India's Electricity Reforms Need A State-Level Systems Upgrade

The Draft Electricity (Amendment) Bill, 2025 comes at a decisive moment for India’s power sector. The country has already crossed a major energy transition threshold: non-fossil sources now account for more than half of installed electricity capacity. The next phase of reform, therefore, cannot be judged only by whether it enables more renewable capacity. It must be judged by whether it can make that capacity reliable, dispatchable, affordable and locally absorbable.

This is where the Bill is both important and incomplete.

The draft recognises several core elements of a changing electricity system. It introduces energy storage systems into the legal definition of the power system. It strengthens non-fossil consumption obligations. It proposes cost-reflective tariffs, clearer rules for distribution competition, and an Electricity Council intended to build Centre-state consensus. These are not minor amendments. They reflect an electricity system that is moving beyond the old model of large thermal generation, passive consumers and one-way power flows.

But the architecture of the Bill remains more generation-centric than integration-centric. It creates enabling provisions for technologies, obligations and markets, but does not sufficiently empower states to plan and manage the operational complexity that renewable integration will create. This is a critical gap because the next set of constraints in India's clean energy transition will not emerge only at the national level. They will emerge in state grids, state regulators, state load-dispatch centres and state distribution companies.

The first missing layer is a state-level reliability architecture. The Bill rightly defines energy storage systems as assets that can store electricity and deliver it when required. This is significant because storage will be central to balancing variable renewable energy. But storage cannot be treated merely as an asset class. It must be embedded into a larger planning framework for reliability.

India’s power challenge is no longer only about annual generation adequacy. It is increasingly about time-specific availability. Solar power may be abundant during the afternoon, but peak demand can arrive in the evening when solar generation falls. Heatwaves are making electricity demand more volatile. Urban cooling demand is rising. Industrial loads require dependable supply. A power system with high renewable capacity but inadequate storage, reserves, flexible generation and demand response can still face reliability stress.

The Bill does not yet mandate state-level resource adequacy planning linked to renewable integration. This is a major omission. States have very different demand curves, renewable profiles, industrial loads and seasonal risks. Rajasthan’s integration challenge is not the same as Uttar Pradesh's. Tamil Nadu's wind-heavy system is different from Jharkhand's coal-linked demand structure. A uniform national obligation cannot substitute for state-specific reliability planning.

The Bill should therefore require every state to prepare a State Resource Adequacy and Renewable Integration Plan, approved by the State Electricity Regulatory Commission.

These plans should estimate peak demand, seasonal variability, storage requirements, reserve margins, curtailment risks, flexible capacity needs and demand-response potential. They should also be updated periodically and linked to procurement approvals by distribution companies.

Without such a framework, India may continue adding renewable capacity without ensuring that states have the institutional ability to deliver reliable clean power when it is most needed. The second missing layer is a federal grid architecture.

The Bill provides for the Appropriate Government to prescribe the manner of approval and implementation of inter-state and intra-state transmission systems. This is useful. But it still treats transmission largely as a project-approval issue rather than as the backbone of renewable integration.

In the first phase of India’s renewable transition, generation was the constraint. In the next phase, grid architecture will be the constraint. Renewable energy is location-specific. Solar and wind projects are concentrated in particular regions, while demand centres are often elsewhere. Even within renewable-rich states, power must move from resource-rich districts to substations, industries, cities and distribution networks. If intra-state transmission does not expand at the same pace as renewable generation, clean power will either be curtailed or stranded.

This is not a hypothetical concern. Renewable curtailment is already becoming visible in high-renewable states. Curtailment is often justified in the name of grid security, but it also signals a deeper planning failure: generation is being built faster than the system's ability to evacuate, balance and consume it.

The Bill should therefore go beyond transmission approval and create a statutory requirement for State Grid Readiness Plans. These should map renewable energy zones, intra-state evacuation capacity, substation requirements, storage locations, land-use constraints and projected demand growth. SERCs should be required to conduct annual grid-readiness assessments before approving large volumes of new renewable procurement.

A dedicated State Grid and Storage Transition Fund should also be considered. Renewable-rich states are performing a national function by hosting generation assets that serve wider decarbonisation goals. They should not be expected to absorb the full cost of local transmission upgrades, land-related compensation, balancing infrastructure and storage deployment. A federal financing mechanism, with performance-linked support, would align national ambition with state-level delivery.

The third missing layer is a state-level market architecture.

The Bill seeks to encourage market-based mechanisms for non-fossil electricity and recognises that long-term power purchase agreements alone cannot deliver the scale of investment required. This is directionally correct. But the next frontier is not simply more electricity markets. It is better-designed flexibility markets.

India's electricity markets still largely value energy as a commodity: how many units are generated and at what cost. But a renewable-heavy system must also value when electricity is available, how quickly resources can ramp, whether demand can shift, and how storage can support the grid. In such a system, the cheapest electron is not always the most valuable electron. The most valuable power may be the one available during an evening peak, a heatwave, a cloudy monsoon week or a period of low wind generation.

This requires stronger state-level regulatory innovation. SERCs should not be reduced to compliance agencies implementing centrally prescribed floors for non-fossil consumption. They must be empowered as market designers for the transition. This means enabling time-of-day tariffs, dynamic pricing for large consumers, demand-response programmes, storage-linked procurement, ancillary service participation and electric vehicle-grid integration.

States should also be allowed to design differentiated transition pathways. Industrial states may need clean firm power products to preserve competitiveness. Agricultural states may need solarisation and demand management linked to feeder-level planning. Urbanising states may require cooling-sensitive tariff design and battery-backed distribution planning.

Renewable-rich states may need curtailment compensation mechanisms and flexibility markets.

The Electricity Council proposed in the Bill could become the institutional platform to enable this shift. But for that to happen, it must not function only as a consensus forum. It should be tasked with developing model state-level frameworks for resource adequacy, grid readiness and flexibility markets, while allowing states to adapt them to local realities.

India's electricity transition has entered a new phase. The country has shown that it can build renewable energy at scale. The harder task now is to integrate that energy into a system that is reliable, financially viable and developmentally useful.

The Draft Electricity (Amendment) Bill, 2025 recognises the direction of change. But it must now recognise the geography of delivery. The transition will be governed nationally, but it will be implemented subnationally. It will be shaped not only by central targets, but by the ability of states to plan grids, procure flexibility, manage demand and regulate markets.

For the last decade, India's clean energy story was about capacity. For the next decade, it will be about system design. That design cannot be centralised. It must be federal, technical and state-led.

(Aparna Roy is Fellow and Lead, Climate Change and Energy, at the Observer Research Foundation.)

(DISCLAIMER: The opinions and facts expressed in this article are those of the writer and do not reflect the views of ETV Bharat.)