MC EXPLAINER Electricity (Amendment) Bill, 2025: India’s attempt at third generation power reforms

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The Draft Electricity (Amendment) Bill, 2025, released by the Indian government this month to seek feedback from the public, proposes sweeping reforms to open up the power distribution sector to competition, phase out cross-subsidies, and strengthen regulatory accountability to improve efficiency and financial sustainability of India’s electricity system.

“Once passed and implemented, the law could mark the start of a third-generation reform in India’s power sector — after the 1990s unbundling and the 2003 Electricity Act — turning electricity from a public utility into a consumer-driven service. Such a reform is needed to achieve India’s ambition of becoming a developed nation by 2047,” said a government official involved in drafting the Bill who is not authorised to speak to the media.

After the public consultation phase, the Bill will be sent to the Union Cabinet for approval and thereafter the Indian Parliament to get it passed in the lower and upper Houses. To be sure, the government introduced a similar Electricity (Amendment) Bill, 2022 in August 2022, but it was referred to the Parliamentary Standing Committee on Energy shortly thereafter.

The draft Electricity (Amendment) Bill, 2025 released in October is broader and more evolved, building on lessons from the 2022 version and subsequent feedback from states and stakeholders, the official quoted above said.

A Moneycontrol analysis of the draft Bill showed that the latest version of the proposed amendments attempts to align with changing realities such as renewable integration, energy storage, and the persistent stress of loss-making power distribution companies (discoms).

Opening up power distribution to competition

The biggest proposed reform is the end of monopoly in electricity distribution. The Bill allows multiple distribution licensees (discoms) to operate in the same area using shared infrastructure, creating a competitive retail electricity market.

This means consumers will, in principle, be able to choose their electricity supplier, much like choosing a telecom operator, based on service quality and price. The model aims to make discoms more efficient, as poor performers risk losing customers to better ones.

If implemented, this will be a fundamental structural shift — turning state-controlled (discoms) monopolies into competitive service markets, a change long debated but never implemented.

The move is likely to see opposition from some states as they fear it would reduce their control over the power sector. Electricity falls under the Concurrent List of the Constitution, enabling both Centre and states to legislate.

The Union government, however, has denied that the move will end state-owned discoms or allow cherry-picking by private companies. “Government discoms will continue to operate alongside private licensees in a regulated, level-playing environment. Competition would reduce costs, improve efficiency and service quality,” the Ministry of Power said in a statement on October 30.

Elimination of Cross-Subsidies

The Bill mandates gradual elimination of cross-subsidies within five years, especially for industrial and transport consumers such as railways and metro systems.

It proposed that instead of charging industries higher tariffs to subsidise households and farmers, state governments will provide direct subsidies to targeted consumer groups. It would, however, require strong state fiscal capacity to fund subsidies transparently.

“Cross-subsidy elimination for manufacturing industries, railways, and metros will improve competitiveness and help in job creation. Hidden cross-subsidies will be replaced with transparent and budgeted subsidies, protecting vulnerable consumers like farmers and poor,” the Ministry of Power said.

Empowering Regulators and Improving Accountability

The Bill says State Electricity Regulatory Commissions (SERCs) will be bound by time limits to announce annual power tariff revisions. If utilities fail to file petitions on time, regulators can suo motu determine tariffs, avoiding delays, it said.

Besides, it proposes to expand the Appellate Tribunal for Electricity (APTEL) to up to seven members from five currently to reduce case backlog.

The Bill also creates a high-level “Electricity Council”, chaired by the Union Power Minister, to coordinate reforms between the Centre and States.

Promotion of Non-Fossil and Market Mechanisms

In first, the Bill formally recognises energy storage systems as part of the electricity value chain — enabling their regulation, integration, and participation in the grid.

Besides, state regulators will have to mandate consumption from non-fossil sources, not just renewables.

The Bill also directs regulators to promote power markets, including contracts for difference and derivative products, to improve liquidity and price discovery.

"The Electricity (Amendment) Bill, 2025 lays the foundation for a future-ready power sector aligned with the vision of Viksit Bharat @ 2047. At the same time, it fully protects subsidised tariffs for farmers and other eligible consumers. State governments may continue to provide these subsidies under Section 65 of the Act," read the statement from the Ministry of Power.