How can electricity tariff reforms empower Indian households?

Fixed charges, rooftop solar, and time-of-day tariffs are changing how Indian households use and pay for power

India’s recent electricity tariff reforms under the Electricity (Amendment) Bill, 2025 mark a shift towards cost-reflective pricing, reducing industrial cross-subsidies, promoting competition, strengthening regulators, and safeguarding subsidised power for farmers and low-income households. Every month, when households and businesses open their electricity bills, they feel the impact of tariff reforms, even before they hear about it in policy debates. The price of electricity determines how much people pay at the end of the month, how competitive industries can be, and how consumers can participate in India’s clean energy transition. But tariffs must balance two priorities: cost-reflectivity and affordability.

India’s electricity tariffs have long struggled with three structural issues, outlined in the first blog of this series: inequitable cross-subsidies, mismatched fixed and energy charges, and tariffs that do not reflect the real cost of electricity throughout the day. This blog examines how states such as Maharashtra are reforming such tariff structures and what these changes mean for different types of households.

This is the fourth part of a four-part blog series exploring India’s evolving power tariff landscape (read Part 1 here, Part 2 here, and Part 3 here). This final instalment reflects on how tariff rationalisation impacts domestic consumers and suggests strategies to overcome cost challenges.

How can we pay fairly for the power grid?

Running a power system involves high fixed costs that must be paid regardless of the amount of electricity consumed. These fixed costs include capacity charges, depreciation, operation and maintenance expenses, which are independent of energy consumption. Yet, most revenue comes from energy charges (dependent on energy sales), not fixed charges. This reliance exposes power distribution companies (DISCOMs) to financial uncertainty, as fluctuations in sales weaken cost recovery.

In FY24, in Maharashtra, fixed costs from discoms accounted for 51 per cent of the total cost of supply, while fixed charges recovered from consumers contributed only 13 per cent of the discom’s total collection. To correct this misalignment, the Maharashtra Electricity Regulatory Commission (MERC) decided to gradually increase fixed charges across consumer categories and decrease energy charges (Table 1). The goal is to raise fixed cost recovery of Maharashtra State Electricity Distribution Company Limited (MSEDCL) to 16.7 per cent of total revenue by FY30. The Karnataka Regulatory Commission (KRC) has adopted a similar approach.

Table 1: Roadmap for a balanced recovery of fixed costs (FC) and energy costs (EC) for a domestic consumer in Maharashtra

Source: Authors' compilation of MERC tariff order FY26

Can time-of-day tariffs help manage peak demand?

Time-of-day (ToD) tariffs are emerging as an essential tool to manage peak demand when discoms usually rely on short-term purchases or expensive coal plants. They reflect the changing cost of electricity across the day: cheaper during solar-rich hours, costlier during evening peaks.

With rising low-cost solar generation, the daytime marginal cost of procuring power has fallen sharply, while evening ramp-up and late-night balancing costs remain high, making ToD tariffs an effective tool to pass these real cost signals onto consumers. Today, ToD tariffs are implemented in 23 states and five union territories across consumer categories. In Maharashtra,  domestic consumers receive an INR 0.80/unit rebate during off-peak periods (solar-rich hours; 9AM–5PM). In contrast, commercial and industrial (C&I) consumers face both surcharges and rebates that vary seasonally (Table 2).

Table 2: Maharashtra’s time-of-day tariff schedule for different consumers

Source: Authors' compilation of MERC MYT Order FY26
Note: +25% (HT & LT Industrial & Commercial Categories)

How can tariff reforms reduce cross-subsidy burden?

India’s tariff structure follows telescopic slabs for domestic consumers, where the per-unit cost of electricity increases with each consumption slab. Hence, higher consumption users subsidise lower consumption users, also known as cross-subsidy. For instance, commercial consumers in Maharashtra pay 50–70 per cent more than the average cost of supply, while agricultural consumers pay 43 per cent less. As tariffs move towards cost reflexivity, households consuming above 300–500 units per month may see modest benefits through reduced cross-subsidy burden.

How can domestic consumers benefit from these tariff reforms?

We take an illustration of three types of households in Maharashtra: low, middle, and high energy-consuming households (Table 3), to understand the likely impact of the alignment of fixed charge and energy charge, and the introduction of ToD tariffs.

Table 3: Typical household profiles across low, moderate, and high electricity consumption

Source: Illustrative example of different households across appliance mix, household size, etc.

For Suraj (low-consumption household): prioritise affordability through efficiency

For households with low monthly consumption, fixed charge increases form a higher proportion of the total bill, even if energy charges fall. Consumers like Suraj already receive significant state subsidies across both energy and fixed charge components, so tariff reforms must ensure that any rebalancing does not disproportionately increase the fixed charge burden. There should also be a simultaneous push to reduce state subsidy burden by promoting energy efficiency and rooftop solutions.

Adaption pathway for Suraj:

• Maximise efficiency. Adopt super-efficient appliances (5-star fans, LEDs) to keep overall consumption low, potentially staying within subsidised slabs.
• Adopt rooftop solar. Low-consumption households can benefit from the PM Surya Ghar Yojana, which offers a subsidy of up to INR 78,000 for three kW rooftop solar (RTS) systems. However, individual RTS may not be viable for low-consumption households due to high upfront capital investment and possibly insufficient roof space. In such cases, shared or community RTS models may be more practical, reducing grid dependence without high upfront costs and the need for personal roof access. 

For Ramesh (moderate-consumption household): manage load and save

Consumers like Ramesh have the most to gain from smart habits and technology. For households of this scale, energy charge reductions become visible in absolute terms while fixed charges rise modestly. With the right measures, many mid-use homes can lower bills by shifting consumption to daytime solar hours, leveraging ToD rebates, and maximising self-consumption through right-sized rooftop solar systems.

Adaption pathway for Ramesh:

• Shift load to daytime hours. Use timers for washing machines, geysers, and other appliances to automatically run during 9 AM–5 PM, or when ToD rebates apply.
• Actively adopt right-sized RTS systems. A two to three-kW RTS system subsidised by the PM Surya Ghar Yojana can offset daytime consumption. The goal should be maximising self-consumption of solar power during the daytime.
• Reduce the evening peak. Improve insulation of homes and adopt pre-cooling/heating strategies for cooling appliances and water heaters to avoid high-cost evening ToD periods.
• Use smart meter data to optimise consumption. Smart meters can reveal peak hours, appliance use and potential adjustments, helping consumers become ‘smart users’ and prioritise the above steps effectively.

For Sneha (high-consumption household): invest in resilience and flexibility

Savings compound across many units for consumers like Sneha. The fixed charge and energy charge realignment and lower cross-subsidy burden become visible in the final bill, and even small shifts in use during solar hours can reduce costs (five to six per cent of the current monthly bill). With the adoption of RTS and storage systems, these households can also supply cheaper power back to the grid during peak hours, reducing the discom’s costlier short-term power market procurement, provided there is an enabling tariff and regulatory ecosystem. As the cost gap widens during solar-rich and non-solar hours with higher renewable deployment, high-consumption households (especially those with electric vehicles and/or RTS and storage) can operate like Virtual Power Plants (VPPs), offering demand flexibility that benefits both discoms and consumers when supported by appropriate price signals.

Adaption pathway for Sneha

In addition to shifting daytime loads and using higher-efficiency appliances:

• Adopt an RTS first and then storage. A three to five kW RTS system is a suitable starting point. To tackle surcharges from higher evening costs in ToD tariffs, a battery energy storage system (BESS) can be a powerful next step to store cheap solar energy for use during costly peak hours.
• Invest in hybrid inverters, battery packs, and energy management systems to maximise self-consumption and reduce reliance on grid, protecting oneself from abrupt tariff shocks. 
• Export back to the grid during peak hours improving payback time on investment in electric vehicles or batteries and supporting discom reliability.

How can regulators and discoms enable a smooth transition? 

For consumers like Suraj, Ramesh, and Sneha to succeed, regulators and discoms need to act in tandem.

• Mandate the rollout of basic ToD tariffs for relevant consumers. Regularly updated ToD blocks will help send accurate price signals to consumers, enabling them to adapt to changing renewable generation patterns.
• Create simple, state-appropriate metering and RTS rules. Regulators should frame clear, easy-to-understand policies for net metering, gross metering, net billing, and group net metering, aligned with each state’s RTS maturity. States with low solar penetration can use net metering with supportive feed-in tariffs, while mature markets can shift to net billing or ToD-linked settlement to balance benefits for adopters, non-adopters, and discoms.
• Protect tariff-sensitive consumers through direct benefits transfers enabled by Digital Public Infrastructure (DPI). A DPI-based approach utilises a combination of unique digital identities, bank accounts, and digital payment systems to ensure that subsidies reach the intended recipients, reduces leakages and strengthens transparency through traceable digital transactions.
• Enforce cybersecurity, data privacy, and encryption standards to protect consumer data. Building trust through secure digital infrastructure is essential to the widespread adoption of smart meters.
• Pilot innovation for targeted consumer categories: Develop regulatory controlled experiment for peer-to-peer (P2P) energy trading using blockchain, allowing consumers with storage to sell excess solar power to neighbours.
• Ensure consumer-centricity in smart-meter deployment: Since smart meters are crucial for tariff reforms to translate into consumer benefits, discoms must prioritise their rollout and pair them with intuitive mobile applications that make consumption data easy to understand and act on. For example,  discoms can build trust and participation by offering online tariff calculators, personalised usage insights from smart-meter data, and behavioural nudges similar to the Home Energy Report (HER) pilot run by BSES Rajdhani Power Limited in collaboration with Oracle Utilities. They carried out India’s first large-scale residential “Behavioural Energy Efficiency” pilot in South and West Delhi starting in April 2018 , sending personalised HER to approximately two lakh customers to help them understand and reduce their electricity consumption.
• Run targeted consumer programmes: Launch initiatives for low-consumption households (sub-150 kWh) to adopt energy-efficient appliances and small-scale or community RTS systems. These measures can reduce long-term subsidy burdens on states without shifting the costs to consumers. States can draw inspiration from models like Chhattisgarh’s community-managed solar irrigation pumps. The Professional Assistance for Development Action (PRADAN)-led community-owned solar-irrigation model, enabled the construction and use of one solar pump across multiple low-income farmers (via self-help group membership), spreading the cost and enabling irrigation access for 15–20 farmers with a single subsidised pump instead of one per farmer.

What is the path forward for an empowered energy consumer?

As the three household profiles illustrate, the same reform creates different opportunities for different users. The path forward lies in empowering through choice, protecting through policy, and modernising through technology. Tariff rationalisation will feel fair and work effectively only when:

• Consumers are equipped with tools and information to transform price signals into savings.
• Regulators provide a stable, transparent, and innovative regulatory environment while safeguarding vulnerable groups.
• DISCOMs evolve into modern grid managers that communicate clearly, invest in digital infrastructure, and view consumers as partners.

By getting this trifecta right, tariff reform becomes a catalyst for a consumer-centric energy transition that boosts grid reliability, accelerates renewable integration, and enables a practical pathway for savings in every household.

Saakshi Purohit is a Research Analyst, Rashi Singh is a Programme Associate, and Mirambika Sikdar is a Research Analyst at the Council on Energy, Environment and Water (CEEW). Send your comments to [email protected]

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