The Ministry of Power’s Draft Electricity (Amendment) Bill, 2025 is perhaps the most consequential document to hit India’s power sector since the landmark Electricity Act, 2003. To appreciate its significance, consider that for most of its history, India’s power sector was a vertically integrated, state-owned monopoly, governed by fragmented laws dating back to the Indian Electricity Act, 1910. The 2003 Act was a watershed moment, consolidating old laws and introducing radical concepts like de-licensing of generation, Open Access, and the unbundling of the State Electricity Boards (SEBs) into separate generation, transmission, and distribution entities. However, twenty years later, the distribution sector remains dysfunctional, burdened by cross-subsidies and massive financial losses, which is exactly what the new draft amendments seek to change.
The core objective of the 2025 Bill is to create a power market that is financially resilient, environmentally sustainable, and capable of supporting globally competitive industries by tackling the ₹6.9 lakh crore cumulative loss carried by distribution companies (DISCOMs) and removing the crippling cost of cross-subsidies that plague industrial consumers. Here is how these proposed changes impact businesses and how they purchase power.
Rationalisation of Industrial Tariffs
The most immediate impact lies in the proposed elimination of cross-subsidies for Manufacturing Enterprises, Railways, and Metro Railways within five years from the date of commencement of the Amendment Act. This ‘industrial tax’ has long been blamed for making Indian manufacturing uncompetitive; removing it is intended to directly rationalise electricity costs, decrease logistics expenses for the transportation sector, and decisively boost India’s economic productivity.
Promoting Competition in Distribution
The new legislation takes direct aim at the dominance of traditional distribution licensees. The current system often requires multiple distribution companies in the same area to maintain costly, separate infrastructure, which wastes capital and creates unnecessary duplication. The Bill seeks to solve this by clarifying that distribution licensees can supply electricity through either their own network or a shared distribution system. This technical change will be enforced by mandating non-discriminatory open access to the existing network, a move that encourages competition and efficiently allocates scarce resources.
The Liberalisation of Customer Choice
The draft introduces a critical exemption from the Universal Service Obligation (USO) for distribution licensees. Currently, the DISCOM is legally bound to supply power to almost every consumer, even large industrial users. This compulsion forces them to contract for expensive new generating capacity, raising the overall tariff burden on other consumers. Under the new proposal, State Commissions, in consultation with the State Government, may exempt the distribution licensee from supplying power to consumers requiring a load exceeding one megawatt (1 MW). This provision is explicitly designed to empower large industrial consumers to bypass the local utility and secure more affordable power directly through Open Access, with the safety net of a “supplier of last resort” designated in case their alternative supply fails.
Enforceable Climate Mandates
The Bill converts national climate goals into specific, enforceable commercial mandates. The regulatory commissions (SERCs) will be required to set a minimum percentage of power consumption that must be sourced from non-fossil energy (RPO) sources, a target that cannot be less than the national percentage set by the Central Government. Crucially, the Bill introduces a new financial penalty for non-compliance with this RPO, set at a punitive rate of ₹0.35 to ₹0.45 per kilowatt-hour of the shortfall. This hard penalty is engineered to drive serious investment into Renewable Energy Certificates (RECs) or direct clean power procurement, ensuring India meets its 500 GW non-fossil target.
Market Mechanisms and Energy Storage
Finally, the Bill sets the stage for a modernised, market-based power economy. It empowers the regulator to actively promote a deeper power market (including trading) and introduce sophisticated financial tools including non‑transferable, specific delivery forward/hedging contracts (akin to contracts for difference). This legislative push aims to accelerate the adoption of clean energy capacity by attracting private investment that is independent of the financially struggling DISCOMs’ balance sheets. Reinforcing this future, the draft formally defines an Energy Storage System (ESS), legitimising its critical role in ensuring grid stability and integrating large-scale, intermittent renewable energy into the national grid.
Conclusion and Outlook
The Ministry of Power is seeking final comments before this Bill is enacted. Its provisions signal a decisive political will to force efficiency, mandate environmental compliance, and liberate industrial consumers from the burden of legacy inefficiencies.
For the modern Indian business, the Draft Electricity (Amendment) Bill, 2025, represents a fundamental re-calibration of operational risk and opportunity. On the one hand, the removal of cross-subsidies offers a clear path to significantly reduced energy costs, enhancing global competitiveness. This is a crucial dividend for the manufacturing and logistics sectors. On the other hand, the introduction of a punitive financial penalty for RPO non-compliance means sustainability mandates are no longer abstract targets, but immediate financial risks that require strategic, timely investment in clean energy solutions. The formal integration of Energy Storage Systems (ESS) and the push for competitive Open Access solidify the need for businesses to move away from relying on traditional utilities and towards sophisticated, self-managed power procurement models. Companies that interpret this Bill correctly will not only avoid future penalties but will also gain a competitive advantage in securing cheaper, reliable power for the next decade. This provides a blueprint for the energy economy in line with the ambitious Viksit Bharat @ 2047 goal.
