The US-Israel strikes on Iran have triggered a serious energy crisis for India, which imports more than 85 per cent of its crude oil, and about 50 per cent of its natural gas. Brent crude has surged past $100 a barrel, and the Strait of Hormuz — through which over half of India’s crude imports and most of its LPG transit — is effectively closed to commercial shipping. The government has rationed gas supplies to hotels and restaurants.
While we would have preferred to avoid this crisis, policymakers should use this opportunity to initiate systemic reforms to accelerate India’s energy transition. Getting there requires five reforms in India’s electricity system.
Free the price system
India has a long history of controlling energy prices. Petrol and diesel prices have been frozen for extended periods whenever global crude prices rise, as they have right now. The instinct is to shield consumers from price shocks.
Similarly, India’s electricity sector is riddled with price distortions. Agriculture and domestic consumers are heavily subsidised, while commercial and industrial (C&I) users pay inflated tariffs. Costs do not disappear because the government chooses not to pass them on. They show up in the balance sheets of oil companies, ballooning discom losses, deferred infrastructure investment, low innovation, and fiscal deficits—ultimately financed by the very consumers the freeze (or the subsidy) was meant to protect.
More importantly, in the long term, real-time, cost-reflective tariffs are essential for a renewables-heavy grid. When the sun is shining, there is abundant solar power and electricity is cheap to produce. In the evening, when solar generation fades and demand peaks, expensive coal plants kick in and the cost of supply jumps. If prices reflected this variation in real time, demand would adjust.
For example, factories would shift energy-intensive processes to cheaper solar hours, EVs would be charged during the day, and households could shift several chores to daytime. Demand-side adjustments can help make the transition to renewables cheaper and faster. We have almost none of these today.
Free power purchase agreements from price rigidity
When a company builds a solar or wind farm, it needs a buyer for the electricity it will produce. In India, this is overwhelmingly a state-owned distribution company — the entity that delivers power to your home and factory. The two sides sign a power purchase agreement, or PPA: a long-term contract, often lasting 25 years, in which the buyer commits to purchasing electricity at a fixed price determined through an auction.
But this creates a problem. Technology costs and other inputs, interest rates, and grid conditions change. A price locked in in 2025 may look absurd by 2030. Yet, the distribution company is stuck buying at a price that may be far above what the market offers if costs fall.
These contracts need to be more flexible—allowing prices to adjust periodically to reflect market conditions, indexing them to costs that actually change, and giving both parties room to respond to a world that will look very different in a decade.
Free contracting from the one-size-fits-all template
When a state government wants to buy renewable energy for its people, it does not have the freedom to design an auction that suits its needs. The Union government prescribes standard bidding guidelines that all states must follow — specifying how auctions are conducted, how tariffs are structured, and what contractual terms are permissible.
Deviations from these guidelines must clear the hurdle of regulatory approval, which takes time and carries costs. But India’s states have vastly different electricity needs. Tamil Nadu has high wind penetration and an ageing thermal fleet; Rajasthan has abundant solar irradiance and cheap land. A one-size-fits-all procurement template cannot accommodate these differences. States should have the freedom to innovate in how they buy power.
Free buyers and sellers to trade with each other
Under current law, anyone who wants to buy and sell electricity needs a trading licence from the government. This rule was written two decades ago, when electricity trading meant large deals between state utilities — not the kind of small, flexible transactions that renewable energy makes possible today.
Imagine a factory with rooftop solar panels that generates more power than it needs at midday. It should be able to sell its excess generation to a trader who aggregates such surpluses and sells them to a neighbouring IT campus. Or a housing colony should be able to buy solar power from a generator and supply it to households within the colony.
A regulatory framework that allows small buyers and sellers—as well as intermediaries who facilitate such transactions—to transact directly, without needing a trading licence, would unlock entirely new markets for clean energy. More buyers and sellers would mean better price discovery, which in turn would signal investors where to build the next solar farm or battery storage facility.
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Free the market for storage
Solar and wind are intermittent sources of energy— they generate when the sun shines and the wind blows, not necessarily when demand peaks. For renewables to provide reliable, round-the-clock power, large-scale energy storage is essential.
India’s current policy approach to storage is to bundle it with generation through firm and dispatchable renewable energy (FDRE) contracts, where a single developer must build both the renewable generation plant and the storage facility, and guarantee delivery at specified hours. This forces a vertically integrated model on what should be a competitive, unbundled market.
A far better approach would be to let storage emerge as an independent business. Standalone storage operators should be free to buy cheap solar power during the day — when prices should fall to near zero — store it, and sell it during evening and night hours when demand peaks and prices are high. This arbitrage is the natural business model for storage. It requires no subsidy, only a functioning price system, and would also be helped by removing the requirement for a trading license. The price spread between solar hours and peak hours is the revenue model.
Unbundling storage from generation, and allowing storage-only players to trade freely on energy exchanges would unlock private investment in batteries, pumped hydro, and other storage technologies far more effectively than any government mandate.
When Russia cut off gas supplies to Europe, there was a painful price surge. On the demand side, households and factories cut consumption, switched fuels, and invested in insulation and efficiency. On the supply side, LNG terminals were fast-tracked, renewable installations accelerated, and alternative suppliers rushed to fill the gap. Within 18 months, European gas prices had fallen back.
The price system was brutal in the short run but self-correcting — precisely because no government tried to freeze it. India should use the current crisis to extend the freedom of price movement to the energy sector. This should, in turn, be followed by the freedom to contract flexibly, the freedom to trade power across buyers and sellers, the freedom to build storage as a business, and the freedom for states to design their own path.
Renuka Sane is managing director at TrustBridge, which works on improving the rule of law for better economic outcomes for India. She tweets @resanering. Views are personal. Akshay Jaitly is co-founder of TrustBridge and Trilegal. He tweets @AkshayJaitly2. Views are personal.
(Edited by Ratan Priya)