Power sector: Tough reform calls | Photo Credit: SHAILESH ANDRADE

As India’s electricity sector prepares to power the country’s growth and development with clean, reliable, and affordable electricity, it must overhaul its pricing and revenue recovery structures. This is at the heart of the CEA’s draft paper, which argues that the fixed-charge component of electricity tariffs should be raised progressively to reflect the actual fixed-cost obligations of power distribution companies (discoms) by 2030.

In India, fixed costs make up around 50 per cent of the cost of electricity supply, varying from 38-60 per cent across States. These include payments for capital expenses by generators and network operators, and for operational expenses such as salaries and the upkeep of wires and substations; they do not change with how much power is sold.

However, under the current pricing structure, fixed charges comprise only 9-20 per cent of consumer bills. This imbalance has adverse implications for discoms’ finances, because discoms are often unable to recover full fixed costs through electricity charges alone.

Discom debt

In the last decade, India’s discoms’ total debt has nearly doubled to ₹7.26 lakh crore (as of March 2025). Servicing this debt adds to an already stretched working capital position, leaving discoms with less room to invest in the network upgrades and capacity additions needed to meet rising demand reliably.

The CEA’s proposal is a welcome and timely move. As India turns to renewable energy (RE) to power its economy at scale, the share of fixed costs will only rise further. That’s because solar and wind plants have minimal operating costs and require higher investments in storage and network infrastructure.

The power sector is estimated to require over $500 billion in investment over the next seven years across generation, transmission, distribution, and storage. In parallel, the nature of consumer interaction with and dependence on the grid is also changing rapidly as they turn to rooftop solar and storage. As a result, consumers will increasingly buy less energy from discoms and rely on the grid to meet surplus demand during peak hours (especially in hotter months) and for standby support.

However, implementing this proposal merits careful consideration of its interaction with other electricity charges and its implications for vulnerable consumers. We propose four steps which could enable discoms and regulators to leverage this reform to provide clean, reliable and affordable electricity for all consumers.

First, regulators should outline a clear, category-wise trajectory for fixed charges over the proposed 5-year period, with built-in safeguards for vulnerable consumers. These are low-income and low-consumption households who would be disproportionately burdened by a flat charge.

A minimal fixed charge below a defined sanctioned load or consumption threshold would protect such consumers against sudden tariff shocks, at the same time, sending an appropriate price signal to others to invest in demand management. Simultaneously, discoms should offer a time-bound, hassle-free process for consumers to revise their sanctioned load.

Operational norms

Second, as fixed charges rise, RE and storage become even more attractive for consumers seeking to manage their electricity costs. But only if the pathways are clear. Regulators and discoms should publish operational procedures for connecting storage, covering metering, safety, and grid codes. This would give consumers the certainty needed to invest. States such as Gujarat and Rajasthan have already begun notifying such procedures, offering a model others can follow.

Third, the Forum of Regulators should design fixed charges, standby and grid support charges as complementary instruments rather than in isolation. Standby and grid support charges apply to consumers with rooftop solar or captive power who remain grid-connected for backup and other services. As fixed charges rise to reflect capacity costs, standby charges must be calibrated accordingly — netting out what consumers already pay — so that grid-connected consumers are not double-charged for the same capacity. Without this coordination, the reform risks penalising the very consumers it should be nudging toward cleaner energy use. Finally, policymakers and regulators should use this opportunity to hold discoms accountable for resource adequacy planning and supply quality. When consumers pay higher fixed charges, they are paying for guaranteed capacity and reliable supply, not merely energy units. This creates a legitimate basis to demand rigorous portfolio planning from power discoms and stringent compliance with supply quality metrics.

This accountability would prevent higher fixed charges becoming a revenue gain without a corresponding improvement in reliability.

The CEA’s diagnosis — that costs and charges do not match — is sound and overdue. But whether the reform succeeds depends less on the recovery targets themselves than on sequencing: consumer safeguards, sanctioned load revisions, robust resource planning and storage procedures must arrive as a coordinated package, not piecemeal, leaving consumers to absorb each change without the full picture. Done right, this reform can lay the financial foundation India’s clean energy ambitions deserve.

Agrawal is Director of Programmes; Aggarwal is Senior Programme Lead at the Council on Energy, Environment and Water (CEEW). Views are personal

Published on June 17, 2026