STRENGTHENING INDIA’S CLEAN ENERGY FRAMEWORK

Under Viksit Bharat 2047, the government of India aims to achieve net-zero greenhouse gas emissions by the year 2070, and to meet over two-thirds of its energy demand from non-fossil sources. The Draft Electricity (Amendment) Bill, 2025 (“Bill”) published by the Ministry of Power on 9 October 2025 proposes amendments to the Electricity Act, 2003 (“Act”) in this light. Among its key proposals, the Bill recognises the emerging role of energy storage systems (“ESS”), non-fossil capacity obligations, and competitive market structures as core pillars of this transition.

ESSs are systems that store electrical energy for later use, enabling energy generated at one point of time to be deployed when required. Unlike fossil-fuel generation, which can be dispatched on demand, wind and solar power are intermittent and generate electricity only when natural conditions permit. As renewable capacity increases, a growing share of zero-carbon electricity will be produced at times of low demand. ESSs play a key role in balancing supply and demand, managing intermittency, and enhancing the flexibility and reliability of the power system. However, despite its importance, the deployment of energy storage in India has remained limited. Demand-side uncertainty, driven by expectations of declining battery prices, has led buyers to delay or cancel power sale and storage agreements. The sector also faces structural constraints, including a limited base of utility-scale suppliers, lack of domestic battery manufacturing, and reliance on imported critical minerals such as lithium and cobalt, which expose projects to supply chain disruptions and geopolitical risks. Additionally, access to affordable financing remains limited, particularly for smaller developers, given the market’s nascent stage and long investment recovery periods.

The Bill recognises ESS as a critical enabler of India’s non-fossil energy transition. By proposing the inclusion of the concept of ESS within the definition of “power system” under the Act, the Bill provides legal recognition to storage as an integral part of electricity generation, transmission, and distribution. This ensures that renewable and other non-fossil projects can be paired with storage to deliver power reliably, overcoming the intermittency of renewable energy sources.  

Building on this, the Bill also seeks to strengthen the regulatory framework for clean energy generation by imposing ‘non-fossil obligations’, ensuring that storage and generation reforms advance in tandem. The proposed amendment to Section 86(1)(e) of the Act replaces the term “renewable” with “non-fossil sources” – encompassing a broader category of renewables, nuclear, green hydrogen-based electricity and other low-carbon options. This expands the policy space for emerging clean technologies, wherein the relevant State Electricity Regulatory Commissions must now specify a minimum percentage of total electricity consumption in the area of each distribution licensee that must be generated from non-fossil sources, and mandates that this percentage must not be lower than that prescribed by the Central Government under the Energy Conservation Act, 2001 (“EC Act”). The EC Act (as amended) already sets direct and binding renewable energy consumption targets for designated consumers at the national level, and the proposed amendment empowers these same targets to be enforced in electricity procurement, creating legal and operational coherence between the two statutes. This harmonisation prevents states from setting unduly low targets, ensures consistent progress across India and streamlines its decarbonisation commitments as per central policy. To ensure stricter compliance, a corresponding amendment to Section 142 of the Act introduces a penalty ranging from 35 paise to 45 paise per kilowatt-hour for any failure to generate electricity from non-fossil sources below the prescribed limit.

The Bill further proposes the revision of Section 66 of the Act to empower the appropriate commission under the Act to establish and regulate market platforms, intermediaries, and innovative market products. This change promotes the development of a competitive power market and formally recognises spot contracts, derivative contracts, and virtual power purchase agreements. At present, most power generation capacity is tied to long-term power purchase agreements between distribution licensees and generating companies. However, with many state-run distribution licensees facing financial constraints and limited ability to fund large-scale generation, specifically through non-fossil resources, introducing market-based mechanisms is a critical step forward. 

This reform, along with proposed amendments such as cost-reflective tariffs for distribution licensees, marks a shift in India’s electricity framework—from a supply-driven model to a more competitive and sustainability-oriented system. Together, these provisions also create a robust framework for enforcing clean-energy obligations. By coupling non-fossil energy obligations with the recognition of ESS and the introduction of market-based mechanisms, the Bill lays the groundwork for an increase in the capacity of renewable energy generation and improved grid reliability. The Bill’s direction is progressive, but its success is dependent on clear secondary regulations, institutional coordination, and gradual implementation to avoid regulatory hurdles and financial stress.