and providing adequate returns.”
Section 7.1 (4) “In view of the approach laid down by the
NEP, prior agreement with the beneficiaries would not be a
pre-condition for network expansion. CTU/STU [Central
Transmission Utility/State Transmission Utility] should
undertake network expansion after identifying the
requirements in consonance with the National Electricity Plan
and in consultation with stakeholders and taking up the
execution after due regulatory approvals. For smooth
operation of the grid, efforts should be made to develop
transmission system ahead of generation.”
4. Manual on Preamble “The Electricity Act, 2003 has brought profound
Transmission changes in electricity supply industry of India leading to
Planning Criteria, unbundling of vertically integrated State Electricity Boards,
2013 implementation of Open Access in power transmission and
liberalisation of generation sector. The phenomenal growth

10

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 of private sector generation and the creation of open
market for electricity have brought its own uncertainties.
Large numbers of generation projects are coming up with no
knowledge of firm beneficiaries. The situation is compounded
by uncertainty in generation capacity addition, commissioning
schedules and fuel availability. All these factors have made
transmission planning a challenging task. Adequate
flexibility may be built in the transmission system plan to
cater to such uncertainties, to the extent possible. However,
given the uncertainties, the possibility of stranded assets or
congestion cannot be entirely ruled out.”

The National Tariff Policy, 2016 also recommends waiver of transmission charges and losses
for the development of renewable energy. Per Section 6.4 (6) "In order to further encourage
renewable sources of energy, no inter-state transmission charges and losses may be levied till
such period as may be notified by the Central Government on transmission of the electricity
generated from solar and wind sources of energy through inter-state transmission system for
sale."
The Central Electricity Authority (CEA) is the lead agency for future capacity addition
planning at the national level. Every five years it prepares a National Electricity Plan with
forecasts of transmission capacity requirements. The basis document for the National
Electricity Plan is the Electric Power Survey (EPS), which is a state-wide, region-wide, and
all-India-wide electricity demand forecast exercise performed by the CEA covering
projections in the short, medium, and long term.20 In preparation for the National Electricity
Plan, the CEA takes inputs from the Central Transmission Utility (CTU) and the state
transmission utilities (STUs). CEA guides the CTU and STUs in their transmission planning
via a Manual on Transmission Planning Criteria (CEA, 2013). This manual provides the
planning philosophy along with the criteria on reliability, security, contingencies, critical
loads, and permissible loading limits of system elements that are required to be adhered to
while performing system modeling and analysis by the CTU and STUs. The Government of
India had designated PGCIL as the CTU in December 1998.
The CTU is responsible for national and regional transmission planning and development,
while the STUs are responsible for intra-state activities. The CTU and STUs are expected to
coordinate frequently to identify and eliminate transmission constraints by adding inter-state
and intra-state assets in an optimized manner. The Ministry of Power has constituted five
Regional Power Committees (Transmission Planning) (MoP, 2019) for better coordination
amongst stakeholders.
Firmed-up proposals for the inter-state transmission system (ISTS) that have projected costs
below INR 1,000 million are forwarded to the CTU for its approval, for those having projects

20
The Electric Power Survey is to be conducted every five years as obligated under Section 73(a) of the
Electricity Act, 2003. This projection of electricity demand “serves as the basic building block over which the
whole power sector planning (i.e., planning of additional generation capacities and commensurate
Transmission and Distribution systems) is done.”
https://cea.nic.in/old/reports/others/planning/pslf/20th%20EPS%20Committee%20Constitution%20Order.pdf

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costs between INR 1,000 to 5,000 million are forwarded to the National Committee on
Transmission for approval, and those costing greater than INR 5,000 million are forwarded to
the Ministry of Power for approval.21 As part of the approval process, the Committee and the
Ministry have to also decide on the method of implementation of a particular project, which
could be either via a Tariff Based Competitive Bidding (TBCB) process or via a cost-plus
mechanism (wherein the project is developed by PGCIL, and its tariff is determined by the
CERC). Similarly, at the intra-state transmission system level, the STUs determine the plan,
and individual projects are then developed by state transmission licensees. The Ministry of
Power has advised states to consider TBCB process for the same (MoP, 2021).

V. Investments and Impact on Tariff

As discussed, India’s transmission additions have been phenomenal over the last two
decades. The goal of ‘One Nation, One Grid, One Price’ has now been extended further by
Prime Minister Narendra Modi’s vision of ‘One Sun, One World, One Grid.’22 There has
been huge interest in India's transmission sector, and domestic and international investments
have followed. Since around 2009, when private sector developers were encouraged to invest
under the TBCB route, transmission line length has grown at a compound annual growth rate
(CAGR) of 6%, and the capacity of sub-stations has grown at a CAGR of 12%. In tandem,
the transmission charges payable by beneficiaries (referred to as Designated ISTS
Customer)23 have also increased at a rapid pace. In the last decade, all-India annual
transmission charges have grown at a CAGR of 20.66% (see Figure 6).

FY20 393
Annual Transmission Charges (INR Billion)

FY19 356

FY18 314

FY17 274

FY16 225

FY15 177

FY14 151

FY13 128

FY12 87

- 50 100 150 200 250 300 350 400 450

21
Press Information Bureau, Ministry of Power dated October 28, 2021. Power Ministry revised terms of
reference of National Committee on Transmission (NCT) to fast-track ISTS process
https://pib.gov.in/PressReleseDetailm.aspx?PRID=1767262.
22
The idea of "One Sun, One World, One Grid" (OSOWOG) for interconnected solar energy infrastructure at a
global scale was conceptualized in 2018. It was further extended and launched as "Green Grids Initiative -
OSOWOG" at COP26 with the support of The World Bank and as part of bilateral cooperation between India
and UK. International Solar Alliance https://isolaralliance.org/work/osowog/.
23
Designated ISTS Customer is defined as “the user of any transmission element(s) of the Inter-State
Transmission System (ISTS) and shall include generating station, State Transmission Utility (STU), distribution
licensee including State Electricity Board or its successor company, Electricity Department of State and any
other entity directly connected to the ISTS and shall include an intra- State entity or a trading licensee that has

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 Figure 6: Cost of Indian Transmission Charges from FY 2012 to FY 2020 (Reference:
Authors’ analysis based on Forum of Regulators 2021 data)
That translates into a transmission charge increase from 0.24 INR/kWh in FY12 to 0.85
INR/kWh in FY20 (FOR, 2021).
Note that the above only captures growth in transmission charges for ISTS and not for intra-
state projects. The same can be accessed from tariff petitions submitted by the STUs to their
respective State Electricity Regulatory Commissions (SERCs). For instance, in Maharashtra
(the largest state in terms of electricity consumption24), the yearly aggregate revenue
requirement projected by all transmission licensees combined increased by 30% in five years.
Table 2 lists selected state STUs budgets and their impacts on the transmission tariff. These
states have been selected basis their requirement for energy and peak demand, which is
higher than other states in India.25
Table 2: Selected State Transmission Utility Budgets and Transmission Tariff Impacts
S. Name of STU (State) Increase in Aggregate Revenue Corresponding Impact on
No. Requirement of STU Tariff
1. MSETCL FY21 INR 72 billion FY21 0.45 INR/kWh
(Maharashtra)
FY22 INR 75 billion FY22 0.46 INR/kWh
FY23 INR 79 billion FY23 0.47 INR/kWh
FY24 INR 87 billion FY24 0.49 INR/kWh
FY25 INR 94 billion FY25 0.52 INR/kWh
2. UPPTCL (Uttar FY20 INR 31 billion FY20 0.26 INR/kWh
Pradesh)
FY21 INR 32 billion FY21 0.24 INR/kWh
FY22 INR 35 billion FY22 0.29 INR/kWh
3. GETCO (Gujarat) FY17 INR 32 billion
FY18 INR 36 billion FY18 0.33 INR/kWh
FY19 INR 40 billion FY19 0.37 INR/kWh
FY20 INR 44 billion FY20 0.36 INR/kWh
FY21 INR 49 billion FY21 0.35 INR/kWh

obtained Medium Term Open Access or Long Term Access to ISTS” CERC (Sharing of Inter-State Transmission
Charges and Losses) Regulations, 2020 https://cercind.gov.in/2020/regulation/158-Reg.pdf.
24
In FY22 (April 1, 2021, to March 31, 2022) Maharashtra was supplied 171 TWh, while all India's electricity
supply was 1370 TWh (Reference: CEA Executive Summary on Power Sector, March 2022).
25
Maharashtra ranks number one, followed by Uttar Pradesh and then Gujarat in terms of energy requirement
and peak demand when compared with other states in India. These three states together represent almost
32% of all-India requirements. CEA, Load Generation Balance Report 2021-22 https://cea.nic.in/wp-
content/uploads/l_g_b_r_reports/2020/LGBR_2021_22.pdf.

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According to the Central Electricity Regulatory Commission (CERC, 2016), which has the
responsibility to determine tariffs for projects developed under the cost-plus mechanism, the
increase in transmission budgets can be attributed to several reasons, including growth in
high voltage lines, waiver of transmission charges for interstate renewable generators, and
relinquishment of long-term access by planned but later shelved fossil fuel power plants.
Another explanation for the steep increase in transmission investments and transmission
charges could be the lower actual growth in electricity demand as compared to projections,
thus leading to assets that have remained unutilized, at least as of present (PGCIL, 2018; Das
and Srikanth, 2020; FOR, 2021). Capacity projections in the National Electricity Plan (for
generation and transmission) are based upon the CEA’s Electric Power Survey, which has
been found to report too optimistic scenarios compared to actual growth in demand, thereby
leading to a case of overbuilt in generation and transmission assets.26,27 One study finds the
deviation between electricity demand projections in the Electric Power Survey (EPS) and
actual demand up to 25% (Centre for Energy Regulation, 2019).
However, another explanation is that a mismatch between transmission planning and
generation investment happened, as identified in some studies (CERC, 2016). According to
these studies, some of the planned generation projects that were supposed to be
commissioned by 2015 were either shelved or delayed due to time overruns in land
acquisition, statutory clearances, fuel linkage, and the absence of firm PPAs with distribution
utilities. However, the corresponding high-capacity transmission corridors especially
developed for the export of power from such projects were erected as planned, thus leading to
under-utilized or stranded transmission capacity.28

D. Discussion of Risks versus Rewards

India’s long-standing power deficit history, its statutory and planning policies, the absence of
transmission congestion primarily in the inter-state network, and the substantial increases in
transmission rates lead to the finding that its transmission system is overbuilt and, therefore,
inefficient. This finding is directly supported by governmental audits discussed below and
updates the study by Upreti et al. (2018). That further leads to the question of whether India’s
anticipatory transmission planning results in sub-optimal results. That is, can the planning

26
“Demand forecasts made by CEA in the previous surveys and 18th EPS have been overestimated.” “It was
indicated that deviation in energy requirements up to the year 2014-15 was in the range of up to 8.5%
whereas, for the peak demand, the deviation was in the range of op to 13% on all-India basis.” “There is a
trend of overestimation in the sector. Regional and seasonal variations must be captured in the demand
forecast so that the country does not have overcapacity in generation and transmission." Minutes of the 1st
Meeting of the 19th Electric Power Survey Committee (EPSC) held on July 27, 2015, https://cea.nic.in/wp-
content/uploads/2020/04/minutes_1st.pdf.
27
Also, see reported miscalculations by the CEA. CEA mixes up data, arrives at wrong demand estimate, The
Indian Express, January 2, 2015. https://indianexpress.com/article/business/business-others/cea-mixes-up-
data-arrives-at-wrong-demand-estimate/.
28
CERC asks power generating cos to pay fines for unused transmission lines, Business Standard, April 18,
2019, https://www.business-standard.com/article/economy-policy/cerc-asks-power-generating-cos-to-pay-
fines-for-unused-transmission-lines-119041800987_1.html.

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process mitigate the risks of an inadequate transmission network and a network with
excessive redundancies and low utilization or stranded assets?
A central government audit of PGCIL for works completed during the Twelfth Plan period
(2012-2017) found the CTU lacking in the preparedness of an annual network plan in
coordination with STUs and other stakeholders (CAG29, 2020). The audit also found
insufficient focus by the CTU on upgrading existing lines and a preference to lay new
infrastructure. Per the auditors, there is no mechanism in place at the CTU to assess the
utilization of built assets. From a sample of 30 relatively newer finished projects, it was
found that about 60% of assets were utilized for less than 40% of their maximum load ability.
A standard recommendation from various technical committees established to investigate
congestion between certain regions has been that of reconductoring/upgrade of critical lines,
but PGCIL has primarily ignored the same. These recommendations provide the
counterfactual for comparison purposes. The result, according to CAG, is low utilization of
newer assets. CERC has also recommended exploring options for upgrading existing assets
by increasing line loading instead of building new transmission lines (CERC, 2016), and the
CAG has suggested having a regulatory mechanism in place to encourage such cheaper
options (CAG, 2020).
Even at the state level, there have been reported concerns from beneficiaries about the
overinflated revenue requirements of STUs, resulting in a steep increase in the transmission
tariff (MERC, 2020). The SERCs have urged distribution licensees and other beneficiaries of
the state transmission network to project their future demand and need for the erection of new
substations and lines judiciously to avoid the idling of new assets (MERC, 2020). Concerning
optimum utilization of transmission capacity, the Maharashtra regulator categorically states
that “…. Neither the identified beneficiary nor the Licensee is required to bear consequences
for assumptions and factors in creating surplus capacity in transmission infrastructure that
resulted from their decisions. The Commission expresses its concern on sub-optimal
utilization or creation of stranded assets of the Transmission system. There is a need for the
STU, Transmission and Distribution Licensees to critically review their planning and
designing processes for new schemes in closer coordination with the beneficiaries for a least-
cost solution that would improve the overall utilization of integrated transmission
infrastructure.”

VI. Results and Discussion

India’s transmission system as of today is overbuilt.30 Several reasons have led to this
situation. The primary cause arises from the fact that almost all planning is basis the CEA’s
Electric Power Survey, which has time and again proved to present over ambitious
projections of electric power demand in the short as well as long-term. In addition, there have
been reported findings of the disconnect that surfaced during the last decade between

29
The Comptroller and Auditor General of India is a constitutional authority established to audit receipts and
expenditures of the Union and State Governments and their companies. www.cag.gov.in.
30
It may be the case that the welfare gains due to the reduction in market power from this overbuilding are
more significant than the costs of overbuilding. There are, however, other less expensive and more immediate
ways of addressing market power in electricity markets than building transmission, such as effective market
monitoring, restrictions on generation offers, demand-side management, and generation divestiture.

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transmission planning and generation investment, thereby leading to under-utilized and
stranded transmission assets. These reasons, however, should be seen in India’s use of
anticipatory transmission planning, which emphasizes that new generation capacity should
not remain underutilized for lack of transmission interconnection, high guaranteed returns,
and weak governance. Several years of energy and peak deficit management for the sector
have resulted in stakeholders prioritizing actions that avoid past problems instead of
adequately planning.

A further audit of the PGCIL developed projects suggests a lack of administrative motivation
to reduce costs of new build-up by reconductoring existing lines instead of a preference for
laying new high-voltage infrastructure. Under a regulated rate-of-return regime where the
PGCIL obtains assured returns on its investments, this lack of motivation to optimize costs
exposes regulatory and planning limitations, the burden of which must be borne by the
customers via an increase in transmission tariff. Better allocation of these resources is
possible by improving intra-regional transmission and distribution systems and connecting
remote villages to the grid. At the same time, given the majority shareholder in the CTU
(PGCIL), as well as the STUs in the central and respective state governments, this also
highlights their role in approving new projects and conflicting challenge as key shareholders
of the transmission company versus critical social and political objective of tariff
rationalization.

Building transmission may create real options for future development that have substantial
value, which should be considered in the transmission planning process. Transmission,
however, is a sunk asset, so its construction eliminates the option to wait for new
information. Furthermore, the substantial increase in renewable resources does not inevitably
mean an associated increase in transmission if these resources are located on the distribution
grid. Finally, in the case of underutilized transmission, to the extent it creates options, they
are out-of-the-money and, therefore, may not be financially worthwhile.

V. Conclusions and policy implications

The impact of electricity consumption on economic development is well known and is even
more critical for developing countries like India, which currently rank low in terms of per
capita usage. Therefore, the tariff or price of electricity is a key concern for policymakers in
such environments because lower tariffs lead to affordability and, thus, higher usage by end
consumers. Regulators especially have an essential role here since most transmission
infrastructure is still developed under the traditional cost-plus mechanism.
Given the findings of this paper, several policy recommendations are in order. A frequent
revisiting of national and state-level plans is necessary to minimize the risk of stranded assets
or, conversely, to minimize the creation of transmission bottlenecks in high-demand areas.
This recommendation does not mean adding bureaucratic hurdles or administrative delays in
the planning process but implementing timely reviews that can lead to a course correction
experience during the intervening years.
Following that context, greater transparency via public disclosure of transmission asset
utilization and exploration of possible regulatory penalties for prolonged periods of under-
utilization would push planners to be pragmatic instead of overly ambitious. Plans and
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surveys put together by central agencies provide indications for future investments by public
and private companies. Public databases of how efficiently already commissioned assets are
utilized will signal fresh investments. Increased transparency about the performance of past
investments will help inform future ones. The Central Electricity Authority already publishes
monthly datasets of the utilization of thermal power plants (plant load factor), which allows
investors to make informed decisions about new investments.31 This would enable detailed
analyses of counterfactuals.
Improved optimization of the transmission tariff should be a priority for regulators and
central and state governments concerned with reducing the power supply cost to consumers
and improving the efficiency of the power sector. Some regulators, such as from
Maharashtra, have already started questioning apparent overbuilding by transmission
licensees and are trying to have appropriate penalty mechanisms such as the disallowance of
capital costs when the built assets are not used after a specific time. Other regulatory
commissions may analyze the impact of such measures and introduce suitable mechanisms.
Evaluation of introducing flexibility into transmission planning should be considered, such as
procuring the right of ways that enable the option to develop transmission facilities later.
Finally, policymakers should request that researchers conduct more empirical studies that
evaluate the actual performance of transmission planning, particularly given the numerous
and frequent calls to build more transmission in anticipation of future renewable generation
development. These studies should include analyses of the amount of market power, ways to
make electricity markets more competitive, including transmission and non-transmission
alternatives, and apply real options analysis to improve the financial assessment of
transmission investments.

Acknowledgments

The authors would like to thank Ray Coxe, Shahid Hasan, Mohua Mukherjee, Jitendra
Roychoudhury, and Burcin Unel for their review and comments. All views and errors are of
the authors alone.

31
See Monthly Executive Summary of Power Sector Reports at www.cea.nic.in

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