Draft National Electricity Policy 2026: Key Reforms for India’s Power Sector

Draft NEP 2026 Latest News

• The Ministry of Power has released the Draft National Electricity Policy (NEP) 2026, outlining a roadmap to overhaul India’s power sector in line with the vision of Viksit Bharat @2047. 
• Once finalised, the new policy will replace the existing NEP 2005, reflecting two decades of changes in energy demand, technology, and climate priorities.

From Shortages to Scale: How the Power Sector Has Evolved

• The first National Electricity Policy (NEP), notified in 2005, focused on core issues such as power shortages, limited electricity access, and weak infrastructure. 
• Since then, India’s power sector has transformed significantly. 
• Installed generation capacity has grown fourfold with strong private sector participation, universal electrification was achieved by March 2021, and a unified national grid became operational in 2013. 
• Per capita electricity consumption rose to 1,460 kWh in 2024–25, while power markets and exchanges improved flexibility and efficiency in procurement.

Persistent Stress Points in Distribution and Tariffs

• Despite these gains, structural problems persist, especially in the distribution segment. 
• High accumulated losses, mounting debt of discoms, and non–cost-reflective tariffs continue to strain the system. 
• Heavy cross-subsidisation has pushed up industrial power tariffs, hurting the global competitiveness of Indian industry.

Draft NEP 2026: Ambitious Consumption and Climate Goals

• Against this backdrop, the Draft National Electricity Policy 2026 sets forward-looking targets. 
• It aims to raise per capita electricity consumption to 2,000 kWh by 2030 and over 4,000 kWh by 2047. 
• The policy also aligns the power sector with India’s climate commitments, including a 45% reduction in emissions intensity from 2005 levels by 2030 and net-zero emissions by 2070, signalling a decisive shift towards low-carbon energy pathways.

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Draft National Electricity Policy 2026: Key Interventions at a Glance

• The Draft NEP 2026 proposes wide-ranging reforms across planning, tariffs, markets, generation, grids, and technology to build a reliable, competitive, and low-carbon power system.

Resource Adequacy Planning

• Decentralised advance planning: DISCOMs and State Load Despatch Centres (SLDCs) to prepare utility- and state-level Resource Adequacy (RA) plans under State Commission regulations.
• National coordination: Central Electricity Authority (CEA) to prepare a national RA plan to ensure capacity adequacy at the country level.

Financial Viability and Economic Competitiveness

• Automatic tariff revision: Linking tariffs to a suitable index for annual revision if State Commissions do not issue tariff orders.
• Cost-reflective tariffs: Progressive recovery of fixed costs through demand charges to reduce cross-subsidisation across consumer categories.
• Cross-subsidy exemptions: Removal of cross-subsidies and surcharges for manufacturing, railways and metro railways to lower logistics costs and improve industrial competitiveness.
• Large consumers: Possible exemption of distribution licensees from Universal Service Obligation for consumers with contracted load of 1 MW and above.
• Faster resolution: Strengthening dispute resolution mechanisms to reduce burden on regulators and lower costs for consumers.

Renewable Energy Generation and Storage

• Market-based capacity addition: Greater reliance on markets and captive power plants for RE expansion.
• Distributed Renewable Energy (DRE): DISCOM-led storage for small consumers to gain economies of scale; bulk consumers to install their own storage.
• Energy trading: Peer-to-peer (P2P) trading of surplus DRE and stored energy, directly or via aggregators.
• Scheduling parity: Equal treatment of renewable and conventional power in scheduling and deviation mechanisms by 2030.
• Market deployment: Market-based rollout of storage, promotion of Battery Energy Storage Systems (BESS), domestic manufacturing of cells and components, and incentives such as Viability Gap Funding (VGF) for BESS and pumped storage.

Thermal Power: Supporting the Energy Transition

• Grid support role: Integration of storage and repurposing of older thermal units to support grid stability and renewable integration.
• Efficiency gains: Exploring direct use of steam from thermal plants for district cooling and industrial processes.

Nuclear Energy Expansion

• Advanced technologies: In line with the SHANTI Act, 2025, adoption of advanced nuclear technologies, modular reactors and small reactors.
• Long-term target: Scaling nuclear capacity to 100 GW by 2047, including use by commercial and industrial consumers.

Hydropower Development

• Storage-based hydro: Fast-tracking storage hydro projects for flood moderation, irrigation, water security and energy security.

Power Markets and Competition

• Market oversight: Strong regulatory framework for monitoring and surveillance to prevent collusion, gaming and market dominance.

Transmission Reforms

• Right of Way (RoW): Use of advanced technologies and appropriate land-use compensation to address RoW challenges.
• Tariff parity: Equal transmission tariff treatment for renewable and conventional power by 2030.
• Efficient access: Utilisation-based allocation of transmission connectivity to prevent speculative hoarding.

Distribution System Reforms

• Loss reduction: Targeting single-digit Aggregate Technical and Commercial (AT&C) losses.
• Network sharing: Shared distribution networks to enhance competition and avoid duplication of infrastructure.
• Distribution System Operator (DSO): Establishment of DSOs to enable network sharing and integrate distributed renewables, storage and Vehicle-to-Grid (V2G) systems.
• Urban reliability: N-1 redundancy at distribution transformer level in cities with population above 10 lakh by 2032; undergrounding of networks in congested urban areas.

Grid Operations and Governance

• Institutional reform: Functional unbundling of State Transmission Utilities and creation of independent entities for SLDC operations and transmission planning.
• Regulatory alignment: Harmonising State Grid Codes with the Indian Electricity Grid Code issued by CERC.

Cybersecurity and Data Sovereignty

• Cyber resilience: Establishment of a robust cybersecurity framework for the power sector.
• Data localisation: Mandatory storage of power sector data within India to ensure sovereignty and system security.

Data Sharing and Visibility

• Transparent data framework: Sharing of operational and market data under a central government-prescribed framework.
• Real-time monitoring: Ensuring real-time visibility of Distributed Energy Resources for DISCOMs and SLDCs.

Technology and Skill Development

• Indigenous systems: Transition to domestically developed SCADA systems by 2030.
• Software self-reliance: Development of Indian software solutions for all critical power system applications.

Source: PIB | IE