India’s power transmission sector is exceptionally attractive for lending institutions: Avener Capital
- March 26, 2025
In this exchange with T&D India, we have Abhishek Kumar, Executive Director, Avener Capital, giving insights into new paradigms in the power transmission sector, touching upon aspects like enhanced involvement of private sector entities thanks to the TBCB framework, the role of infrastructure investments trusts (InvITs), innovative financing models available to transmission service providers, etc. Abhishek Kumar strongly feels that innovative financing models are transforming the funding landscape for private developers, and that India’s power transmission sector is exceptionally attractive for lending institutions. An interview by Venugopal Pillai.
Much of India’s upcoming interstate power transmission infrastructure is directed towards evacuation of renewable energy from plants located in far-flung and ecologically sensitive areas. Given this, what is your view on the project execution challenges?
India’s interstate power transmission sector is undergoing a transformation, making it an exciting space for investors and new players.
Ecologically sensitive areas (ESA) require route optimization, environment impact assessment, mitigation measures, monitoring and adaptive management, in order to minimize adverse impacts on project execution. While Right of Way (RoW) has traditionally been a challenge (irrespective of ESA or not), recent policy interventions are paving the way for smoother execution.
The government’s revised compensation guidelines of June 2024, which link payouts to market rates, have significantly eased land acquisition concerns. Payments for tower base areas have been doubled, and RoW corridor compensation has been raised, leading to better landholder cooperation and faster clearances.
Additionally, initiatives like the Project Monitoring Group and the PM Gati Shakti portal are streamlining approvals and optimizing route alignments, reducing project bottlenecks. Where required, alternative transmission arrangements are being leveraged to ensure renewable energy integration stays on track. TSA also provides an IRR protection mechanism through pre-defined increase in tariff to compensate any potential increase in capex on account of ROW issues, which has dramatically reduced the risk profile of transmission projects.
These measures position the sector as a robust pillar for India’s clean energy future.
What is your overall view on the growing involvement of private sector entities in the power transmission development space, thanks to the tariff-based competitive bidding (TBCB) mechanism?
The TBCB model has been instrumental in expanding private sector participation in power transmission. Before introduction of TBCB, the sector was largely dependent on government entities, but competitive bidding has opened the market to private sector, driving efficiency, innovation and investment. While particularly successful in interstate projects, this model is now beginning to positively influence intrastate development as well.
Since its introduction, private participation has steadily increased, with nearly 100 per cent of new transmission projects now awarded through TBCB. This shift has attracted major infrastructure players, including domestic conglomerates and foreign investors, fostering competition and innovation.
TBCB has also ensured cost-effective project execution, as developers bring in advanced technologies and better financial discipline. With clear revenue visibility through long-term contracts, private sector confidence in transmission has strengthened, making it one of the fastest-growing segments in India’s energy landscape. InvITs as a monetization strategy has been a catalyst to attract private investors at under development/construction stage and operational stage.
“Private developers have fostered optimization of costs, adopt innovative financing models, and leverage global best practices, reducing delays and budget overruns.”
Specifically, how would the role of private sector impact growth of the power transmission sector that has been traditionally dominated by government entities?
Private sector involvement is expanding transmission capacity at an unprecedented pace by introducing agile project execution and market-driven efficiencies. Private developers have fostered optimization of costs, adopt innovative financing models, and leverage global best practices, reducing delays and budget overruns.
Their participation is also diversifying risk, ensuring that capital-intensive projects do not solely depend on public funds, thus enabling the government to achieve the objective of fiscal consolidation. With a performance-driven approach, private players are reshaping the sector into a more investor-oriented and technologically advanced ecosystem.
The TBCB framework, we feel, has not found much success when it comes to intrastate grid development. What is your view?
While intrastate TBCB adoption has been slower than interstate projects, recent developments indicate a growing shift toward competitive bidding. States like Maharashtra, Madhya Pradesh, Uttar Pradesh, and Delhi have begun integrating TBCB into their transmission planning, demonstrating cost savings, improved efficiency, and better project timelines.
With competitive tariffs reducing costs by 30-40 per cent, more states are recognizing the benefits of private participation. As regulatory frameworks evolve and success stories build momentum, TBCB is set to play a larger role in intrastate transmission expansion.
As power transmission infrastructure is being largely built under the concession route, what challenges do you see on the project financing side?
Financing projects on the concession route presents distinct challenges. These include the high capital intensity and long-term debt servicing periods, as well as regulatory uncertainty (like renewal of transmission license at the end of 25 years, though TSA period is 35 years). Delays in clearances, ROWs or disputes over compensation can also impact cash flows, making risk management crucial.
The delay in commissioning (resulting in technical NPA) has been one of the critical risks resulting in commercial banks avoiding financing greenfield transmission projects. Such projects are largely being funded by Government backed NBFCs, while the commercial banks & bond markets are active in refinancing operational projects.
Nonetheless, structured project financing, robust risk-sharing mechanisms, and supportive government policies are increasingly mitigating these hurdles. The sector has found favor in InvITs which have significantly reduced dependence of developers on debt for reducing gestation periods in capital rotation of transmission projects by offering a ready source of monetization post COD.
Do you see the scope for innovative financing models, especially for private sector developers?
Innovative financing models are transforming the funding landscape for private developers in power transmission. For instance, InvITs (Infrastructure Investment Trusts) allow project revenues, especially those secured through fixed-tariff agreements, to be bundled and securitized, which provides a stable cash flow ideal for long term investors with low risk appetite. This structure not only enhances bankability but also attracts institutional investors looking for predictable returns.
Additionally, innovative debt structures—such as subordinated debt or hybrid instruments—are being developed to optimize capital allocation and share risks more effectively. The rise of green bonds further supports these projects by channeling environmentally focused capital into infrastructure developments, aligning with global sustainability goals. These financial innovations collectively offer a robust framework to accelerate power transmission projects while ensuring financial discipline and investor confidence.
How do you see the evolving role of infrastructure investment trusts (InvITs) in the power transmission space?
InvITs are reshaping the power transmission space by pooling capital from a wide range of investors, including retail participants, to finance large-scale infrastructure projects. Actively sponsored by industry leaders—such as PowerGrid InvIT by PowerGrid, and IndiGrid, which was initially backed by Sterlite Power and later acquired by GIC and KKR—these trusts serve as both financing vehicles and active secondary markets. This structure enables developers to sell transmission assets, freeing up cash and equity that can be redeployed to drive further growth and enhance IRRs.
With stable revenue models—attributable to fixed tariffs and Central Transmission Utility payments—and a mandate to distribute at least 90 per cent of income to unit holders, InvITs offer predictable returns that attract long-term investment. They also support renewable energy integration by ensuring the efficient financing and management of grid infrastructure.
We understand that Power Grid Corporation of India Ltd’s InvIT (PGInvIT) has been adversely impacted by government guidelines with respect to monetization of assets. What is your view?
PGInvIT, started off as one of the largest InvITs in India’s power transmission sector and the first InvIT by any PSU, as part of the national monetization plan.
PGInvIT faces constraints due to recent government guidelines that limits PGInvIT’s pipeline of future power transmission assets from Power Grid Corporation of India Ltd (PGCIL). However, the broader secondary market for transmission assets remains active, with several developers looking to monetize their projects. This creates opportunities to acquire operational assets.
PGInvIT is currently at zero net leverage and thus future acquisitions can be funded through debt. Therefore, PGInvIT will be highly competitive as compared to other InvITs. Accordingly, the long term growth story for PGInvIT remains very strong.
Given that India’s power transmission infrastructure development will need Rs.10 trillion of investment up to 2030, how lucrative would the sector be for lending institutions?
India’s power transmission sector is exceptionally attractive for lending institutions, with an estimated investment need of around Rs.10 trillion by 2030. The sector offers long-term, stable projects backed by supportive government policies and fixed tariff-based revenue models. Additionally, the push to integrate 500 GW of renewable energy ensures a continuous demand for upgraded and expanded transmission networks. With 75-80 per cent of capex typically being funded upfront through debt and additional re-gearing of 10 per cent post COD, lenders have the opportunity to diversify their portfolios, finance robust infrastructure, and participate in a critical driver of economic growth and energy transition.
“Construction risk is relatively higher for power transmission as compared to power generation. But over the asset life, power transmission projects represent a lower-risk opportunity compared to power generation.”
How do you assess the risk for lenders in the power transmission sector, as opposed to say power generation?
Construction risk is relatively higher for power transmission as compared to power generation. But over the asset life, power transmission projects represent a lower-risk opportunity compared to power generation. Transmission assets benefit from fixed tariffs, long-term contracts, and strong government backing, ensuring predictable cash flows, pooling of cash (PoC) and minimal counterparty risk as revenues are linked to availability.
In contrast, power generation is more exposed to price fluctuations of input costs (coal, gas, etc), operational uncertainties such as curtailment from discoms, seasonality for solar, wind & hydro and regulatory risks related timely tariff and true-up orders. This regulated and stable revenue stream in transmission projects makes them an attractive and secure lending proposition which is evident from the fact that transmission projects post COD are able to achieve credit rating of AA to AAA whereas power generation assets are typically rated A to AA.
In conclusion, please summarize the key trends that you foresee when it comes to project financing of power transmission sector – both with respect to lenders and borrowers.
The key trends would be:
Increased Investment Demand: With an estimated Rs.10 trillion required by 2030, there’s a strong appetite for long-term financing. A notable focus on intra-state networks is emerging to boost local grid reliability and capacity.
Innovative Asset Monetization: InvITs and other monetization strategies are unlocking capital from existing brownfield assets. Structured financing models enhance bankability, enabling developers to free up cash and recycle capital for further growth.
Enhanced Regulatory Support: Government initiatives, such as the Green Energy Corridor, alongside robust payment security mechanisms, are providing lenders with greater confidence through predictable revenue streams and regulatory stability.
Renewable Energy Integration: As India targets 500 GW of renewable energy capacity by 2030, there’s a growing demand for advanced transmission solutions. Investments in technologies like HVDC systems and smart grids are set to drive efficiency and support this integration.
Evolving Risk Mitigation: Group financing structures are on the rise, allowing for diversified risk and improved access to capital.
These trends create an attractive, stable financing environment for both lenders and borrowers, driving the sector’s long-term growth.
