Crisil Ratings: Inter-state transmission wired for ~Rs 1 lakh crore capex over next two fiscals – EQ
In Short : India’s inter-state transmission sector is set for ₹1 lakh crore capex over FY26-FY27, driven by 65-75 GW renewable energy expansion. Project awards surged, but delays persist due to right-of-way and clearance issues. Developers remain financially strong, with expected returns of 11-14%. Government reforms aim to streamline execution and ensure efficient power evacuation.
In Detail : The inter-state transmission system (ISTS) sector will incur capital expenditure (capex) of ~Rs 1 lakh crore over fiscals 2026 and 2027, primarily to support renewable energy evacuation. This is twice the capex of ~Rs 50,000 crore cumulatively seen between fiscals 2024 and 2025.
During the construction phase, transmission projects face multiple execution risks, including, but not limited to, right of way (ROW), forest clearances, and supply chain issues. Nevertheless, credit profiles of developers remain supported by healthy cash flows and strong funding visibility.
An analysis of three developers, estimated to account for 80-85% of the expected capex, indicates as much.
Strengthening the transmission infrastructure is critical given the momentum in renewable capacity addition. Crisil Ratings expects addition of 65-75 GW of solar and wind capacities over fiscals 2026 and 20271. Timely planning and commissioning of transmission capacities remains critical as the execution period of a transmission project is typically 2-4 years — twice that of a renewable energy project.
Says Manish Gupta, Deputy Chief Ratings Officer, Crisil Ratings, “Considering the need for transmission capacity augmentation, project awarding ramped up to Rs 1.6 lakh crore in fiscals 2024 and 20252. We have seen these projects incurring an average delay of about ten months in commissioning, with few projects even seeing delays of over 18 months. Factoring these delays, we estimate transmission connectivity to be enabled for upto 60 GW of potential renewable capacity by fiscal 2027.”
To support faster execution, the Ministry of Power has amended the land compensation guidelines for ROW for transmission projects. For instance, in June 2024, land compensation for tower base area for high-voltage transmission lines was increased to 200% from 85% of land value, increasing the compensation for landowners and, thereby, reduce ROW-induced delays. Moreover, considering the urgent ramp-up required in the transmission sector, maintaining an uninterrupted supply chain, especially for sub-station equipment like transformers as well as high-voltage direct current (HVDC) components will remain critical for timely execution.
Says Anand Kulkarni, Director, Crisil Ratings, “We expect these projects to generate return on equity of 11-14%3. Notwithstanding the sensitivity of returns to project delays, developers are well placed to absorb the rising capex intensity. Equity requirements4 are well supported by recent fund raises aggregating to ~Rs. 12,500 crore through equity capital markets and players’ estimated free cash flows5 of around Rs. 30,000 crore over the next two fiscals from their existing operational portfolio.”
This operational portfolio benefits from tariff based on line availability, revenue secured through 35-year transmission service agreements, and collections managed by Central Transmission Utility of India Ltd. Historical line availability of above 99% and collections from distribution companies exceeding 97%, underpin steady cash flows from these projects.
All in all, while strengthening of the transmission sector remains a focus for the government, timely de-bottlenecking of key execution issues will be important for building a future-ready transmission infrastructure.
- Up from estimated 45 GW cumulatively added during fiscals 2024 and 2025
- From April 1, 2023, to January 31, 2025, against cumulative project awarding of ~Rs 35,000 crore over fiscals 2022 and 2023
- Returns based on operational project cash flows only
- Typically, these projects require equity funding of 20% to 30%, while the balance is funded by debt
- Cash flow available from operational projects after debt servicing
