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India's Power Distributors Need to Raise Charges, But Gradually, Says IEEFA

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India's power distribution companies must raise their fixed charges to recover more of their costs, but doing so too quickly could also backfire and harm the less well off, the Institute for Energy Economics and Financial Analysis said on Tuesday.

IEEFA described India's distribution companies or "discoms" as being under persistent financial stress for years with cumulative losses across the sector in the 2025 financial year of $77.5 billion.

With ambitions for 900 gigawatts of non-fossil fuel generation capacity within 10 years, IEEFA says that higher fixed charges to Indian consumers will be needed, given that grid infrastructure will require significant modernization to handle increased loads.

In the first quarter of 2026, 300 GWh of renewable power was lost due to transmission constraints that will take significant investment to address, across both transmission and distribution networks, the research said.

Describing distribution companies as one of the power sector's "most persistent weak links", IEEFA said that raising fixed charges will bring their revenue closer to a level that covers more of their fixed costs.

Currently, fixed costs absorb between 38-56% of a distribution company's revenue while fixed charges sum only 9-20% of total revenue.

That means fixed charges are in part covered by variable consumption charges, leaving distribution companies exposed to fluctuations that depend on demand, the weather and economic activity, IEEFA said.

The growing use of on-site power generation and rooftop solar complicates this further, reducing the number of energy units purchased from utilities while their fixed costs remain the same.

"Improving fixed-cost recovery through increase in fixed charges in the tariff design can therefore provide greater revenue certainty, strengthen DISCOM finances, and also improve their ability to undertake the capital investments needed to modernise and expand the grid," the report said.

The institute acknowledges that there is a risk of creating affordability problems for low-consumption households and micro and small businesses while some large consumers could seek to further reduce dependence on grid power with renewables and storage investments.

"A phased approach is therefore essential to avoid price shocks and allow regulators and DISCOMs to monitor the impact across different consumer categories," the report said.

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