By Shivanand Pandit
On 20 January 2026, the Ministry of Power released the Draft National Electricity Policy (NEP) 2026, outlining a framework to ensure a reliable, affordable, and sustainable electricity supply in alignment with the vision of Viksit Bharat @2047. The draft policy has been made available to the public for stakeholder consultation, with comments invited until February 19, 2026.
The NEP 2026 takes into account revisions made after re-examining important provisions of the proposed Electricity Amendment Bill, 2025. These revisions followed extensive consultations with regulators, state governments, and consumer representatives. The draft changes to the Electricity Act, 2003, issued in November 2025, had aimed at wide-ranging reforms in the power sector, such as promoting greater competition, strengthening oversight by regulators, and making subsidy systems more efficient.
Once finalised, the NEP 2026 will replace the National Electricity Policy notified in February 2005. The 2005 policy was framed at a time when the power sector faced acute challenges such as demand–supply shortages, limited electricity access, weak infrastructure, and low private sector participation. Since then, the sector has undergone a significant transformation. Installed generation capacity has nearly quadrupled with strong private sector involvement; universal electrification was achieved by March 2021; a unified national grid became operational in December 2013; and per capita electricity consumption rose to about 1,460 kWh in 2024–2025. Power markets and exchanges have also enhanced efficiency and flexibility in power procurement. Despite this progress, structural challenges persist, particularly in the distribution segment. High accumulated losses and outstanding debt continue to burden distribution companies, while non–cost-reflective tariffs and elevated cross-subsidies have pushed industrial electricity prices well above international benchmarks, affecting the global competitiveness of Indian manufacturing.
Against this backdrop, the Draft NEP 2026 sets ambitious yet essential objectives. It targets per capita electricity consumption of 2,000 kWh by 2030 and over 4,000 kWh by 2047. The policy also aligns with India’s climate commitments, including reducing emissions intensity by 45% from 2005 levels by 2030 and achieving net-zero emissions by 2070, requiring a decisive transition towards low-carbon energy pathways. Overall, the Draft NEP 2026 presents a comprehensive roadmap for a future-ready, financially resilient, and environmentally sustainable power sector capable of delivering reliable, high-quality electricity at affordable prices to support India’s long-term development goals.
What the Draft Brings to the Table?
The draft NEP introduces several measures that may lead to higher electricity tariffs for certain consumer categories. One key proposal is an index-linked automatic tariff revision mechanism that allows tariffs to be adjusted regularly in line with rising costs, ensuring timely recovery of expenses by utilities. At the same time, the draft proposes exempting certain large consumers—such as manufacturing units, Indian Railways, and Metro rail systems—from cross-subsidy surcharges to improve their competitiveness. While this move supports industrial growth and public transport, it could shift part of the financial burden onto other consumer categories.
A major objective of the draft policy is to restore the financial health of the electricity sector, particularly distribution companies (DISCOMs). Many DISCOMs continue to suffer losses due to delayed tariff revisions, high subsidy commitments, and operational inefficiencies. To address these issues, the draft mandates that electricity tariffs be notified before the beginning of each financial year and that adjustments for past costs (true-ups) be completed within the same year. It also proposes a clear separation between distribution tariffs and supply tariffs, while requiring regulatory proceedings to be concluded within a strict timeline of 120 days.
The draft emphasises that full recovery of the cost of supplying electricity is essential for the long-term sustainability of the sector. It directs State Electricity Regulatory Commissions (SERCs) to ensure that tariffs fully reflect actual costs and discourages the practice of postponing losses by creating regulatory assets. To avoid delays caused by political or administrative reasons, the policy introduces an automatic annual tariff revision framework. If regulators fail to issue tariff orders on time, tariffs will be revised automatically based on a predefined index, allowing gradual adjustments and preventing sudden financial shocks to utilities.
To further ease financial pressure on DISCOMs, the draft proposes exempting large consumers with contracted loads of 1 megawatt (MW) or more from the universal service obligation. It also recommends stronger and faster dispute resolution mechanisms to reduce delays, litigation costs, and uncertainty for both utilities and consumers. The policy strongly discourages free power supply and states that any subsidy must be paid by state governments in advance. States are expected to reduce Aggregate Technical and Commercial (AT&C) losses to single-digit levels and clear government dues to DISCOMs in a timely manner.
The policy sets ambitious targets for the agricultural sector, proposing that by 2030, all agricultural feeders be powered by solar energy. It also promotes wider adoption of solar pumps to reduce the subsidy burden and improve the reliability of power supply to farmers. These measures aim to lower long-term costs while improving energy access in rural areas.
The draft NEP comes at a time when the power distribution sector remains under severe financial stress, with accumulated debt exceeding ₹7 lakh crore. Although DISCOMs reported a cumulative net profit of ₹2,701 crore in FY25 compared to a loss of ₹25,553 crore in the previous year—officials acknowledge that the overall financial position remains fragile. Tariff revision continues to be a politically sensitive issue, and many DISCOMs do not approach regulators regularly for revisions. To address this, the draft mandates that tariff orders be issued before the start of each financial year and that true-up orders for the previous year be completed within the current year.
A significant feature of the draft NEP is its strong focus on expanding renewable energy, including solar, wind, and other clean sources. Renewable capacity additions will be supported through power markets as well as captive power plants established by industries for their own consumption. Recognising the intermittent nature of renewable energy, the policy gives equal importance to energy storage. DISCOMs may install large-scale storage systems on behalf of small consumers to benefit from economies of scale, while large consumers will be encouraged to install their own storage facilities.
The draft also allows consumers to sell surplus electricity generated from rooftop solar or other distributed renewable energy sources. This surplus power can be traded directly with other consumers through peer-to-peer transactions or via aggregators that pool and manage such power. The policy places strong emphasis on Battery Energy Storage Systems, including domestic manufacturing of battery cells, government support through viability gap funding, and the development of pumped storage projects to support grid stability.
Aligned with the SHANTI Act, 2025, the draft NEP seeks to significantly scale up nuclear power to ensure clean and continuous electricity supply. It highlights the adoption of next-generation nuclear solutions, including small and modular reactors that offer quicker deployment and improved safety. The policy further permits commercial and industrial consumers to access nuclear power directly.
Thermal power, especially coal-based plants, will remain an important part of India’s power system. To cut costs and ease fuel transport issues, the policy suggests building new coal plants closer to coal mines, though some plants may still come up near large demand centres to maintain grid stability. The coal supply system will be strengthened through better railway links, conveyor belts, and other transport facilities. Coal plants are encouraged to mix biomass or waste-based fuels with coal and to explore coal gasification to produce synthetic natural gas for use in power generation and fertiliser production. Older plants will be upgraded wherever possible, while inefficient units may be shut down or converted for other uses. The policy also insists on strict monitoring of coal quality and full utilisation of ash.
Gas-based power plants, which are currently running below capacity due to high fuel prices, will mainly be used to meet peak electricity demand and to balance the grid. This will be supported by flexible gas supply arrangements and possible capacity-based market mechanisms. The draft also pushes for faster development of hydropower projects, especially those with storage, as they not only generate electricity but also help with flood management, irrigation, water availability, and large-scale energy storage.
The policy identifies power distribution as the weakest part of the electricity sector. It aims to bring down losses to single-digit levels by improving efficiency and governance. To avoid duplication and improve competition, the draft proposes shared distribution networks. A new body called the Distribution System Operator (DSO) will be created to manage these networks, integrate decentralised renewable energy, and support new technologies such as vehicle-to-grid systems. Cities with populations above 10 lakh will be required to install backup systems at the transformer level and will be encouraged to use underground cables in crowded areas by 2032.
In addition to tariff and structural changes, the draft stresses the importance of strong cybersecurity measures. It requires power sector data to be stored within the country to protect data ownership and system security. These steps follow recent cyberattacks on the power grid during Operation Sindoor and highlight the need to protect critical energy infrastructure.
Complex Ground-Level Hurdles
The draft policy, which is expected to be presented during the Budget session, proposes several major reforms in the power distribution sector. It outlines three key measures. The first two are intended to lower electricity costs for productive sectors such as industry, while the third seeks to reduce the operational burden on distribution companies (discoms). These steps are positive in intent, but their success will depend heavily on effective implementation.
However, these initiatives also pose practical challenges. Cost-reflective tariffs will work only if costs are assessed accurately. Discoms may continue to face high input costs if power generators and transmission companies retain strong pricing power. Coal transported by rail may also remain expensive due to the Railways’ practice of cross-subsidising passenger services. This makes it essential to assess electricity costs across the entire value chain, including upstream sectors.
Allowing multiple distributors in the same area could improve efficiency and support rooftop solar adoption. Yet, past experience in Mumbai shows potential risks, such as disputes over network expansion, difficulties in meeting consumer demand, and prolonged legal battles. There is also the risk of excess network capacity, over-reliance on short-term power purchases, and selective targeting of high-value consumers. A sudden shift from a single distributor to many may therefore be counterproductive. Limiting the number of players could offer a more balanced approach.
Freeing discoms from the responsibility of supplying very large consumers is a welcome move, as they currently maintain excess capacity to meet sudden demand spikes. However, this transition must be gradual to ensure that all stakeholders adjust smoothly. The open-access and short-term power markets are still developing, even though they now account for around 15 per cent of total generation. Overall, the power sector is changing rapidly, with decentralised energy solutions expected to reduce supply costs, especially in remote areas. Better coordination between the Centre and the states will be critical to sustaining this momentum.
India’s electricity demand is set to grow sharply in the coming years. In FY25, total power demand rose by about 4%. While summer consumption was moderated by a prolonged monsoon, winter demand remained strong, with peak load reaching 241 GW. The highest ever all-India peak demand of 250 GW was recorded in May 2025.
Over the next five to seven years, electricity demand may exceed current projections, with several states already expecting growth well above historical trends. By 2047, India’s electricity consumption is expected to be nearly four times its 2024 level. States must therefore plan and add capacity quickly. Equally important is choosing the right mix of generation, based on accurate demand forecasting and coordinated planning for both generation and transmission.
Investments across all technologies—thermal, hydro, renewables, and nuclear must be assessed against four key goals: keeping power affordable for consumers, enabling fast capacity addition, reducing dependence on imported fuels, and delivering social and environmental benefits. These objectives should guide the National Electricity Policy and all stakeholders involved in shaping India’s power future.
