How Electricity (Amendment) Bill 2025 Can Affect India's Power Market?

The Union government recently introduced a draft Electricity (Amendment) Bill 2025, aiming to amend one of India’s most significant electricity laws—the Electricity Act of 2003. The government has highlighted several provisions that it claims could bring systemic changes to the country’s power market.

As per the draft, the proposed legislation seeks to rationalise electricity costs by reducing the burden on industries and lowering cross-subsidies. It also aims to introduce multiple regulatory changes to improve the financial health of discoms.

In this report, we highlight some of the key changes proposed in the legislation and how they may affect India’s electricity market, along with expert views on their likely implications.

1. Recognising Energy Storage Systems (BESS)

The proposed legislation attempts to define and formally recognise Energy Storage Systems (ESS) within the electricity system. This comes at a time when the deployment of BESS has risen alongside the growing share of variable renewable energy in the grid. The inclusion of ESS in the legislation is expected to provide greater clarity for planning and minimise regulatory and legal hurdles.

As per the proposed amendment, ESS has been defined as: Energy Storage System (ESS) means a system to store electrical energy in any form for a period of time and delivering it as electrical energy when required.”

2. Eliminating Cross-Subsidies—Easing Industrial Tariffs

Another major reform proposed is the easing of high commercial tariffs for industries, which currently pay more due to cross-subsidies. The government now plans to phase these out. To do this, the draft bill proposes exempting the Universal Service Obligation (USO) for consumers above 1 MW who are eligible for open access. It notes that State Electricity Regulatory Commissions (SERCs) may designate a distribution licensee to supply power at a premium over the cost of supply if other arrangements fail.

The bill’s explanatory note states: “This reform will unlock substantial electricity demand from industries that can access affordable power directly. By reducing tariff distortions and supporting industrial expansion, it will drive job creation and accelerate India’s progress toward energy-led economic growth.”

The government has proposed that tariffs should reflect the cost of supply and that cross-subsidies be progressively reduced. It has also eliminated cross-subsidies for manufacturing enterprises, railways, and metro railways.

3. Monetary Fines for Not Consuming Renewables

The draft bill introduces penalties for obligated entities that fail to consume the mandated minimum share of renewable energy. It proposes fines of not less than 35 paise per kWh and not more than 45 paise per kWh for non-compliance. The explanatory note points out that current RPO rules do not specify penalties, making this a key new provision.

4. Multiple Discoms in a Single Area

The bill proposes allowing the co-existence of multiple distribution companies in the same geographical area using shared infrastructure—an important shift from earlier practice. The government claims this could facilitate open access, reduce redundancy, improve service quality and lower infrastructure costs.

5. Powers to Central Bodies to Remove SERC Officials

Under Section 90(2), the Union government has been empowered to remove officials and members of SERCs in cases of wilful violations or gross negligence. Some stakeholders view this as an infringement on the autonomy of state institutions.

6. Fixed Timelines for Electricity Commissions

The draft bill introduces a provision requiring commissions to decide cases within 120 days. Currently, no statutory timeline exists for adjudicating proceedings. The government notes that, with rising renewable penetration and increased caseloads, such a step is necessary. It also proposes limiting APTEL to no more than seven members besides the Chairperson.

7. Eligibility Criteria for Captive Generating Plants

The draft amends provisions to empower the appropriate commission to prescribe eligibility criteria for captive generating plants and their users. At present, norms require captive users to hold at least 26% ownership and consume a minimum of 51% of the power generated annually.

8. Establishment of Electricity Council

The draft proposes creating a new Electricity Council headed by the Union Power Minister and Power Secretary. Its role will be advisory, involving consultations on key policies and supporting reforms to streamline the sector.

9. Definition of Manufacturing Enterprises

The bill defines manufacturing enterprises—exempt from cross-subsidies—as:

‘Manufacturing Enterprise’ means an industrial undertaking or a business concern or any other establishment, by whatever name called, engaged in the manufacture or production of goods, in any manner, pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951.”

 10. Power for Suo Motu Tariff Adoption

The draft states that if tariff adoption applications under Section 67 are not submitted to the commission in time, the commission may determine tariffs suo motu. The explanatory note says: “Non-determination of tariffs before the beginning of the financial year has been resulting in mounting distribution sector losses. Currently, the Act does not explicitly authorize the Appropriate Commissions to determine tariffs on a suo moto basis before the financial year begins.”

REACTIONS

Shashwat Kumar, Partner at CMS INDUSLAW, noted that while the amendments aim at reforms, some may be more complex than they appear. He said: “While some key amendments like allowing open access to distribution licensees to the distribution network of another licensee, completely amending the provisions relating to the power of placing and maintaining electric lines (Section 164), increasing the strength of the Appellate Tribunal for Electricity and eliminating cross-subsidy in certain sectors are major steps in the right direction, the proposed amendments relating to captive generation, limiting universal service obligation of the distribution licensee and suo motu distribution tariff determination may require a deeper review and discussion.”

Shivam Sinha, Partner at Sagus Legal, said that while eliminating cross-subsidies may help industries, the approach may present challenges: “At present, the justification provided for the elimination of CSS is that the State Governments can fund the subsidies in terms of Section 65 of the Act, however in the absence of any specific mandate for the same, its removal could invite resistance unless alternative subsidy mechanisms are put in place. Similarly, under the proposed Section 43(4), distribution licensees can seek exemption from their universal supply obligation for consumers above 1 MW. This poses risk of creating a scenario where economically weaker consumers may be saddled with increased tariff burden due to dearth of cross-subsidising entities.”

Energy think tanks have also expressed concerns. The Centre for Energy, Environment and People (CEEP) responded to several provisions, highlighting potential risks: “These amendments seem to be addressing three key challenges of contemporary energy governance, energy security, energy affordability, and energy sustainability. However, the Bill is clearly more tilted towards reducing industrial tariffs, abolishing crosssubsidies, and has remained silent over phasing-out of existing or reducing investment in fossil-fuel based thermal power plants. Hence, the Bill completely ignores energy equity and affordability completely, and sustainability partially in favour of energy security,”CEEP said in its full report.