Contributed by: Arun Kumar, Strategic Advisor- Power Markets & Technology Innovation & Arshiya Bhutani, Manager – Engagement and Research (Energy Transition)
The Electricity Act of 2003 was a landmark piece of legislation that consolidated the fragmented power landscape and shaped today’s power sector. It opened the doors for competition by delicencing generation, introducing power trading (including Open Access), setting up state regulators in the form of State Electricity Regulatory Commissions (SERCs), and establishing Renewable Purchase Obligations (RPOs). The Act aimed to encourage competitiveness, dismantle monopolies, and boost efficiency and investment through large-scale private-sector participation.
Two decades later, India’s grid is bigger and cleaner, but the sector faces fresh challenges. To tackle those and drive the sector into a new phase of reform, the government has introduced the 2025 Draft Electricity (Amendment) Bill, along with the Gazette notification dated 27th Sept on Renewable Consumption Obligations (RCO). Together, they seek to:
- Unify Renewable Energy targets and accounting across states
- Reduce friction for large consumers
- Improve centre-state coordination
- Reduce regulatory timelines
- Set explicit cybersecurity standards
How? By embedding enforceable RCO targets, modernising market structures, and introducing national coordination and cybersecurity mandates, among other things.
In this note, we explain what’s changing, why it matters, and what to watch.
Challenges the 2025 amendments seek to address:
- Losses at Distribution Companies (DISCOMs), which have piled up over the years owing to subsidies, tariff delays, and operational as well as systemic inefficiencies, hindering investments.
- Renewables integration has progressed fast, outpacing regulatory and technical readiness. This causes grid instability and curtailment issues.
- With RPOs being enforced by SERCs, there have been disparities in implementation of these rules across states. Some states exceed targets, while others fail to meet them. This results in overall limited demand for clean power.
- Regulatory and operational delays, along with limited capacity for dispute resolution, slows down reforms and reduces investor confidence.
Since 2013-14, India’s per capita electricity use has increased by 48%, reaching 1,395 kWh in FY 2023-24. As demand and consumption grows, it becomes critical to re-evaluate tariff designs and improve the efficiency of existing market mechanisms.
Proposed Changes under the 2025 Bill
This year’s Electricity Act amendment seeks to address some of these concerns. The table below outlines key highlights of proposed amendments:
| # | Current scenario (EA-2003) | Clause (2003 Act) | What the 2025 Draft / RCO proposes | Clause / Instrument | Why this matters |
|---|---|---|---|---|---|
| 1 | RPOs are set by SERCs. Enforcement /accounting vary across states. | Sec 86(1)(e) – SERCs specify RPO for obligated entities | Introduces RCO – one national rulebook that sets the trajectory and common accounting for everyone. | RCO Gazette (27 Sept) | Uniform obligations and ledgers deepen demand for RE attributes. Fewer grey areas make it easier to prove compliance and plan investments. |
| 2 | Parallel licensing + OA on paper. Buying power from the DISCOMs is easy on paper but charges, approvals, paperwork process can be tedious. | Sec 14 (licences); Sec 42 (open access) | Tighter parallel licensing; reforms around >1 MW consumers and universal service; phase-down of cross-subsidy for manufacturing/rail/metro over a defined horizon. | Draft Bill (competition/OA; tariff parts). | Lower friction for priority classes, simpler to hedge with renewables or hybrids, possibility of more market-driven landed prices for large users. |
| 3 | Prices blurred by cross-subsidy (industry pays more so others pay less); tariff orders often late. | Sec 62, 64 | Move toward cost-based tariffs with stricter deadlines; cross-subsidy reduced over time for manufacturing, railways and metros. | Draft Bill (tariffs & timelines). | Clearer, more predictable bills for priority users; DISCOM finances improve if subsidies are paid on time. |
| 4 | Power market role is broad. Green attributes via RECs exist while carbon market are on a separate legal track. | Sec 66 (promote market) | Sharper market-promotion remit for power/green power/REC markets. Seeks to create carbon-market linkages to follow via the separate national framework. | Draft Bill (markets) + existing REC regs. | Better liquidity and price discovery for “green attributes”; fewer mixed signals about “carbon trading” inside power contracts. |
| 5 | Centre–state coordination ad hoc. | — | Electricity Council brings Union & State ministers to one table to align policy. | Draft Bill (govern-ance) | Faster alignment on issues like banking, DSM and settlement, which are key to avoiding GOA/VNM/GNM whiplash. |
| 6 | Cybersecurity standards are implicit/fragmented. | — | Explicit cybersecurity requirements for grid-connected systems to be specified via central rules/CEA standards. | Draft Bill (standards) | Makes security a first-class compliance item in EPC/O&M contracts and SLDC processes. |
| 7 | Slow appellate/regulatory timelines. | Sec 111 (APTEL) | Stricter timelines (e.g., 120-day disposal targets for specified matters) and expanded APTEL capacity. | Draft Bill (timelines & APTEL) | Cuts backlog and improves certainty for investors and DISCOMs alike. |
We’re watching these three areas closely:
1. Cost-Reflective Tariffs vs. Affordability
- Although mandatory cost-reflective tariffs are necessary to restore DISCOM financial health and attract investment, there is concern over how tariff increases might impact low-income consumers.
- The balance between commercial viability and social equity will need careful attention, with effective subsidy targeting and consumer protections critical.
- Monitoring the design and implementation of tariff reforms will reveal if affordability and access are maintained alongside sector sustainability.
- The 2024 Supreme Court judgement ordering the Delhi Electricity Regulatory Commission to liquidate a portion of its regulatory assets within four years (and not allowing future use of regulatory assets to absorb any sudden cost shock for consumers) is also significant in this context.
2. Carbon Market Development
- The success of the Central Electricity Regulatory Commission’s new mandate to build carbon-market infrastructure will depend on creating transparent, liquid, and credible trading platforms.
- To avoid volatility and build stakeholder trust, early implementation of effective market design and regulatory oversight will be essential.
- India’s ability to integrate carbon markets with renewable obligations and industrial participation could position it as a global leader in clean energy finance.
3. Practical Implementation and State Buy-In
- Past reforms have suffered delays due to regulatory inertia, varied state capacities, and political economy factors.
- Centralised RCO enforcement and governance innovations like the National Electricity Council aim to reduce fragmentation, but states’ willingness and ability to deliver will be crucial.
- Observing how states comply with new obligations, manage tariff reforms, and embrace distributed generation and storage will show whether reforms move from paper to practice. We anticipate there will be three broad categories of response:
- Aligners (early adopters): Reform-friendly states that already use OA, hybrids, and VNM/GNM that will likely align quickly with RCO accounting, time-bound tariff orders, and cross-subsidy glide paths, because it improves bankability and attracts capex.
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- Adapters (might come with conditional buy-in): These may be states with fragile DISCOMs or election-cycle sensitivities that may seek transition cushions (targeted subsidies, phased banking changes, REC buy-out clarity) before fully implementing.
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- Resistors (may go for litigation first): A few may contest specific rules (banking, settlements, surcharge treatment) or the pace of change.
The Electricity Amendment Bill 2025 and the RCO Gazette are looking to standardise the areas of the industry that benefit from uniformity – targets, accounting, and core market plumbing – while leaving execution with states, where it belongs. Acceptance will inevitably vary, with reform-friendly states moving first, and fiscally stressed ones wanting clearer buy-outs, glide paths on cross-subsidy issues, and timely subsidy flows.
While the new Electricity Council and tighter timelines can narrow divergence, outcomes will be judged on execution, not intent. Faster tariff orders, fewer curtailment/DSM disputes, and better landed prices for key sectors like public transport and manufacturing will make them more competitive and possibly encourage more voluntary use of cheaper, greener power. If those metrics improve over the next 12–24 months, then we will be able to say these reforms have successfully been translated from paper into megawatt-hours.
NOTE – Electricity Bill (Amendment) 2025, is expected to be taken up during the “next (winter) session of the parliament”, and if passed, these are the changes.
