India – Electricity Regulation, Government Policy and Legislative Framework for the Electricity Sector – EQ

Summary:

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**1. Legal and Policy Framework**

– **Governing Legislation:** The **Electricity Act, 2003** is the principal law, promoting competition, renewable energy, and independent regulation.
– **Key Reforms:**
– Delicensing of generation (except hydro and nuclear).
– Unbundling of state utilities.
– Introduction of open access and renewable purchase obligations (RPO).
– **Regulatory Bodies:**
– **Central Electricity Regulatory Commission (CERC)** – oversees inter-state transactions.
– **State Electricity Regulatory Commissions (SERCs)** – regulate intra-state activities.
– **Central Electricity Authority (CEA)** – sets technical standards and national planning.
– **Policy Documents:** National Electricity Policy (NEP) and Tariff Policy guide sector development.

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**2. Market Structure**

– **Generation:** Mostly delicensed; tariffs regulated for sales to distribution licensees. Captive generation encouraged (26% equity + 51% consumption rule).
– **Transmission:** Licensed activity with regulated tariffs.
– **Distribution:** Licensed and fully regulated, including tariffs.
– **Trading:** Licensed with regulated margins; occurs bilaterally and on power exchanges.

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### **3. Key Regulatory Areas**

#### **A. Power Generation**
– **Authorization:** Generally not required except for hydro (CEA approval) and nuclear (government-only).
– **Grid Connection:** Governed by **General Network Access (GNA)** regulations for inter-state transmission. Waivers for renewable energy transmission charges are being phased out by 2025, except for co-located storage (until 2028).
– **Renewable Energy:** Supported via RPO, Renewable Energy Certificates (RECs), Green Energy Open Access, and “must-run” status for renewables.
– **Climate Goals:** India aims for 50% non-fossil fuel capacity by 2030 and net-zero by 2070. Significant progress already made (45% non-fossil capacity as of 2025).
– **Storage:** Encouraged through viability gap funding, PLI schemes, and tender guidelines.
– **Nuclear:** Government-owned (NPCIL) only; potential amendments to allow private participation in small modular reactors (SMRs) and captive use.

#### **B. Transmission**
– **Licensing:** Required from CERC (inter-state) or SERCs (intra-state).
– **Grid Access:** Non-discriminatory open access under GNA framework.
– **Grid Reliability:** Managed by Load Despatch Centres (national, regional, state) under grid codes.
– **Tariff Determination:** Either cost-plus or competitive bidding-based.

#### **C. Distribution**
– **Licensing:** Mandatory for distribution and retail supply; exemptions for certain entities (e.g., SEZs).
– **Consumer Access:** Open access available for large consumers, with surcharges (waived for captive generators).
– **Tariff Regulation:** Multi-year tariffs set by SERCs, incorporating time-of-day pricing and cross-subsidies.

#### **D. Power Sales**
– **Retail Sales:** Require distribution license; direct sales by generators allowed via open access.
– **Tariff Control:** Regulated for distribution licensees; unregulated for direct generator-consumer sales (subject to wheeling charges).
– **Wholesale Rates:** Set by CERC/SERC via tariff regulations or competitive bidding.

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**4. Regulatory Authorities & Independence**

– **CERC & SERCs** are independent statutory bodies with secure tenures, funded independently, and audited by the Comptroller and Auditor General of India.
– **Appeals:** Decisions can be appealed to the **Appellate Tribunal for Electricity (APTEL)** and further to the **Supreme Court**.

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**5. Competition & Merger Control**

– **Oversight:** Both electricity regulators and the **Competition Commission of India (CCI)** have jurisdiction.
– **Merger Review:** Approval required from the appropriate commission; CCI clearance needed for combinations above thresholds.
– **Anti-competitive Practices:** Regulators can issue directives, impose penalties, or modify agreements.

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**6. International Aspects**

– **Foreign Investment:** 100% FDI allowed in generation, transmission, and distribution under automatic route (except nuclear).
– **Cross-Border Trade:** Regulated by CERC and MoP under dedicated guidelines and regulations.

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**7. Recent Trends & Developments**

– **Battery Storage:** Moving from pilots to large-scale programs, with extended transmission charge waivers for co-located systems.
– **Market Evolution:** Growth of virtual PPAs, REC markets, and carbon credit trading schemes.
– **Renewables Integration:** Time-of-day tariffs being enforced to manage solar generation peaks.
– **Nuclear Energy:** Gaining traction as firm green energy; potential for private captive use.
– **Power Market Coupling:** Being explored to improve price discovery across exchanges.

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