Draft Electricity (Amendment) Bill 2025

Syllabus: GS3/ Energy

Context

• The Ministry of Power has released the Draft Electricity (Amendment) Bill, 2025 to reform India’s power sector and strengthen distribution companies (discoms).

What are the Key Proposals?

• Cost-Reflective Tariffs:
  • State Electricity Regulatory Commissions (SERCs) will determine tariffs aligned with the National Tariff Policy and can revise tariffs suo motu to avoid delays.
  • Tariff orders must be published before the financial year to ensure timely cost recovery.
  • Industrial and commercial consumers will eventually pay tariffs reflecting actual costs, while subsidies for households and agriculture will be funded transparently.
• Phase-Out of Cross-Subsidies:
  • Current practice charges industrial users above cost to subsidise free or cheap electricity for households and farmers.
  • It proposed a five-year phase-out of subsidies to replace hidden subsidies with direct fiscal support or DBT, enhancing financial viability and market transparency.
  • Large consumers can buy power directly from generators, bypassing discoms.
• Private Sector Participation:
  • Private players can operate in any area using shared infrastructure, breaking state discom monopolies controlling over 90% of the market.
  • Expected outcomes: lower tariffs, improved service, and smarter grids.
• Mandatory renewable energy consumption obligations with penalties ranging ₹0.35–0.45/kWh for non-compliance.
• Exemptions and Incentives:
  • Discoms are exempt from universal service obligations for open access consumers above 1 MW.
  • New manufacturing units exempt from cross-subsidy charges for five years to attract industrial investment.
  • Railways and metro systems also receive exemptions to improve efficiency.
• Governance and Oversight:
  • Proposed National Electricity Council chaired by the Union Power Minister with state ministers as members.
  • CERC and SERC members can be removed for wilful violation or gross negligence, enhancing accountability.
  • Cybersecurity measures for the integrated power system to be framed by the Central Electricity Authority.

What are the implications?

• Fiscal Transparency: By ending hidden cross-subsidies, the Bill promotes fiscal accountability though it may raise short-term deficits.
• Industrial Competitiveness: Cost-reflective tariffs will ease the burden on industries and transport sectors, improving efficiency and attracting investment.
• Consumer Empowerment: Open access and private participation enhance competition and service quality, though equitable rural access must be safeguarded.
• Targeted Welfare: Subsidies for the poor and farmers remain, but will be delivered transparently via direct fiscal transfers, reducing leakages and discom losses.
• Sustainable Transition: Renewable energy obligations and market-based green instruments align the reform with India’s clean energy and net-zero commitments.

Challenges

• Fiscal Pressure: Direct subsidy payments will widen state deficits.
• Implementation Delays: Bureaucratic inefficiencies and delayed transfers undermine the shift to transparent subsidy mechanisms.
• Equity Concerns: Private players may prioritise urban and profitable regions, risking weaker service quality in rural and low-income areas.

Concluding remarks

• The Draft Electricity (Amendment) Bill, 2025 marks a decisive step toward building a transparent, competitive, and financially sustainable power sector. 
• By phasing out cross-subsidies, introducing cost-reflective tariffs, and promoting private participation, it seeks to balance efficiency with equity.

Source: BS