Power play: Will states accept the draft Electricity Bill 2025?
An earlier version of the draft Electricity Bill, introduced in 2022, lapsed because of a lack of consensus. If state governments don’t accept the new version, the bill could become ineffective as electricity is a concurrent subject.
The draft Electricity (Amendment) Bill 2025, released by the power ministry, could deliver a boost to renewable energy (RE) and distribution companies (discoms). A crucial proposal is the requirement that state discoms meet renewable purchase obligations (RPOs) fixed by the central government and pay a penalty in case of shortfall. RPOs now account for 30% of total power procured, and this is estimated to increase to 43% by fiscal year 2030 (FY30).
The bill also empowers the Central Electricity Regulatory Commission to introduce market-based instruments to enhance trade in RE. This would help discoms meet their needs from the market without having to enter into binding, long-term power purchase agreements.
To improve competitiveness, the bill proposes to allow multiple distributors to provide supply in the same area using the existing network. It removes a clause in an earlier bill that required them to build their own networks, giving a boost to private distributors such as Tata Power Co. Ltd and CESC Ltd.
Removing cross-subsidy charges
Still, states may put up significant resistance to the directive to eliminate cross-subsidy charges on industries, the transport sector, and so on, to offset the under-recovery from sectors such as agriculture. In that case, discoms, which are facing financial stress with a cumulative loss of nearly ₹7 trillion as of FY25, would need support from state governments to meet their funding gap.
“By providing a clear timeline, the 2025 Bill directly enhances industrial competitiveness, but it could also strain discom finances, since surcharges are a key revenue component in their ARR (aggregate revenue requirement)," Antique Stock Broking noted in a 13 October report.
If state governments don’t accept the provisions, the bill could become ineffective as electricity is a concurrent subject. Notably, the earlier bill, introduced in 2022, lapsed because of a lack of consensus. Still, the proposal to set up an electricity council comprising central and state ministers, similar to the Goods and Services Tax (GST) Council, may help deliver a consensus on the longer-term reforms.
Meanwhile, power demand rose 3.4% year-on-year in the September quarter (Q2FY26) after falling 1.3% in Q1FY26 due to an early monsoon, as per Nuvama Institutional Equities. Sharp 19% growth in RE generation in Q2 hurt thermal demand, which fell 1.5%. Nuvama projected that companies focused on thermal generation within its coverage would report aggregate Q2 Ebitda (Earnings Before Interest, Taxes, Depreciation, and Amortization) growth of barely 2% year-on-year. The bill, if passed, could put further pressure on these companies.
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