An overview of the Electricity Act, 2003


The Electricity Act, 2003 is a Parliament of India Act designed to improve India’s electricity sector. The legislation addresses essential concerns of power generation, distribution, transmission, and trade. Though specific provisions have already been legislated and provide advantages, a few others have yet to be implemented entirely.

This article examines the Electricity Act of 2003 to see how the characteristics differ from the previous legal requirements and if these policies have an economic justification. With effect from 2 June 2003, India established legislation, namely, the Electricity Act 2003, to replace parts of the country’s age-old electric legislation. The legislation tried to solve critical difficulties that had hindered change in the country, resulting in renewed optimism for the power business.

Furthermore, the generation of power from various sources such as natural gas, hydro, nuclear, wind, solar, imported coal, etc., expanded significantly, and the country achieved decentralization and diversification in terms of power generation and consumption. 

Electricity Act, 2003

The Act was to unify the laws about electricity generation, transmission, distribution, and usage in order to take steps to promote the growth of the electricity sector, promote competition, safeguard consumers’ interests, and ensure the supply of energy to all areas, rationalize electricity tariffs, ensure transparent subsidy programs, promote efficient and environmentally friendly policies, and establish the Central Electricity Authority.

The Act entirely delicenses electricity generating (except for all nuclear and hydro-power projects over a specific size). According to the Act, 10% of the electricity delivered to customers by suppliers and distributors must be generated using renewable and non-conventional energy sources in order for the energy to be dependable.

Electricity generation is declared a non-licensed business and the Central Electricity Authority (CEA) no longer required techno-economic permission for any power plant, except hydroelectric power plants with an item of specified capital expenditure. 


The following are some of the critical features of the Act:

  • Generation is being delicensed, and captive generation is freely permitted, which meant that any generating company might establish, operate, and maintain a generating station without obtaining a license under this Act, with the only exception that it must meet the technical standards relating to grid connectivity referred to in clause (b) of section 73.
  • Hydro-projects, on the other hand, require approval from the Central Electricity Authority.
  • No one shall 
  • (a)transmit electricity, 
  • (b)distribute electricity, or 
  • (c)engage in electricity trade.

Unless a license authorizes him, exceptions are communicated to authorized commissions via notices.

  • The Central Government demarcated the country by region. It made changes as it was necessary for the efficient, economical, and integrated transmission and supply of electricity, particularly to facilitate voluntary interconnections and coordination of facilities for inter-State, regional, and inter-regional generation and transmission of electricity.
  • Open access in transmission with a premium to cover the current level of cross-subsidy, with the cost, gradually phased off.
  • State governments are obligated to unbundle State Electricity Boards. They may, however, remain with them as distribution licensees and state transmission utilities.
  • The establishment of a State Electricity Regulatory Commission (SERC) was now required.
  • An appellate body to hear appeals against (CERC’s) and SERC’s decisions.
  • Metering of power delivered had been made mandatory.
  • Electricity theft provisions had been made more rigorous.
  • Trading was recognized as a distinct activity, with regulatory authorities authorized to set trading margin ceilings.
  • Stand-alone generating and distribution systems were permitted in rural and isolated places.
  • The central government draught a national electricity policy as well as a tariff policy.
  • The Central Electricity Authority (CEA) created the National Electricity Plan.

provisions of electricity act

Section 25 of the Electricity Act of 2003 empowered the Central Government to divide the country into regions required for the efficient, economical, and integrated transmission and supply of electricity, and in particular to facilitate voluntary interconnections and coordination of facilities for inter-State, regional, and interregional generation and transmission of electricity. 

Section 25 of the Electricity Act 2003 and the proposed Electricity Act 2014 (provision to form regions) and other relevant parts claimed it was unlawful in the lack of ratification by each state.

production of Electricity

Electricity, also transmitted in a circuitous path (for example, the north-eastern region exports power to the eastern region, the eastern region exports power to the northern and western regions, the western region exports power to the northern region, and the northern region exports power back to the north-eastern region).

Similarly, the eastern area exports electricity to the western region, and the western region exports to the southern region, rather than the eastern region directly exporting all of the net power required by the southern, northern, and north-eastern regions.) As a result, the regional notion of electricity generation and transmission became counterproductive.

Division of Country for Electricity.

The traditional and unscientific division of the country into five regions (north, south, east, west, and northeast regions) without providing any valid justification and applying one set of rules for intra region and a different set of rules for inter-region in sharing electricity transmission system and transmission losses, among other things, is considered discriminating one state from another.

Without the public interest, the Constitution did not recognize a distinct set of laws applying to a group of states unless confirmed by each of the affected states following Article 252 of the Constitution. In the 1970s, the idea of splitting the nation into regions by combining a few states arose to envision pit head super thermal power stations near coal mines and supplying the generated power to distant locations through high voltage transmission lines. Previously, India’s energy industry had risen several times, and current power consumption in many large states has surpassed regional level power consumption at the time.

By treating states inside a region equally and those outside the area differently, the idea of regions is rendered obsolete. Due to regional bias/differentiation, several states that compose a region’s boundaries cannot draw/export cheaper power from neighboring regions/states. Furthermore, the power grid changed into a single national grid and establishing a single grid operation further rendered regional grids useless. However, it expanded significantly and helped the country achieve decentralization and diversification in power generation and consumption. Each state should have been regarded as a single administrative entity/region/area for electricity transmission, loss accounting, and commercial settlement as a component of the national grid.


The Act was amended several times after 2003. The revisions suggested in 2015 brought about significant changes. The key provision was the introduction of electricity supply firms that would no longer own power lines. According to the government, it would increase competition and, as a result, lower prices. Those who oppose these revisions argue that in the Indian context, competition could never reduce cost. Some energy finance specialists believe it would undermine the public sector and harm its power sector business.


The Electricity act was to consolidate the laws about the generation, transmission, distribution, trading, and use of electricity. generally to take measures favorable to the growth of the electricity sector, fostering competition, safeguarding consumers’ interests, assuring the supply of energy to all areas, rationalization of electricity tariffs, ensuring transparent policies regarding subsidies, promoting efficient and ecologically friendly policies, and the formation of the Central Electricity Authority.


1. The Electric Bill, 2003, §73 (b), The Gazette of India, pt. II sec. 1, (June 2, 2003)

2. The Electric Bill, 2003, §25, The Gazette of India, pt. II sec. 1, (June 2, 2003)

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