The ISTS Waiver Socialization Paradox: Why Uttar Pradesh Pays 2.5x More Than Rajasthan to Move the Same Power

Five years of tariff-order data show two states moving in opposite directions on transmission cost — and a regulatory design that helps explain why

The Background

The policy framework reflected two complementary interventions to promote renewable energy, operating through different but mutually reinforcing mechanisms. The Ministry of Power (MoP), through its directions and policy measures, required obligated entities such as DISCOMs to meet specified Renewable Purchase Obligations (RPOs), thereby creating a mandated demand for renewable electricity. At the same time, the MoP provided a waiver of Inter-State Transmission System (ISTS) charges and losses for eligible renewable-energy projects to promote investment in renewable generation, particularly in resource-rich States, and facilitate its evacuation through the ISTS network. Thus, the two measures addressed opposite sides of the market: RPO created an obligation to consume/procure RE, while the ISTS waiver provided RE developers with a relative cost advantage, thereby incentivising renewable generation and its evacuation. However, the resulting ISTS costs were socialised across the ISTS pool. Consequently, while the benefit of the generation-side waiver accrued directly to eligible RE projects, the cost of the transmission infrastructure required to facilitate that generation was borne more broadly by ISTS users.

In the complex ledger of India's energy transition, public debate tends to focus on the levelized cost of generation—the falling cost of solar modules, wind generation or the cost of conventional fuels. Yet there is another, less visible cost emerging as an increasingly important component of the electricity supply chain: the cost of moving electricity across the grid. As the national grid integrates larger volumes of renewable generation located far from centres of consumption, the cost of using the Inter-State Transmission System (ISTS) is no longer a marginal line item; it is becoming a significant economic and distributional issue.

A comparison of two major electricity States, Uttar Pradesh and Rajasthan, illustrates this divergence. Both have experienced substantial growth in their electricity requirements and renewable-energy footprint, but their ISTS cost trajectories have moved in opposite directions. UP, a predominantly load-heavy and importing State, has seen a sharp increase in its ISTS transmission burden, while Rajasthan, a major renewable-generation and exporting State, has seen its ISTS transmission cost per unit decline. The divergence raises a fundamental policy question: when the cost of renewable connectivity is socialised across the ISTS, are the benefits of the transition and the costs of enabling it being distributed equitably among generation and consumption States?

 Same Grid, Two Very Different Bills

Uttar Pradesh and Rajasthan both buy and consume a lot more power than they did five years ago. Between FY 2019-20 and FY 2024-25, UP's power purchase cost rose from ₹45,038 crore to ₹70,536 crore, and Rajasthan's rose from ₹32,499 crore to ₹46,736 crore — both states growing their procurement at a broadly similar pace.

But the transmission bill riding on top of that procurement tells a completely different story. Here is the comparison, drawn from UPERC and RERC tariff-order filings for both years:

* Rajasthan's FY2019-20 figure is reported by RERC as combined “PGCIL & other charges,” not a pure ISTS number — treat this year's percentage and ₹/unit for Rajasthan as approximate. † UP's FY2019-20 ISTS-energy and ₹/unit figures are analytical estimates built from later MYT filings, not a directly quoted UPERC consolidated True-up figure; the FY2019-20 cost figures themselves reflect the True-up approved by UPERC on 29 July 2021, not the contemporaneous FY2019-20 order. ‡ Rajasthan's FY2019-20 ISTS energy reflects source-specific loss assumptions rather than one uniform loss factor, hence the range.

Five Years, Opposite Trajectories

Strip away the caveats and the trend lines are unambiguous. For UP, every ISTS-related metric moved the wrong way:

•  ISTS charges: ₹3,215 Cr → ₹6,780 Cr (+111%)

•  Power purchase cost: ₹45,038 Cr → ₹70,536 Cr (+57%)

•  ISTS charges as a share of power purchase cost: 7.14% → 9.61% (+2.47 percentage points)

•  ISTS cost per unit: ~₹0.81 → ₹1.24/kWh (~53% increase)

For Rajasthan, the same five years produced the opposite pattern:

•  ISTS charges: ~₹2,301 Cr → ₹2,375 Cr (+3%, essentially flat)

•  Power purchase cost: ₹32,499 Cr → ₹46,736 Cr (+44%)

•  ISTS charges as a share of power purchase cost: ~7.08% → 5.08% (−2.0 percentage points)

•  ISTS cost per unit: ~₹0.67–0.77 → ₹0.50/kWh (~25–35% decline)

By FY 2024-25 the two states' unit transmission costs sit almost 2.5 times apart — ₹1.24/kWh for UP against ₹0.50/kWh for Rajasthan — and the gap widened steadily over the period rather than appearing suddenly in one year.

The Obvious Explanation Isn't the Full One

The standard explanation is structural: UP is a large importing state, drawing power in from elsewhere on the grid; Rajasthan is a major renewable generation and export hub. That framing is correct as far as it goes — but it describes a role, not a mechanism. Two states can both be described this way and still not owe such divergent bills, unless something in the tariff design actively pushes the cost toward one and away from the other. That something has a name: the ISTS charges waiver for renewable energy. 

Further,the National Component of RE allocation framework can be regarded as inequitable and non-cost-reflective because it aggregates the costs of geographically specific RE-related ISTS assets into a single national pool and allocates them among States on the basis of GNAsh in MW, irrespective of the actual MWh utilisation of those assets, the RE energy procured by each State, or the extent to which a State benefits from the underlying transmission infrastructure. While the transmission assets themselves are capacity infrastructure and therefore involve MW-based costs, the economic benefit of renewable electricity is derived from the actual MWh transmitted and consumed. Consequently, two States with similar GNA requirements but substantially different utilisation of the ISTS and RE energy drawal can bear similar NC-RE costs despite receiving very different levels of benefit. The framework therefore departs from both the ‘cost-causation’ and ‘beneficiary-pays’ principles and substitutes them with broad national socialisation based on reserved transmission capacity. 

At the DISCOM level, however, the resulting ISTS cost is generally recovered through the tariff on an energy basis, i.e. ₹/kWh. This creates a differential consumer incidence: States/DISCOMs with a relatively high GNA requirement but lower energy utilisation recover the same capacity-allocated transmission cost over fewer units of electricity, resulting in a higher ₹/kWh burden on their consumers. Thus, the framework is not only weakly linked to the physical beneficiary at the allocation stage; it can also produce materially different consumer impacts at the recovery stage. 

How the Waiver Actually Moves Money

Every discom pays into the national transmission network in proportion to how much grid capacity it uses, under CERC's General Network Access framework. Part of that bill — the NC-RE component — funds the corridors built specifically to move solar and wind power across states, and every discom pays into it by network usage, regardless of how much renewable power it actually draws.

The waiver meant to offset this for RE-importing states is calculated in three steps. First, each discom's own 15-minute drawal data is used to work out what share of its ISTS purchase came from eligible renewable sources that month — its “waived percentage.” Second, that percentage is applied to the discom's own bill to arrive at its own waiver amount. Third — the step that matters most — every discom's individual waiver, summed nationally, is pooled and redistributed back to all discoms in proportion to the size of their overall transmission bill, not their actual renewable consumption.

It isn't a discount. It's a reallocation of who, within the national pool of discoms, ends up paying for the same shared network.

Two further design features compound the effect. The waiver benefit legally accrues to the procurer — the discom, not the generator — since it is the discom that is liable for ISTS charges. And once a project is commissioned, its waiver locks in for 25 years, so a plant commissioned today keeps generating these redistribution effects on discom bills until roughly 2050.

Why Rajasthan's Advantage Isn't a Waiver “Win”

It's tempting to read Rajasthan's low and falling per-unit cost as proof that renewable-rich states come out ahead on the waiver. The evidence points the other way. Separate billing-data analysis by iFOREST, covering December 2023 to April 2024 across states, found Rajasthan to be a narrow net loser — roughly −3% to −4% of its transmission bill — on the specific waiver-redistribution channel, despite its renewable-rich profile. Much of Rajasthan's generation is consumed intra-state or exported through direct arrangements rather than drawn back through the shared interstate network, so it earns comparatively little waiver credit of its own on that channel.

Rajasthan's real advantage lies elsewhere: a smaller net drawal profile as a generation hub, and the fact that hosting NC-RE infrastructure does not, by itself, add to the host state's own transmission liability — those costs are pooled nationally rather than billed to wherever the lines happen to sit. UP, meanwhile, carries a large and rising share of the shared national cost simply as a function of how much of the network it uses, and on the narrow waiver-redistribution channel it is also a net loser, since its own RE-import share via ISTS has historically been modest relative to the size of its overall bill.

Both states technically lose on the waiver-redistribution channel narrowly defined. The gap between ₹1.24 and ₹0.50 per unit is not a reward for one state's renewable virtue — it is a network-design outcome.

The Regulator Has Said as Much

This is not merely an external interpretation of the numbers. The Forum of Regulators (FoR) in 2023 and CERC, in May 2024, while considering whether to extend the ISTS waiver to green hydrogen and green ammonia plants, explicitly flagged concerns regarding the cross-subsidisation created by the waiver mechanism. CERC noted that, in the absence of corresponding budgetary support, the cost of the waiver ultimately gets socialised across DISCOMs—including DISCOMs that may themselves be beneficiaries of the waiver. In other words, the sector's own regulatory institutions have recognised that the mechanism underlying the UP–Rajasthan divergence is not simply an artefact of modelling or geography; it reflects a structural feature of the existing cost-allocation design, with potentially significant cross-subsidisation implications.

What This Means for UP Going Forward

The graded phase-out of the solar-and-wind waiver runs through 1 July 2028, which should gradually shrink the size of the national redistribution pool for new capacity. But the 25-year lock-in on projects already commissioned means the stock of existing capacity will keep generating the same cost pattern on UP's bill well into the 2040s, regardless of what happens to the waiver for new projects. Besides, new waivers like on BESS, Green Hydrogen etc. have emerged and growing. The FY2024-25 numbers in the table above, in other words, are not a one-off peak — they are close to the shape of what UP's transmission bill at-least will keep looking like unless the underlying redistribution design itself changes.

The Bottom Line

The UP–Rajasthan comparison is often presented as a simple story of an importing State versus an exporting State. The DISCOM data, however, shows that the divergence is real—and has widened significantly over the past five years—but its magnitude cannot be attributed to geography or trade flows alone. A significant part of the difference arises from the design of the ISTS waiver and, in particular, the way the resulting transmission costs are socialised across ISTS users. The policy deliberately created a two-sided incentive: RPOs, mandated by the Ministry of Power, created demand for renewable electricity in consuming States, while the ISTS charge and loss waiver was designed to promote renewable generation and its evacuation from resource-rich States. The consequence is that the benefits and costs are not necessarily borne by the same States. Renewable-generation hubs such as Rajasthan benefit from improved access to the national market, while large consuming States such as Uttar Pradesh can bear a disproportionately higher share of the socialised ISTS cost. CERC has itself identified aspects of this arrangement as giving rise to cross-subsidisation. The widening gap in ISTS cost per unit therefore should not be read merely as a consequence of geography; it is also a consequence of a deliberate tariff-design and cost-allocation choice. As India pursues still higher renewable-energy targets, the policy question is whether this model of socialising the cost of renewable connectivity remains equitable and sustainable—or whether the hidden cost of connectivity will increasingly become a source of inter-State economic friction.

SOURCES

UPERC tariff/True-up orders for FY2019-20 and FY2024-25; UPPCL/Discom (MVVNL) MYT filings, ARR FY2024-25; RERC tariff orders and interstate-loss policy filings; CERC minutes of proceedings on waiver of ISTS charges for Green Hydrogen/Ammonia plants (31 May 2024); iFOREST, “Decoding ISTS Charges Waivers: Implications on System Costs and Procurement Decisions” (August 2024).