Bid to address material intensity in renewables, cross-subsidy in power

The Economic Survey 2025-26 tabled in Parliament on Thursday highlighted two big issues that must be addressed urgently for the growth of India’s energy sector.

- SUDHEER PAL SINGH

They include high levels of cross subsidy in power supply and the huge material and capital intensity associated with renewable energy projects.

Cross-subsidisation involves charging higher tariffs to industrial and commercial power consumers to offset lower tariffs for domestic and agricultural users.

This is structured through category-wise subsidies, where the average billing rate for the former category exceeds the average cost of supply (ACoS), while the latter pays below ACoS. “Going forward, a balanced approach could include rationalising tariffs for subsidised categories by introducing phased rates and quotas, as well as voluntary and category-based exclusions,” the Survey said.

The Electricity Act requires State Electricity Regulatory Commissions to progressively reduce cross subsidies in tariffs to ensure that they reflect the cost of supply. However, in some states, for certain categories, ACoS coverage exceeds the +20 per cent limit specified in the tariff policy.