India’s Power Sector Faces Transition Hurdles Amidst Market Reforms, Says Report

Despite significant policy advancements, financial distress in distribution companies (discoms), regulatory uncertainties, and grid integration challenges continue to slow the transition of India’s power sector. These findings are highlighted in the report, 'The Intersection of Power Sector Regulation & Sustainability Goals in India', by Primus Partners, which examines the evolving regulatory landscape, sustainability commitments, and structural hurdles affecting the sector.

The report highlights that while India has made remarkable progress in restructuring its electricity market and promoting competition, independent regulation, and renewable energy adoption, persistent financial struggles, policy inconsistencies across states, and infrastructure bottlenecks remain key challenges. It underscores the need for comprehensive reforms to strengthen discom finances, streamline regulatory frameworks, and modernise grid infrastructure to achieve India’s ambitious clean energy targets.

A major concern is the financial distress of state-run discoms, which have accumulated losses exceeding INR 6.77 lakh crore (~USD 82 billion) due to subsidised tariffs, high transmission losses, and poor cost recovery. These financial struggles hinder their ability to procure and pay for renewable energy on time, impacting overall market stability. Transmission infrastructure remains another bottleneck, with many solar and wind projects facing evacuation delays, increasing costs, and discouraging investment. Regulatory inconsistency across states regarding open access, net metering, and banking of renewable energy adds to investor uncertainty, while attempts by some states to renegotiate signed Power Purchase Agreements (PPAs) have undermined policy stability and deterred long-term investment.

The report points out that a major turning point in India's power sector came with the Electricity Act of 2003, which introduced open access, electricity trading, and Renewable Purchase Obligations (RPOs), accelerating renewable energy adoption. Over the past two decades, India has aligned its regulations with sustainability goals through key policies, including the National Action Plan on Climate Change (NAPCC) in 2008 and amendments to the Energy Conservation Act in 2022. These policies have expanded renewable energy targets, introduced market-based incentives, and laid the foundation for a national carbon market. Mechanisms such as Renewable Energy Certificates (RECs), Viability Gap Funding (VGF), and Production-Linked Incentives (PLIs) have played a crucial role in attracting investments into clean energy projects, particularly in solar PV, wind, battery storage, and green hydrogen.

India is also advancing smart grid technologies, decentralised energy solutions, and corporate procurement models to create a more efficient and competitive energy market. Virtual Power Purchase Agreements (VPPAs) are gaining traction as corporations seek renewable energy sourcing, while peer-to-peer energy trading and net metering reforms are expanding decentralised solar adoption. At the same time, the deployment of smart meters, green energy corridors, and large-scale battery storage projects is improving grid efficiency and renewable energy integration.

The clean energy transition is closely tied to India's international climate commitments, including the Paris Agreement (2015), the COP26 Panchamrit pledge (2021), and the updated Nationally Determined Contributions (NDCs) (2022). These commitments include achieving 500 GW of non-fossil capacity by 2030, reducing emissions intensity by 45 percent from 2005 levels, and reaching net-zero emissions by 2070. To support these ambitious targets, India has strengthened partnerships with global institutions such as the International Solar Alliance (ISA), the World Bank, and the Asian Development Bank (ADB) to mobilise investments and upgrade grid infrastructure.

To fully realise the potential of its clean energy transition, the report calls for key structural reforms. Strengthening discom finances through improved cost recovery, tariff rationalisation, and direct benefit transfers (DBT) for subsidies is essential. Grid expansion must be synchronised with renewable energy targets to address transmission delays, while regulatory consistency must be ensured by standardising open access rules, wheeling charges, and net metering policies across states. Protecting contract sanctity by enforcing PPA obligations, reducing payment delays, and streamlining legal dispute resolution mechanisms is critical for maintaining investor confidence.

Expanding market-based mechanisms such as carbon credit trading, ancillary service markets, and flexible power procurement models will further support the transition. Additionally, creating a stable investment climate with long-term policy certainty, incentives for domestic manufacturing, and a clear tax structure is necessary to attract capital for renewable energy projects.

India’s power sector is at a decisive moment. With renewables now the cheapest source of new electricity, ongoing policy reforms are shaping a more competitive and investment-friendly market. However, achieving 500 GW of clean energy capacity by 2030 and meeting long-term sustainability goals will require regulatory certainty, financial discipline, and infrastructure modernisation. With the right policies in place, India can position itself as a global leader in clean energy and carbon reduction while ensuring reliable and affordable power for its growing economy.