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Power sector undergoing transformation

ICICIdirect Research 31 Oct 2025 DISCLAIMER

The electricity sector has transformed significantly over the past decade by scaling its Renewable energy generation capacity 3-fold to 257 GW from 81 GW in 2014. The solar energy witnessed the fastest growth to 128 GW from a mere 2.8 GW in 2014.
India now stands as the 4th Largest Renewable energy generator and it expects to add 30-40 GW of solar and 6 GW of wind capacity in FY26E.
The transmission infrastructure is undergoing major capacity upgradation with planned investments of ₹9 trillion over FY22-32E. This is result of various reforms and policy support for the sector in the country enabling smooth energy transition and capacity addition.
However, the third structural leg of the energy sector, the distribution companies (Discoms) continue to face heavy financial losses with accumulated losses and debt surmounting to more than ₹7 trillion over the years. This is primarily due to Aggregate transmission and commercial losses, delay in tariff revisions and cross-subsidies burden. This is impacting the entire value chain due to spill-over effects.
As a measure to curb Discom losses and synchronise with energy generation and transmission growth, Government is planning to introduce various reforms such as:
Open electricity distribution network to multiple players: This is more pragmatic and practical than from existing regime, in existing regime supply licence is awarded to a private distributor who could distribute only through its own distribution network, requiring substantial investments, leading to duplication of network and delay in efficient distribution of electricity - resulting in delay in eliminating the distribution losses. Instead of auctioning electricity circles to a single player, the government intends to open up the electricity distribution network to more than one DISCOM (government or private), thus effectively bringing players on a shared network. Through opening up distribution to multiple players, the Government aims to create a healthy competitive scenario in the distribution sector on the lines of what has happened to the telecom sector bringing efficiencies through healthy competition.
Allow proactive revision of tariff and eliminate cross-subsidy burden: Electricity commissions will be enabled to revise tariff on their own, enabling timely tariff revision to be cost reflective, helping discom recover their costs.  Additionally, reforms include exempting industrial manufacturers from paying cross subsidy burden aiming to reduce costs and India’s global competitiveness.
Electricity council: Just like the GST Council, government proposes to set up an Electricity council to build consensus among states, ensuring timely implementation of the power sector reforms thus passing policy benefits to all industry stakeholders.
Change ‘renewable’ with ‘non-fossil sources’:  With this the government aims to include battery storage, pump storage, nuclear energy, green hydrogen-based electricity, waste to heat energy, and other low carbon options under the clean energy, this will encourage investments helping balance supply (more round the clock) and demand. The clean energy purchase obligation (CEPO) will ensure demand for electricity from varied sources. Failure to comply with EPO to attract penal charges of ₹0.35-0.45 per unit. (~10% of renewable energy generation cost)
As per media sources, Government may come with $12 bn (₹1 trn) bailout package for Discoms in form of long-term low/ nil cost funding support, provided they undertake various measures (such as list on a recognised stock exchange in 3 years or hand over management to private discom or transfer controlling equity stake to private Discom) to bring AT&C losses to acceptable levels, improving commercial and financial performance.
To address concerns of Central trade unions and power employee federations, Government has issued an FAQ on Thursday to dismiss confusion and assure reforms as progressive reforms to help the distressed sector.
These will allow entry of private discom players on a large scale across the country in Power Distribution space. We believe Tata Power, CESC, Adani Power and Torrent Power to be the primary beneficiaries of the power sector reforms on the distribution side.

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