Background

The Central Electricity Regulatory Commission (CERC) had introduced the CERC (Connectivity and General Network Access to the Inter-State Transmission System) Regulations, 2022 on June 7, 2022 (GNA Regulations), to facilitate non-discriminatory open access to the inter-State transmission system (ISTS) for generating companies through the general network access (GNA) mechanism, ensuring more flexible and efficient transmission of electricity. The CERC introduced the first and second amendments to the GNA Regulations on April 1, 2023 and June 19, 2024, respectively. The first amendment incorporates various important changes, including in relation to documents to be submitted by each type of GNA applicant, timelines for return of bank guarantees and consequences for failure to meet regulatory obligations. The second amendment introduces changes in relation to minimum installed capacity requirements, timeline changes at different stages ensuring timely project developments, and other amendments regarding bank guarantees and possession of land documents for development of the project.

Given the feedback received from renewable energy developers, generators, Ministry of Power and Central Transmission Utility of India Limited (CTUIL), and suo motu orders of the CERC, the CERC has introduced several key changes through its third and fourth draft amendments dated July 31, 2024, and March 3, 2025, respectively (Draft Amendments), to streamline the connectivity process and improve operational efficiency of the ISTS network.

In this note, we have analysed some of the principal changes introduced to the GNA Regulations by the Draft Amendments, and their impact on the current regulatory framework in relation to open access to the ISTS.

Draft Third Amendment

The key changes illustrated in the draft third amendment are, inter alia, as follows:

• Introduction of a new definition of “Complex of ISTS substations” or “Cluster of ISTS substations,” which groups together geographically close ISTS substations, as planned by CTUIL. This change intends to improve transmission network coordination and allow for more strategic placement of upcoming transmission infrastructure.
• A new regulation has been inserted as Regulation 11C which provides that in the event of reallocation of connectivity granted under the GNA Regulations from one ISTS substation to another ISTS substation, the liability to pay transmission charges shall be on the vacating entity (i.e., the applicant) during the intervening period when the vacated bay remains unoccupied. Given that transmission charges are important for the development and maintenance of the transmission network, this amendment will allow for long term expansion of the transmission network, with increased reliability in relation to the delivery of power. However, this change is harsh on the vacating entity since they will be required to continue paying transmission charges even after they have ceased to utilise the infrastructure till such time the vacated bay remains unoccupied, which is not in the control of the vacating entity. This may also result in double incidence of transmission charges if the applicant has already commenced utilisation of its reallocated connectivity.
• The draft amendment provides for the treatment of the application fee and bank guarantees (BGs) in case of withdrawal or relinquishment of connectivity applications at different stages, including withdrawal prior to in-principle grant of connectivity (i.e., (i) forfeiture of 50% of the application fee; and (ii) refund of the remaining 50% of the application fee and the submitted BGs within 15 days of withdrawal), after in-principle grant of connectivity (i.e., (i) forfeiture of 100% of the application fee and 5% of the BGs; and (ii) refund of the remaining 95% of the submitted BGs within 15 days of withdrawal) and after final grant of connectivity (i.e., (i) forfeiture of 100% of the application fee and 25% of the BGs; and (ii) refund of the remaining 95% of the submitted BGs within 75 days of withdrawal). However, this approach is not developer/generator friendly and has accordingly faced criticism from stakeholders. While this amendment intends to provide reasonable demotivation from withdrawing GNA applications, it should not hinder the participation of generators in development of renewable energy projects, especially when withdrawal/relinquishment is for reasons outside the control of the developing company.
• The existing GNA Regulations provide that a renewable energy park developer (Developer) is required to apply for connectivity for the installed capacity authorised to the Developer by the Central/State government through one application. However, the draft amendment permits phased connectivity for the Developer for projects over 500 MW, offering more flexibility and allowing them to align their connectivity requirements with the development timelines of the projects within the renewable energy park.
• For projects, where the letter of award (LOA) or power purchase agreement (PPA), provides a capacity which is lower than the total installed capacity of the project, the applicant may use the LOA/PPA as a proof for grant of connectivity for the quantum of capacity under the LOA/PPA, and obtain connectivity for the remaining capacity which the generator is intending to develop (if any) in addition to the capacity of the LOA/PPA executed with a consumer, by submitting land documents/land BGs, as required. As per the existing regulations, applicants may apply for connectivity for a capacity higher than the LOA/PPA capacity, even if the only document submitted as part of the application process for proof of capacity is the LOA/PPA executed for the project. This change has been made to prevent the issuance of connectivity to applicants who have not furnished any documents for their additional capacity, over and above what is provided in the LOA/PPA.

Draft Fourth Amendment

The primary purpose of introducing the fourth amendment is to tackle the sub-optimal utilisation of the ISTS network during non-solar hours, and to restrict fraudulent trading in connectivity. The key changes illustrated are, inter alia, as follows:

• A key change in the draft amendment is the introduction of a new definition, “Entities with Restricted Access,” covering renewable energy generating systems and energy storage systems with limited injection scheduling rights based on solar and non-solar hours. This distinction is crucial as it enhances power flow management by aligning generation with availability. As per the amendment, the National Load Dispatch Centre will declare solar hours weekly for each State, prioritizing solar generation during these periods. Non-solar hours will integrate wind and other renewable sources, along with energy storage systems into the grid. While entities can draw power from the grid at all times, injection of power will be up to their approved limit during solar hours (for solar projects). However, such a rigid definition of solar hours does not take into account solar insolation levels which vary in different locations and advancements in technology, and such a strict provision on solar hours may lead to loss in generation and any such loss in generation directly affects the return on investment in solar plants, given the thin margins they operate on due to competitive tariffs.
• The draft fourth amendment mandates the promoters of a connectivity grantee to retain control before the commercial operation date of the project. They must either hold over 50% equity shares with voting rights or have the right to appoint the majority of directors and if no promoter holds majority, the shareholding structure must remain unchanged. All modifications (including change in shareholding below 50%) require prior approval from the nodal agency and must be reported to the CERC within 45 days. Any unauthorized change in the shareholding may result in revocation of the connectivity approvals and forfeiture of the BGs. This change imposes an obligation on applicants seeking investments prior to commissioning, requiring them to obtain prior approval from the CERC, akin to the shareholding lock-in restrictions typically provided in tender documents. Such additional approval requirements may discourage investment interest in the sector for under-construction projects. It is also unclear from the draft amendment whether such shareholding lock-in restrictions also apply to reorganisation and change in shareholding within group companies. Moreover, any change in shareholding below 50%, given that it does not result in change in control, should typically not require approval of the nodal agency (as is currently necessary from the draft fourth amendment), and in our view, an intimation should be sufficient in such cases.
• The draft amendment establishes the criteria for expanding generation capacity under existing connectivity approvals. Applicants must provide financial guarantees for the added capacity and submit a scheduled commercial operation date of the project, as part of their application. If the additional capacity involves renewable energy with or without storage, the project must be commissioned within 18 months from grant of the approval. While the draft amendment does not explicitly specify the effect of non-commissioning within the prescribed timelines, it appears to be a condition of the connectivity approval and non-compliance of such condition may result in revocation/cancellation of connectivity approval. While these provisions aim to promote timely project execution and efficient use of transmission infrastructure, the 18-month timeline may not be appropriate, given that some existing tenders under which projects are being developed themselves provide a longer period for commissioning (maximum of 24 months).
• Regulation 24.6 of the existing GNA Regulations provides that connectivity granted to a Developer would be revoked on failure to achieve commissioning by the scheduled commissioning date under the LOA/PPA, and 6 months after the scheduled commissioning date set out in the connectivity application for projects without an executed LOA/PPA. However, a Developer is not presently required to submit an LOA/PPA along with its connectivity application, contrary to the requirements in case of a renewable energy generator. The draft amendment mandates the Developers to provide the scheduled commercial operation date before receiving the final connectivity approval. However, project timelines in renewable energy parks are often not determined prior to grant of final connectivity. Accordingly, Developers may find it challenging to comply with this notification requirement, unless it is linked to an event within their control, such as making this clause actionable only in case the Developers have not approached generators to set up plants within their park.

Conclusion

The notification of the Draft Amendments will contribute in improving the functionality of the ISTS network, but may also pose challenges to the applicants of connectivity due to the additional restrictions and payment obligations incorporated by these draft amendments. Consultations between the CERC, the Ministry of Power are presently underway, especially in relation to changes suggested in the Draft Amendments regarding withdrawal/relinquishment of BGs, reallocation of connectivity, duration of solar and non-solar hours, timelines for commissioning of projects and approval requirements for change in shareholding etc. While the Draft Amendments are a welcome step towards resolution of stakeholder grievances in relation to the GNA Regulations, any unforeseen impact on generators of electricity can only be ascertained conclusively once the Draft Amendments come into force.