The Next Frontier: Fixing India’s RE Grid Integration Challenges

There are distinct stages of VRE integration and the corresponding system response. At <5% VRE (Stage-1), the impact on grid operations is negligible and the system absorbs variability without major adjustments, supported by incentives like must-run status and ISTS waivers. As the share rises to 5–15% (Stage-2), ramping requirements intensify, particularly during morning and evening transitions as net-load movements become sharper. In the 15–25% band (Stage-3), VRE begins to shape real-time operations, tightening the need for reserves, flexibility, and more accurate scheduling. When penetration reaches 25–50% (Stage-4), renewables dominate during several hours of the day, producing steep net-load swings and highlighting limits in thermal fleet flexibility. Beyond 50–75% (Stage-5), surplus energy becomes common, making storage, demand-side flexibility, and responsive loads essential to manage over-generation and minimise curtailment. Once VRE exceeds 75% (Stage-6), the emphasis shifts to long-term system harmonization—aligning markets, reserves, forecasting, and operational protocols to maintain reliability, affordability, and stability across all seasons and operating conditions.

India stands at a pivotal point in its energy transition, effectively entering Stage-3. With renewable energy now exceeding half of installed capacity, VRE contributing over 30%, and an additional 40 GW expected each year, the country has moved from incremental greening to a deeper structural shift in grid architecture. This rapid scale-up is a major achievement, yet it brings a new class of challenges—more complex, more systemic, and no longer solvable through traditional planning or regulatory approaches.

The next phase of the transition is no longer about adding RE megawatts; it is about integrating them into a grid built for centralised fossil generation, predictable load patterns, and slow-moving demand curves. Today’s issues—curtailment, congestion, rising reliability costs, surplus injections, increased volatility, and financial strain—are not technical aberrations. They stem from expanding renewables without parallel progress in grid readiness, demand flexibility, storage deployment, and meaningful DISCOM reforms. Above all, without adequate flexibility or storage in the system, the cost of ensuring reliability is becoming steep — and this is where the transition strain is most visible.

This blog explores these challenges in depth—structural, operational, commercial, and regulatory—and outlines what India must do to shift from a generation or supply-led RE to System led, demand-linked, flexibility-driven approach for the next phase of the clean-energy transition. 

1. The Core Policy Imbalance: Generation Is de-Licensed, but Transmission and Distribution Are Not

India’s renewable expansion has been driven by competitive bidding, open access, must-run status, and de-licensing of generation. However, transmission and distribution (T&D) remain heavily regulated and slow to modernise. This structural asymmetry is the root of several integration problems:

•  RE gets built faster than the grid can evacuate it.

•  Inter-state transmission system (ISTS) readiness lags capacity addition.

•  DISCOMs lack financial and digital capability to absorb and utilize RE efficiently.

The result is predictable: RE capacity addition surges ahead; T&D lags. The mismatch manifests as congestion, delayed connectivity, curtailment, and high reliability costs loaded onto other generators. Therefore, a unified planning approach where generation, transmission, markets, and distribution evolve together is needed—not in parallel silos.

2. Must-Run Rules: Time to unset a Supportive Policy Turning into Operational Strain

Must-run was intended to shield RE from discretionary curtailment, but at current scale it introduces significant constraints. Mid-day solar peaks leave little flexibility to adjust conventional generation, pushing coal stations below technical limits and increasing wear, heat-rate losses, outages, and O&M costs—eventually feeding into tariffs. Operators also lose the ability to dispatch economically or maintain wider stability margins, as RE must be absorbed first even when it is not optimal for cost or system conditions. DISCOMs face variable supply without any “must-take” obligation on consumers, increasing DSM exposure and reserve requirements even with exchange prices going to Zero during peak solar hours. And despite the must-run mandate, curtailment is rising, indicating that the grid has reached its absorption threshold. In effect, a policy created to support RE deployment is now magnifying operational stress in high-RE states.

3. ISTS Waiver for RE: Incentives that Distorted the Growth

The waiver of ISTS transmission charges for solar and wind drove rapid RE growth in few states, but at today’s scale it is creating significant distortions.

a. Concentration of RE in a Few States: ISTS-free access encourages developers to build in states like Rajasthan and Gujarat and sell power anywhere without transmission cost. This has led to geographic clustering, persistent corridor congestion, and regionally imbalanced generation portfolios—when a more dispersed build-out across demand centres would have eased integration.

b. Boost to Speculative or Merchant RE : With no transmission charges, developers could set up large projects for open access or merchant sale without firm PPAs. This accelerated additions but increased operational uncertainty, complicated forecasting, and decoupled generation growth from local demand.

c. Pressure on Transmission Planning : The waiver triggered project announcements faster than CEA and CTU could plan or commission evacuation corridors, creating a moving target for transmission planning and leading to frequent bottlenecks.

d. Under-pricing Real System Costs : ISTS charges are meant to signal congestion and reflect network costs. Waiving them hides true system stress, shifts costs to DISCOMs and consumers, removes locational signals, and encourages oversupply in already constrained zones.

e. Distortion Against Hybrids and Storage : Standalone solar and wind enjoyed ISTS-free status, while early storage and hybrid projects did not receive comparable incentives. This skewed the market toward pure RE, worsening variability and integration challenges.

The combined effect of must-run rules and free ISTS access is now amplifying the integration burden on the grid besides reducing locational diversity. Together, they drive large injections of renewable energy into the system during specific hours while leaving operators with very limited flexibility in dispatch. This concentration of RE flows has intensified congestion in the western corridors, increased balancing costs for DISCOMs, and added significant ramping pressure on thermal units. Maintaining adequate inertia and reserves becomes more challenging under such rigid conditions, and curtailment continues to rise despite must-run protection—clear evidence of systemic saturation. These policies were powerful accelerators in the early growth phase of renewables, but at today’s scale they need a sunset for a grid where RE is no longer marginal but central to overall system operations.

4. RE’s Dynamic Energy Costs vs Rigid Two-Part Retail Tariffs

Renewable electricity has zero marginal cost in generation but extremely high system integration cost when flexibility is inadequate. Meanwhile, retail supply remains tied to a fixed+variable two-part tariff, with no dynamic pricing.

This creates a system with volatile procurement prices but completely inflexible retail consumption. Consumers cannot shift load to RE-rich hours; the grid cannot push surplus RE smoothly; DISCOMs cannot manage variability economically.

Without real-time tariffs or incentive-driven demand response, India ends up wasting RE through curtailment while simultaneously running thermal plants at high backing-down costs.

5. Forecasting Problems on Both Supply and Demand Side

India’s forecasting ecosystem still struggles with accuracy:

• Solar/wind forecasting varies widely across states.

• Load forecasting by DISCOMs is equally poor and often manual.

• Penalties under deviation settlement (DSM) are inconsistently applied.

This “double-uncertainty”—variable supply + unpredictable demand—forces system operators to keep large reserves or resort to RE curtailment. Better forecasting needs stronger models, more data points, AMI rollout, and compliance discipline.

6. Grid Inertia Loss and Stability Risks

As solar generation surges during mid-day hours, thermal output collapses. But synchronous thermal and hydro units provide essential inertia, stabilising frequency and avoiding rapid deviations.

When inertia drops below tolerance limits:

• frequency becomes volatile

• reactive power imbalances appear

• ramping shocks increase

• system operators must curtail RE to restore margin

This phenomenon is already visible in Rajasthan, Gujarat, and Karnataka.

India needs long-run solutions—synchronous condensers, hybridization, storage, and flexible thermal—to make a low-inertia grid stable.

7. Inadequate Fast-Ramping and Firm Capacity

RE is variable; integration needs balancing. However:

• India has very little gas-based flexible generation running for balancing.

• Hydro is used for base-load or constrained by reservoir priorities.

• Battery storage is still at pilot scale.

• The new ancillary services markets are improving but still too small, too shallow, and too slow.

When a balancing resource is not available, system operators fall back to the easiest tool—curtailment. Deep RE penetration demands fast-ramping, flexible, and reserve-providing assets. India must build these in advance, not after curtailment becomes chronic.

8. Market Design Misalignment: Price Signals Don’t Support Flexibility

India’s power markets are not designed for deep RE integration:

• The Day-Ahead Market collapses to near zero during solar hours, offering no revenue signal for storage.

• Time-block prices fail to reflect transmission congestion or system-wide value.

• Ancillary markets reward MW availability, not ramping speed or response granularity.

• There is no locational marginal pricing (LMP) or nodal dispatch.

As a result, investors have no incentive to build the kind of assets that a high-RE system needs—flexibility, reserves, storage, fast ramping, and congestion relief.

Without reform of market design, India risks replicating the “RE bubble” seen in other countries—high-capacity additions followed by system stress and asset underutilisation.

9. Congestion: Not Just a Capacity Issue but a Stability and Maintenance Constraint

Even where static transmission capacity exists on paper, real-time constraints reduce actual headroom:

• planned and unplanned line outages

• transformer overloading

• voltage stability limits

• power-angle constraints

• temporary corridor limits during maintenance

RE plants located in concentrated resource zones—such as Jaisalmer, Kutch, and Anantapur—regularly face curtailment because dynamic congestion cannot be solved by adding long-term transmission lines alone.

India needs rolling annual transmission plans, dynamic line ratings, and continuous system studies—not static five-year projections.

10. Distribution-Level Visibility Gaps and Reverse Power Flows

A large share of India’s grid—especially at 11 kV and below—still lacks:

• SCADA

• feeder-level monitoring

• automated switching

• voltage regulation

• real-time load visibility

As rooftop solar and agricultural feeder solarisation expand, reverse flows and voltage surges create operational issues. In absence of visibility, SLDCs and DISCOMs use blunt tools—typically restricting injection or curtailing RE disproportionately.

Modernization of the distribution grid is critical to preventing “invisible bottlenecks” from becoming the next major RE integration barrier.

11. Payment and Credibility Risks: The Hidden Brake on RE Integration

Even if physical infrastructure is adequate, commercial constraints can still restrict RE integration:

• DISCOMs delay payments to generators.

• Banking, wheeling, and open access charges are frequently revised.

• States impose restrictions to protect revenue.

• Hybrid+storage bids are delayed despite clear need.

When DISCOMs are financially stressed, they naturally resist absorbing surplus RE or signing storage-linked contracts. Integration requires financially strong buyers; reforms in billing, loss reduction, and digitalization are essential complements to generation growth.

12. Fragmented Policy Signals Across Agencies

India’s RE strategy is shaped by multiple actors:

• MNRE oversees RE promotion.

• CEA plans transmission.

• CERC regulates national markets.

• SERCs determine tariff structures.

• State nodal agencies announce RE tenders.

• POSOCO manages operations.

These bodies often work in parallel, not as an integrated system. The result is:

• projects completed before evacuation lines

• RE commissioned ahead of storage

• conflicting tariff signals

• mismatch between state-level and national plans

Without institutional coordination, India risks creating a system where policy encouragement and system readiness move on divergent tracks.

13. Demand-Side Inflexibility: A Critical Missing Link

Load in India remains largely inflexible:

• ToD tariffs are static and often meaningless.

• Smart meters are being installed but not used for dynamic pricing.

• Industrial consumers lack automated demand response systems.

• Agriculture is schedulable but rarely aligned with RE surges.

As a result, even when cheap green generation is abundant, demand stays flat, forcing operators to curtail RE while thermal plants continue to run at technical minimums.

Demand must become the most flexible resource—not the most rigid.

14. Storage Still Treated as a Cost, not a System Asset

India’s policy approach often views storage as an expensive add-on. Storage delivers:

• ramping support

• peak shifting

• frequency control

• reserve services

• congestion relief

• duck-curve flattening

• firming of RE

India has not yet created a unified regulatory treatment for storage across energy, capacity, and ancillary markets. Until storage becomes an integral part of procurement and scheduling, integration challenges will persist and worsen.

15. State-Level Barriers and Discretionary Curtailment

Several states impose restrictions that make RE integration harder:

• arbitrary curtailment without transparency

• caps on open access injection

• delays in granting connectivity

• high wheeling/banking charges

• overloading of distribution systems without upgrades

These practices increase investor risk, reduce RE utilisation, and undermine system efficiency.

India desperately needs a National Curtailment Code defining:

• when curtailment is allowed

• how it is compensated

• transparent reporting requirements

• audit and compliance standards

Without such a code, discretion replaces discipline.

The Emerging Financial Risk: A New NPA Cycle in the Making

India has already seen a major NPA crisis during the 2010–2015 thermal build-out when:

• policy signals were misaligned

• demand was overestimated

• fuel supply agreements lagged

• PPAs were not bankable

Today, the same risk exists with RE if integration challenges remain unpriced. Ultra-low tariffs hide integration costs that someone eventually has to bear—DISCOMs, system operators, or the generators through curtailment.

Unless India builds flexibility markets, storage capacity, and demand response, RE assets may face revenue fragility and potential stress. A disciplined integration framework is essential for financial sustainability.

What India Needs Now: A System-Integrated Planning Approach

The next phase of India’s RE evolution must prioritize integration over addition. Key imperatives include:

1. Rolling Six-Month Transmission and System Plans- Dynamic planning aligned with actual commissioning timelines.

2. RE Growth Linked to Demand, Flexibility, and PPAs-Capacity must follow system needs, not standalone policy targets.

3. Hybrid + Storage as the Default Development Model-Standalone RE is reaching its technical limit; the future is firmed RE.

4. Flexible Thermal and Hydro as Balancing Partners-Coal cannot disappear; it must become flexible.

5. National Curtailment Code-Transparency and discipline in operations.

6. Act Amendment /Regulatory reforms to bring in Real-Time, Dynamic, Intuitive Tariff Design-Consumers must play an active role in balancing the grid.

7. Deep DISCOM Reform-Digitalisation/smart metering, financial discipline, AT&C loss reduction, and forecasting capacity.

8. Market Design Reform-Introduce locational signals, granular ancillary services, and storage markets.

However, some of these measures not only need Policy or Regulatory reforms but also amendments to the Electricity Act, 2003.  For example, Introducing a real-time or fully dynamic tariff is difficult because the retail tariff framework under Sections 61, 62 and 64 of the Electricity Act requires retail tariffs to be determined in advance, notified through a formal tariff order, and remain valid for a defined period. This structure assumes stability and pre-approved rates, leaving no legal room for tariffs that change hourly based on grid conditions, market prices, or system constraints. Any revision requires a regulatory process, public hearing, and prior approval, which is incompatible with continuous or automated price variation. As a result, while ToD/ToU tariffs are possible, true dynamic tariffs cannot be implemented meaningfully within the current statutory framework, as the very requirement of predetermined, notified tariffs prevents real-time pricing.

Conclusion: The Transition Must Shift from Capacity to Competence

India’s clean-energy transition so far has been capacity-driven. The next phase must be system-driven. The goal is not merely to build the world’s largest renewable energy fleet—it is to build the most reliable, flexible, and financially resilient clean-power system.

Integration challenges are not signs of failure; they signal that India is entering the “advanced stage” of renewable adoption where system design matters as much as generation capacity. Solving these challenges requires coordination across policy, regulation, operations, markets, and technology.

If India embraces a disciplined, demand-linked, flexibility-first integration strategy, it can build a grid that stands as a global model—not just of scale, but of stability and sophistication.