Alok Kumar, Former Union Power Secretary and Director General, All India Discoms Association
With COP30 approaching, India is expected to announce its updated Nationally Determined Contributions up to 2035 soon. There will be exhortations for India to reduce its emissions at a faster rate and perhaps also to prepone its timeline to net zero. The government is ensuring that the current target of 500 GW of non-fossil capacity by 2030 will be met, and perhaps we will exceed it. At the same time, there are reports that even if India meets this target, it will not be adequate to meet the need for green energy to achieve the renewable consumption obligation of 43 per cent in 2030 because renewable energy generation will not match the demand pattern. Storage capacity is not growing at the desired scale. Nuclear-based generation capacity will increase rapidly only after the private sector starts contributing.
Several questions are being raised: Should India immediately further accelerate its pace of solar and wind additions? Should states contract new coal-based plants at increasing fixed charges? Are discoms ready to handle the large-scale adoption of distributed energy installations?
What criteria should be used to measure the success of our energy transition? Sustainable Development Goals (SDGs) were set in the same year (2015) when the world adopted the Paris Agreement. SDG 7 calls for making affordable, reliable and sustainable modern energy available to all by 2030. These three factors will continue to govern the evolution of the energy transition pathway. In a low per capita income country like India, the affordability of energy prices will be the highest priority. Expectations for 24×7 reliable power supply are rising continuously. The decarbonisation of power supply needs to be planned keeping in mind the imperatives of affordability and reliability. Immediate attention should be given to the digitalisation of the power system, capacity building to implement robust and advanced demand forecasting, integrated resource planning and security constrained economic despatch, institutionalising technology-agnostic energy markets with minimum government support given transparently, ensuring the financial viability of discoms, and an aggressive push for demand-side management to enable faster decarbonisation.
Digitalisation of the power system has already begun, but its pace is not aligned with the speed at which distributed renewable energy (DRE) is expanding or with the increased demand/generation variability that is being witnessed. The electricity grid is certain to rapidly grow in complexity, given the exponentially expanding number of prosumers, other DRE installations, electric vehicles, data centres, behind-the-meter storage devices, etc. Demand patterns are already seeing unexpected variations. In the summer of 2025, actual peak demand reached only about 242 GW – lower than the projected peak of 277 GW by the Central Electricity Authority. This highlights the complexities the sector may face on both the supply and demand sides by 2030. Full-scale digitalisation will be necessary to plan and operate the grid. However, the pace of smart meter installation is lagging behind by several years (though it has fortunately picked up recently), against the target set under the Revamped Distribution Sector Scheme. So far, around 42 million smart meters have been installed against the target of 250 million by 2024. Discoms’ capacity to utilise the huge amounts of data being generated by smart meters is still very limited. The Ministry of Power has taken a number of steps to accelerate the pace of smart metering, create relevant capacity in discoms, and develop the India Energy Stack to take forward the digitalisation of power systems. The progress of these initiatives should be considered when setting future targets for renewable energy penetration.
The total cost of power procured from various sources by a discom directly impacts the affordability of consumer tariffs. While we may compare the levellised cost of electricity (LCOE) of a coal-based power plant with that of a solar and battery storage project for arguing against or in favour of coal or renewable energy, what matters is the overall system cost to serve the actual demand with its seasonal patterns, daily/weekly variations and unforeseen deviations from the projections. We often come across comparisons being made based on the cost of electricity in terms of rupees per unit, assuming normative availability for serving a flat load or a slice of load in isolation. Actual system costs depend on fixed costs to be paid under various PPAs, fuel costs as incurred on the actual plant load factor of the plants, transmission costs, balancing costs to provide must-run status and preferential deviation settlement mechanism (DSM) charges for renewable energy, costs of reserves to take care of the intermittency of renewable energy and demand variations, and performance degradation due to part-load operations of coal plants. No doubt, the cost of renewable energy and storage is declining rapidly, while the discovered fixed charges for new coal-based plants are rising significantly. At the same time, a recent report by Lazard finds that renewable energy firming costs are rising with higher penetration levels globally. For example, for the California Independent System Operator, while the unsubsidised LCOE for 1 MWh of solar plus storage was $77, the levellised firming cost was an additional $66. What we need is least-cost capacity expansion planning and the efficient despatch of various plants based on data-driven advanced load research and demand forecasting, optimised resource planning and economic despatch. Therefore, in addition to the deep digitalisation of the power system, Indian discoms must be made capable to efficiently use the data to run these forecasting and optimisation models to plan the pathway for accelerated renewables additions.
A level playing field for various available technological options to meet the projected demand with set reliability standards is another enabler to achieve the objectives set in SDG 7. For this to happen, there is a need for well-functioning electricity markets and technology-agnostic tenders. Decarbonisation targets can be set at the system planning stage. Reliable power supply needs all three: capacity, energy and ancillary support. Various technologies provide these components in different proportions and have different costs. For example, a gas-based plant can provide reliable capacity support round the clock without any limitation (unlike a battery) at a very competitive price, though its energy costs may be higher than a coal-based plant. Our power exchanges play a key role in the operation of only energy markets. In addition, India needs to develop capacity markets and deepen ancillary markets urgently so that these “products” can be fairly and transparently valued in the market. There is also a need to transition from the present dominance of long-term conventional PPAs to a paradigm where a much larger share of generation is despatched and sold through electricity markets. This will enable better risk sharing between generators and discoms. In addition, for the markets to function efficiently with minimum distortions, any government support for a new technology in terms of viability gap funding and other subsidies should be given directly in a limited and transparent manner. Currently, there are several hidden and indirect subsidies, such as coal plants being inadequately compensated while being required to back down and ramp up to accommodate renewable energy’s must-run status, concessional DSM charges for renewable generators, transmission charge waiver for green hydrogen producers, and benefits under net metering systems. These should be phased out as quickly as possible if India plans to increase the share of renewables to a higher level. Otherwise, the necessary price signals needed to support grid operations and ensure least-cost power procurement will continue to be muzzled, affecting affordability and reliability.
India cannot ensure its energy security and sustain the energy transition without ensuring the financial viability of the discoms. Although all-India aggregate technical and commercial loss levels have come down in recent years, the lack of cost-reflective tariffs has resulted in accumulated losses of about Rs 7 trillion in FY 2024, prompting a group of ministers to explore options to restore the viability of discoms. Governance issues in government-owned discoms need to be tackled through a “carrot and stick” policy. State electricity regulatory commissions also need be made more accountable. There are other significant aspects that also need attention. Electricity tariffs are a politically sensitive matter in a low-income democratic country and, therefore, power procurement costs at the overall system level need to be kept to a minimum through the various measures discussed above so that tariff revisions are practical. The operational efficiency of discoms can be improved significantly in two to three years by raising billing efficiency, from 86.91 per cent in FY 2024 to 92 per cent by completing the smart meter roll-out. Another important aspect is correcting the imbalance in tariff design. According to a report by the Forum of Regulators published in 2025, while the fixed component of discoms’ annual revenue requirement is about 50 per cent, the prevailing demand charges in the tariff recover only 15-20 per cent. As India witnesses a larger share of electricity supply to commercial and industrial consumers shifting to the open access or captive routes, ensuring discoms’ revenue stability necessitates correcting this imbalance.
The electricity sector can also support decarbonisation across other segments of the economy through faster electrification of energy services and sustained reduction in fossil fuel use in electricity generation. Electricity currently accounts for about 21 per cent of India’s final energy consumption, with plans to increase it to 40 per cent by 2047. This needs to be accelerated. China has already achieved a level of around 32 per cent. Additional non-fossil-based generation can be absorbed more easily if overall electricity demand rises. However, this can be achieved in a cost-effective manner only if we simultaneously pay greater attention to demand-side management, which has two prerequisites: efficient price signals for consumers and digitalisation of the power system to transmit such signals in real time and track the consumer response. Price caps in the electricity market should be rare and implemented only in emergencies. Consumer tariffs for larger loads should be dynamic to reflect market conditions, and a network of aggregators must be developed to offer various demand response products to willing consumers.
India will be in a position to move faster on decarbonisation only if it acts on creating these enablers.