Govt. Proposes Draft Electricity Bill to Restructure Power Sector, Cut Cross-Subsidies, Fast-Track RE Push

The Ministry of Power has unveiled the Draft Electricity (Amendment) Bill, 2025, proposing a comprehensive set of reforms to strengthen the financial and operational efficiency of the power sector.

The proposed amendments to the Electricity Act, 2003 seek to accelerate the country’s clean energy transition, improve the competitiveness of Indian industry, and ensure a more resilient, consumer-centric electricity system. The draft bill has been opened for stakeholder comments for a period of 30 days.

Strategically aligned with the national vision of Viksit Bharat @2047, the bill aspires to create a power sector that is financially robust, environmentally sustainable, and capable of supporting India’s emergence as a globally competitive economy. It targets long-standing challenges, including the financial instability of distribution companies (DISCOMs), high industrial tariffs, regulatory bottlenecks, and uneven progress in renewable energy adoption.

At the heart of the proposed reforms lies the objective of ensuring the financial viability of the sector. The distribution segment, often considered the weakest link in the electricity value chain, continues to grapple with severe financial stress, with cumulative losses exceeding INR 6.9 lakh crore. To address this, the bill mandates cost-reflective electricity tariffs that accurately mirror the cost of supply, ensuring that utilities recover their expenses and operate sustainably.

This move also aligns with a recent Supreme Court ruling that reaffirmed the need for tariffs to reflect actual costs. In a further effort to prevent delays, Electricity Regulatory Commissions will be empowered to determine tariffs suo motu if utilities fail to file their petitions on time, ensuring revised tariffs are implemented at the beginning of each financial year.

The bill also addresses one of the sector’s most persistent structural issues, cross-subsidisation, which has long inflated electricity prices for industrial consumers. In a significant policy shift, the government proposes to eliminate cross-subsidies for manufacturing enterprises, the Indian Railways, and metro rail networks within five years. This is expected to lower production and logistics costs, enhance the cost-competitiveness of Indian manufacturers, and improve the country’s standing in global supply chains.

The draft also allows State Commissions to exempt distribution licensees from the universal service obligation to supply power to large consumers with a demand of over one megawatt, enabling these consumers to procure electricity directly and relieving DISCOMs of costly power procurement obligations.

Another major focus of the draft legislation is to accelerate India’s clean energy transition. With the country targeting 500 GW of non-fossil capacity by 2030 and around 2000 GW by 2047, the bill seeks to establish mechanisms that promote faster adoption of renewables. It introduces provisions for market-based mechanisms such as 'Contracts for Difference'  to attract private investment and diversify beyond traditional long-term power purchase agreements with DISCOMs.

The bill also empowers the Central Government to prescribe a uniform minimum percentage for non-fossil energy consumption across the country, while mandating State Commissions to set targets not lower than this baseline. Non-compliance with these renewable energy obligations could attract monetary penalties, ensuring stricter enforcement of India’s climate goals.

The draft bill also aims to strengthen consumer rights through a series of measures designed to make the sector more transparent and responsive. It allows the Central Government to set minimum national service standards for DISCOMs, guaranteeing a uniform quality of service across the country. It also caps the “look-back” period for assessing penalties in cases of unauthorised electricity use to 12 months, thereby protecting consumers from arbitrary or excessive charges.

In addition, the bill simplifies the appeal process by reducing the mandatory deposit for filing an appeal from 50 percent to one-third of the assessed amount, with scope for waivers in cases of financial hardship.

The government has also moved to modernize the sector’s physical and digital backbone. To avoid duplication of infrastructure, the bill explicitly allows multiple distribution licensees to share a single distribution network, subject to regulatory oversight. Recognizing the growing risks associated with digitalization, the Central Electricity Authority (CEA) will be empowered to frame cybersecurity regulations to safeguard India’s interconnected power system. Provisions from the repealed Indian Telegraph Act concerning the placement of electric lines have been incorporated into the Electricity Act to ensure legal continuity, while State Governments will be permitted to prescribe frameworks for fair compensation related to land use and rights of way.

To improve governance and accountability, the bill proposes to strengthen regulatory institutions. The grounds for removing members of Electricity Regulatory Commissions will be expanded to include willful violation of the law or gross negligence in performing duties. Regulatory Commissions will be required to dispose of cases within 120 days, promoting faster adjudication. The capacity of the Appellate Tribunal for Electricity (APTEL) will be increased from three to seven members to help clear the backlog of pending cases. Additionally, a new high-level Electricity Council, chaired by the Union Power Minister and comprising State Power Ministers, will be established to foster cooperation, build consensus on reforms, and oversee their implementation across different jurisdictions.

It is expected to create a power system that is financially sound, competitive, and sustainable, laying the foundation for a stronger, cleaner, and more resilient energy future for India.