The TVK govt’s White Paper on state finances triggered political debate. A similar assessment of the state’s power sector attracted far less attention as its findings were hardly surprising. The Tamil Nadu Electricity Board has been losing money for years, with little meaningful intervention, though some corrective efforts were made in recent years.A financially weak power utility will constrain TN’s ambition of becoming a $1-trillion economy. Before examining the state’s priorities, it is imperative to consider some ground realities. The Tamil Nadu Electricity Board ranks among the best in operational efficiency and technical performance, with its aggregate technical and commercial (AT&C) losses among the lowest in India. Unfortunately, such an efficient organisation slipped into this situation because of poor management and corruption. The challenge is to restore financial sustainability while meeting rising electricity demand from domestic consumers, industry, electric mobility and data centres. The long-delayed unbundling of the erstwhile TNEB was an important first step. Industry representatives and experts say the harder task is improving operational efficiency, strengthening the grid, modernising power procurement, expanding energy storage and better targeting subsidies. One key issue relates to electricity tariff policy. TN follows an inflation-linked mechanism under which tariffs are automatically revised each year based on the Consumer Price Index or 6%, whichever is lower.“Domestic, agricultural, handloom and several other consumer categories have largely been shielded from tariff revisions, with the state govt compensating the distribution utility through subsidies,” said V Sriram, co-founder and partner at Sammati Consulting and Analytics. He argues that the mechanism has an unintended consequence. Automatic revisions reduce the need for utilities to file detailed tariff petitions before the regulator, limiting opportunities for independent scrutiny of costs and operational efficiency. Annual revisions may protect revenues while weakening the focus on reducing costs.Given the state’s fiscal constraints, maintaining large subsidy commitments may become difficult. Subsidies and loss funding for the power sector accounted for nearly ₹27,053 crore in 2025-26—around 35% of Tamil Nadu’s revenue deficit—highlighting the growing burden on state finances. As fiscal pressures mount, the scope for continually expanding such support appears limited.There has been a growing call, including from TN former finance minister P T Palanivel Thiaga Rajan, to shift the debate from whether subsidies should exist to how they should be targeted. Tariff subsidies have risen from around `8,932 crore in 2021-22 to nearly `16,951 crore in 2025-26. The govt’s decision to restrict the additional 100 units of free electricity to households consuming less than 500 units a month is viewed as a step in the right direction. Similar targeting could be extended to the existing free-power scheme.Agricultural power illustrates the challenge. Electricity supplied to irrigation pumps remains largely free, leaving farmers with little incentive to replace inefficient equipment or conserve energy. Sriram says modernising pump sets alongside better-targeted subsidies could reduce electricity demand without reducing agricultural support. Another reform is feeder segregation. M Prasanna Kumar, former CMD of NLC India who also served with Gujarat’s power utility, argues that separating agricultural, industrial and residential feeders—as Gujarat has successfully done—would improve accounting transparency while ensuring that power subsidies reach only their intended beneficiaries. TN’s plan to solarise agricultural feeders is a step in the same direction. Generating electricity closer to where it is consumed would reduce transmission and distribution losses, lower the cost of supplying power to the farm sector, and lessen dependence on conventional sources of generation.Kumar also suggests further improvements in power procurement. Tamil Nadu’s peak demand has crossed 20,000MW and continues to rise. Utilities should combine long, medium, and short-term purchases with greater participation in power exchanges. “This would require greater deployment of AI and advanced analytics for real-time assessment of electricity demand, generation availability and exchange prices,” he added.Tamil Nadu already has one of India’s largest renewable energy bases, with abundant wind and solar resources. However, adding renewable generation will not be sufficient. Wind is seasonal, and solar disappears after sunset. As penetration increases, storage becomes the critical link between clean generation and round-the-clock electricity supply.“Battery energy storage systems (BESS) and pumped storage projects need to be implemented faster. Besides improving grid stability, storage would enable utilities to shift renewable energy to peak-demand periods, reduce dependence on costly power purchases, and lower procurement costs. TN should focus on energy storage systems, particularly at existing substations where adequate land and infrastructure are already available,” Kumar said. Encouragingly, the cost of renewable energy coupled with storage has been falling rapidly, with tariffs now approaching ₹6-7 per unit and expected to decline further as deployment scales up. TN has little choice but to expand energy storage capacity. Industrial electricity tariffs are among the highest in India, with MSMEs arguing that high power costs hurt competitiveness.As the state is home to energy-intensive manufacturing industries and a growing influx of power-hungry data centres, renewable energy combined with battery storage is increasingly seen as a viable solution for supplying electricity at competitive prices. Along with storage, Tamil Nadu will need substantial investment in transmission infrastructure. Strengthening transmission corridors is essential to prevent renewable energy curtailment, integrate additional capacity and meet rising demand. The state’s newly created Green Energy Corporation, which carries a relatively lower debt burden than other power utilities, could play a crucial role. By developing innovative financing and operating models, it could make rooftop solar more affordable for MSMEs and other consumers, reducing their reliance on grid electricity while lowering energy costs.
