India's Draft Electricity Amendment Bill 2025 tackles distribution losses and regulatory delays, but misses the transformative opportunity staring it in the face.
Breakthrough areas that could have made the bill transformative in nature
The real breakthroughs lie elsewhere: turning renewable deviation penalties into tradable markets, transforming the Electricity Council into a laboratory for competitive federalism, making AI data centers active grid balancers rather than passive consumers, and moving beyond cost-reflective tariffs to actual retail competition. The bill gestures toward these possibilities but stops frustratingly short of the systemic redesign India's energy future demands.
Going for cost-reflective tariffs certainly represents progress. Distribution companies have lost money for decades because regulators set consumer prices below supply costs, creating a fiscal problem that no amount of bailouts can permanently solve. By requiring state commissions to determine tariffs that reflect actual costs, and allowing them to set rates independently when utilities delay filings, the amendment tackles a core dysfunction. But here's where the bill stops short of genuine transformation: it preserves the fundamental architecture of state-controlled utilities determining their own cost structures while merely mandating better price disclosure.
Absent market discipline, cost-based pricing doesn’t work
Cost-reflective pricing only works when costs themselves face market discipline. Without competitive pressure, distribution companies will simply pass inefficiencies to consumers through higher approved tariffs, replacing hidden subsidies with visible but equally bloated bills.
An Electricity Council holds potetial
Interesting possibilities are opened up by the creation of an Electricity Council on the lines of the GST Council, but how much ultimately it will be able to achieve depends on whether it can evolve into a forum for genuine federalism or only another layer of bureaucracy.
The opportunity, really, lies not in policy coordination but in setting up inter-state competition. Instead of harmonising regulations down to the lowest, the Council should enable regulatory experimentation where states can observe and learn from each other's successes and failures. Maharashtra's approach to open access can compete against Karnataka's reforms in distribution, setting up a laboratory of live experiments rather than imposed uniformity.
This requires the Council to focus less on consensus-building and more on transparent benchmarking, with clear metrics that allow citizens and investors to compare outcomes across states.
Unwilling to let go of centralised control
The bill's provisions on captive generation and the exemption from universal service obligations for industrial consumers capable of open access point toward greater choice, but they reveal a deeper ambivalence about the role of markets. The legislation wants to encourage industrial consumers to procure power independently while simultaneously maintaining centralised control over how that independence operates. This halfway house satisfies no one.
If industrial users genuinely have alternatives, distribution utilities should compete for their business rather than treating them as captive revenue sources. The exemption from universal service obligations makes sense only if accompanied by the freedom for multiple distribution licensees to compete for the same consumers, each choosing their own mix of reliability, renewable content, and price.
The current draft allows shared use of distribution infrastructure but stops short of enabling true retail competition where consumers choose suppliers while infrastructure remains a regulated natural monopoly. That distinction between wires and energy remains crucial but underexploited in Indian electricity reform.
Deviation Settlement Mechanism: Ignoring an urgent challenge
The Deviation Settlement Mechanism presents perhaps the most urgent challenge that the bill barely acknowledges. As renewable capacity expands toward India's 500 gigawatt target, variable solar and wind generation creates growing mismatches between scheduled and actual power injection into the grid. Current DSM regulations penalise these deviations heavily, with charges that can erode project revenues by anywhere from three to six percent, and sometimes dramatically more during periods of acute frequency deviation.
The problem compounds because forecasting technology available to most Indian renewable generators provides only hourly predictions when the grid requires fifteen-minute accuracy, and even the National Load Despatch Centre struggles to achieve the precision the rules demand. The regulatory response has been to tighten deviation bands further, reducing tolerance from fifteen percent to ten percent for wind and ten to five percent for solar, rather than addressing the underlying mismatch between grid requirements and technological reality.
Missing the opportunity in renewables
What India needs is not harsher penalties but a fundamental redesign of how renewable variability gets managed. The solution has three parts, none of which the current bill framework addresses adequately.
First, create liquid, real-time balancing markets in which deviations are treated as tradable commodities rather than as regulatory violations. Those renewable generators with superior forecasting accuracy could sell their scheduling discipline to those facing larger deviations, with immediate price discovery reflecting actual balancing costs rather than formulaic penalty rates. In this way, the problem becomes one of economic optimisation rather than compliance.
Second, require pooling at the state or regional level rather than at individual project substations. Aggregating several solar parks located in various weather zones, or combining wind farms with complementary generation profiles, dramatically reduces aggregate deviation percentages through natural smoothing effects. Current regulations nominally allow this but states resist because they lose granular control and penalty revenues. The bill should make large-scale renewable aggregation not just permissible but the default, with individual project scheduling as the exception requiring justification. This single change could reduce deviation charges by sixty to seventy percent while actually improving grid stability through better predictability of aggregated resources.
Third, couple renewable projects with firm dispatchable resources through contractual structures that share both generation revenues and deviation responsibilities. Battery storage represents one solution, but restricting the pairing only to storage artificially limits options. Gas peaking plants, pumped hydro, or demand response from nearby industrial loads could all serve as firming resources if the contracting framework made such arrangements attractive. The current regulatory approach treats renewable generators and dispatchable resources as separate categories when the future requires thinking about hybrid resources as the fundamental unit of grid contribution.
Data centres need more flexibility
The impending surge in artificial intelligence computing presents an opportunity disguised as a challenge. Data centres represent concentrated, predictable loads that can anchor grid planning, but only if electricity supply can match their reliability and sustainability requirements. India should establish dedicated power procurement frameworks for data centre clusters, allowing them to contract directly with hybrid renewable-plus-storage projects or to develop their own generation portfolios.
This means moving beyond the simplistic choice between grid power and captive generation toward sophisticated arrangements where data centres become active grid participants, providing demand flexibility in exchange for priority access and price certainty.
More radically, data centres could serve as intelligent load aggregators that help balance renewable variability. Their computational workloads often allow several hours of flexibility regarding when processing occurs, and many tasks can shift to periods of high renewable generation. This requires moving beyond simple interruptibility schemes toward smart load management where data centres bid flexibility into real-time markets, getting paid to shift computation to hours when solar peaks or wind surges. The electricity bill's framework for market-based instruments provides a starting point, but implementing this vision requires regulatory clarity that artificial intelligence workloads constitute legitimate grid resources, not just passive consumers.
Reforms are about enabling competition, not just coordination
The path forward demands moving beyond incremental fixes toward systemic redesign. Cost-reflective tariffs address only the revenue problem, leaving unaddressed the underlying lack of competitive pressure on costs. The Electricity Council will succeed only if its mandate is one of regulatory competition, rather than coordination. DSM reform must turn penalties into markets, mandating aggregation and facilitating hybrid resources. And AI load growth becomes an asset rather than a burden when regulations treat data centres as active grid participants with tradable flexibility.
India's electricity sector suffers not from too little regulation but from the wrong kind. Every dysfunction traces to substituting administrative judgment for price signals, centralised planning for distributed decisions, and penalty mechanisms for market institutions. The Amendment Bill gestures toward markets through provisions on CERC's power to establish new instruments and mechanisms, but it preserves a fundamentally command-and-control architecture. Real reform would establish clear rules for property rights in electricity, neutral platforms for exchange, and then step back to let prices coordinate the countless decisions required to operate a modern power system. The draft takes small steps in that direction, but India's climate commitments and growth trajectory demand giant leaps. The next iteration of this bill should focus less on fixing specific dysfunctions and more on building institutions that allow markets to solve problems regulators cannot even anticipate. That requires courage to let go of control, faith in competitive processes, and regulatory capacity focused on maintaining fair rules rather than determining correct outcomes.
Whether India's political economy can support such a transition remains the most important question the electricity bill doesn't answer.
(Arindam Goswami is a software professional and a Research Scholar at The Takshashila Institution.)
Views are personal, and do not represent the stand of this publication.
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