Framework For Balancing Electricity Financial Sustainability And Affordability

Key Highlights:

• Government has established a comprehensive policy and regulatory framework to ensure financial sustainability of the electricity sector and safeguard consumer interests.
• The Draft National Electricity Policy, 2026 proposes Resource Adequacy Plans, Fuel and Power Purchase Cost Adjustment (FPPCA) mechanisms, and timely tariff revisions.
• Electricity (Rights of Consumers) Rules, 2020 strengthen consumer protection regarding connections, supply quality, billing, and grievance redressal.
• Significant capacity addition targets include 105 GW thermal, 16.4 GW hydro, 8 GW nuclear, and 147.7 GW renewable energy under construction by 2031-32.
• Promotion of Energy Storage Systems (ESS) includes the PLI scheme for ACC Battery Storage, Viability Gap Funding (VGF), and ISTS charge waivers for BESS and Pumped Storage Projects (PSPs).
• Revamped Distribution Sector Scheme (RDSS), with an outlay of ₹3,03,758 Cr, aims to improve operational efficiency and reduce losses for distribution licensees.
• Average electricity supply hours have increased from 12.5 to 22.6 hours in rural areas and 22.1 to 23.4 hours in urban areas between FY14 and FY26.

Detailed Insights:

• The framework includes the National Electricity Policy, Tariff Policy, and subordinate legislation, with tariffs determined by State Electricity Regulatory Commissions.
• Initiatives to reduce electricity cost include competitive procurement, flexible utilization of domestic coal, and prioritizing lower-cost inter-state generating stations.
• The Draft National Electricity Policy, 2026 aims for tariffs to progressively recover fixed costs and reflect prudent cost of supply without creating regulatory assets.
• Consumer protection is further strengthened by the Draft Policy's proposals for 24x7 reliable supply and robust online grievance redressal mechanisms.
• Schemes like Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY), Integrated Power Development Scheme (IPDS), and Pradhan Mantri Sahaj Bijli Har Ghar Yojana (SAUBHAGYA) supported states in achieving reliable power supply.
• Financial support to state-owned power utilities includes additional borrowing consent conditional on reforms and prudential norms linked to performance.
• Rules for FPPCA and cost-reflective tariffs ensure recovery of prudent supply costs and proper subsidy accounting.
• Modernization of the transmission network is planned through technologies like Flexible AC Transmission Systems (FACTS) and accelerated deployment of energy storage systems.
• Renewable energy integration is facilitated by RE Zones, Regional Energy Management Centers (REMCs), Green Energy Corridor (GEC) scheme, and market reforms.
• The PLI scheme for ACC Battery Storage targets 50 GWh domestic manufacturing capacity, with 10 GWh for Grid Scale Stationary Storage (GSSS).
• VGF schemes for BESS development have significant budgetary allocations, targeting 13.22 GWh and an additional 30 GWh capacity.
• ISTS charges are waived for BESS projects commissioned by June 2025 and PSPs with construction awarded by June 2025, with extensions for co-located BESS and PSPs.
• Co-location of ESS with solar projects is recommended to improve dispatchability, with a minimum storage capacity of 10% of installed solar capacity.

Key Concepts Involved:

• Resource Adequacy Plans: Dynamic 10-year rolling plans prepared by states for power generation and procurement planning.
• Fuel and Power Purchase Cost Adjustment (FPPCA): Mechanism to pass through variations in power purchase costs, including fuel costs, to consumers.
• Regulatory Assets: Costs incurred by distribution companies but not allowed to be recovered immediately through tariffs, deferred for future recovery.
• Aggregate Technical & Commercial (AT&C) losses: Sum of technical losses (transmission/distribution) and commercial losses (theft, billing inefficiencies) in the power sector.