India’s Electricity (Amendment) Bill 2025 seeks grid reform, but vague mechanisms risk leaving DISCOMs burdened and consumers underserved.
India’s installed power capacity has surpassed 500 GW with non-fossil fuels-based sources comprising 50percent of the resource mix. As it seeks to power a rapidly expanding economy with clean energy, there is a concomitant need to expand and modernise the national grid. The Electricity (Amendment) Bill 2025 aims to drive this overhaul by addressing structural inefficiencies in areas such as integration of renewable energy projects, building storage capacity, plugging transmission gaps, encouraging competition in distribution, and the phasing out of inefficient cross-subsidies.
However, the Bill has recently sparked protests across the country, especially by farmer groups and power sector employees, who fear an increase in tariffs and privatisation of the sector due to a lack of clarity about how the reforms will be implemented. These concerns are not incidental. Electricity lies at the centre of India’s political economy, and at a moment when global energy markets have been upended by the West Asia crisis, the twin challenge of expanding green energy and providing affordable electricity to consumers has become more crucial.
Against this backdrop, the proposed reforms in the distribution sector deserve closer scrutiny. This article examines the Bill’s approach to cross-subsidisation, renewable energy procurement, and competition, and suggests ways to address some of its current gaps.
Electricity lies at the centre of India’s political economy, and at a moment when global energy markets have been upended by the West Asia crisis, the twin challenge of expanding green energy and providing affordable electricity to consumers has become more crucial.
Cross-subsidies refer to charging higher tariffs on heavy consumers, such as the railways and industries, to facilitate lower tariffs for groups such as agricultural and low-income domestic consumers. The Bill aims to eliminate these with a view to making input costs competitive by pushing for ‘cost-reflective tariffs’. Normatively, tariffs for subsidising consumers will decrease, while subsidised consumers will see increased tariffs. However, continuance of ‘transparently funded’ subsidies has been guaranteed as a safety valve. Nevertheless, these subsidies are beset with structural bottlenecks.
State governments provide subsidies over and above the tariffs determined by State Electricity Commissions. These are disbursed to the distribution companies, which settle it against the final billed tariff. Replacing cross-subsidisation with this mechanism, hence, presents a twin problem – loss of revenue from the subsidising consumers, and the continuing inability to recoup actual cost from subsidised consumers. Moreover, many states often delay subsidy payments, while the debt-ridden DISCOMs continue to subsidise bills, compounding their fiscal bind. The Bill, however, does not present a framework on how the added costs will be financed by the states or absorbed by the DISCOMs.
Many states often delay subsidy payments, while the debt-ridden DISCOMs continue to subsidise bills, compounding their fiscal bind.
The five-year window for eliminating cross-subsidies, hence, should be carefully calibrated. Elimination of cross-subsidies in the railways should be prioritised, followed by manufacturing industries – rationalisation in freight charges first will have a trickle-down effect on manufacturing costs and not shock the current tariff balance. Furthermore, states should switch from circuiting subsidies through DISCOMs to direct benefit transfers (DBT) to subsidised consumers through meter-linked e-rupee vouchers. This will ensure that the DISCOMs’ balance sheets remain unaffected and that there are no leakages in disbursement.
Renewable energy (RE) has gradually achieved economies of scale with solar generation costs hitting a low of ₹2.5/kWh (compared to the average electricity generation cost of ₹7-8/kWh). Yet tariffs in India have remained stagnant, which are one of the highest in the world on a PPP basis, reflective of the slow integration of RE in the national grid. To address this, Renewable Purchase Obligations (RPOs) were introduced for DISCOMs, mandating the procurement of a minimum percentage of their electricity from renewable sources. These RPOs can be met either by signing Power Purchase Agreements (PPAs) with renewable energy generators or by purchasing tradeable Renewable Energy Certificates (RECs) from the power exchange. However, many DISCOMs have consistently failed to meet these obligations.
Although RECs were intended to provide flexibility and improve compliance, unlimited REC purchasing by DISCOMs can defeat the underlying objective of RE procurement and integration into the grid.
As of 2025, approximately 40-45 GW worth of RE projects remain without unsigned PPAs. In addition to the financial challenges faced by DISCOMs, inadequate evacuation and transmission infrastructure make these projects an unappealing option, meaning that lower RE costs are seldom passed on to consumers. To address this, the Bill proposes penalties on DISCOMs not fulfilling their RPOs at the rate of 35-45 paise per unit. However, purchasing RECs, which trade at 30-40 paise per unit, is a cheaper option. Although RECs were intended to provide flexibility and improve compliance, unlimited REC purchasing by DISCOMs can defeat the underlying objective of RE procurement and integration into the grid.
With the recent fall in battery storage tariffs and the announcement of Green Energy Corridors and high-voltage evacuation projects, procuring RE will soon be a less risky proposition. While capital infusion schemes are largely focused on cutting AT&C losses of DISCOMs, specific provisions are required to nudge them toward greater procurement. Progressively increasing quantitative limits should be placed on REC purchases, with stricter norms for RE-abundant states, to encourage direct procurement. RE is generally procured by RE Implementing Agencies such as SECI and NTPC, which sell it to DISCOMs under power sale agreements that currently charge a trade margin of 7 paise per unit. These margins should be reduced to make procurement affordable.
Presently, the distribution sector is dominated by vertically-integrated DISCOMs, i.e., they own and manage the distribution network (‘wires’) as well as the retail operations in an area. Due to high entry and exit costs associated with network infrastructure, this sector has become a natural monopoly, providing limited choices to consumers. To address this, the Bill introduces competition by allowing multiple distribution licensees (‘licensees’) to share wires by ensuring ‘non-discriminatory open access’. Although it mandates that all licensees will pay uniform wheeling charges (fee to use the wires), there are roadblocks to ensuring competitiveness.
It has been seen that state load dispatch centres often prioritise open access (provision of high-tension electricity to industrial consumers) applications of a monopolist DISCOM over those of its competitors. Similarly, network owners have also prevented their competitors from securing new consumers in the electricity connections market, as they usually own metering operations too. Moreover, privileged access to network and consumption data allows them to better streamline its operations. The Bill neither anticipates nor defines such unfair practices. It also remains unclear who amongst the new licensees will bear the legislative obligation and costs for network augmentation and expansion. There is also no framework on how costs under existing PPAs will be distributed amongst the licensees.
Network owners have also prevented their competitors from securing new consumers in the electricity connections market, as they usually own metering operations too.
Sharing of infrastructure networks by multiple licensees is a much-needed step to provide consumers with more tariff offerings. However, true competition will exist only by disentrenching monopolist DISCOMs. Hence, there should be operational and managerial separation between their wires and retail arms. Additionally, to lower the cost of entry, the fixed costs of new PPAs not more than 10 years old should be proportionately distributed amongst the licensees, given that the fixed costs associated with older PPAs will have been more or less absorbed. Instead of this, a moratorium of 5 years or a subvention can be provided on payment of wheeling charges.
As the economy aspires to grow through expansion in manufacturing and AI data centres, the demand for continuous electricity, especially generated from renewable sources, will burgeon. The grid will, hence, have to integrate new sources, storage solutions, and transmission corridors to ensure baseload stability. While the Bill sets out the direction of reform, it remains vague in its mechanisms for achieving its goals. RE integration and tariff rationalisation cannot be separated from the social and economic realities within which DISCOMs operate. Coherent contingency and transition frameworks are necessary to actualise the grid decarbonisation and cheaper electricity. A prudent approach would be to target RE-abundant states with debt-laden distribution sectors, such as Andhra Pradesh and Maharashtra, as use cases for replication in other states. Without this, the Bill risks remaining toothless.
Aadya Chaturvedi is a Research Assistant with the Center for Economy and Growth at the Observer Research Foundation.
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Aadya Chaturvedi is a Research Assistant with ORF’s Center for Economy and Growth. Her work focuses on Energy and Climate Change, specifically on critical minerals, renewables, ...
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