The Ministry of Power recently released a Draft National Electricity Policy (NEP) 2026, which will replace the National Electricity Policy of 2005. The 2005 policy was introduced to tackle issues like power shortages, limited access to electricity, and weak infrastructure. Since then, India’s power sector has transformed significantly: 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 around 1,460 kWh in 2024–25. Yet, challenges remain, including non-cost-reflective tariffs in many segments, high cross-subsidies that drive up industrial power prices and hurt manufacturing competitiveness, persistent financial losses at distribution companies, and industrial tariffs that are much higher than in many other countries.
The draft policy introduces measures that could raise electricity tariffs for some consumers, such as an index-linked automatic tariff revision mechanism to ensure timely cost recovery, while proposing to exempt cross-subsidy charges for certain large users like manufacturing units, Railways, and Metro rail systems to boost their competitiveness, even though this could shift some burden to other consumer categories.
It sets ambitious targets to increase per capita consumption to 2,000 kWh by 2030 and over 4,000 kWh by 2047, while aligning with India’s climate commitments of reducing emissions intensity by 45% from 2005 levels by 2030 and achieving net-zero emissions by 2070.
Improving financial viability
The draft places a strong focus on restoring the financial health of the electricity sector. For, distribution companies (DISCOMs) continue to face losses due to delayed tariff revisions, high subsidies, and operational inefficiencies.
The draft proposes that electricity tariffs be notified before the start of each financial year, while adjustments for past costs be completed within the same year. It also calls for a clear separation between distribution and supply tariffs and requires regulatory proceedings to be concluded within 120 days.
Since recovering the full cost of supplying electricity is essential for long-term sustainability, the draft says State Electricity Regulatory Commissions must ensure that tariffs fully reflect actual costs, without postponing losses as regulatory assets.
To avoid delays, the new framework proposes automatic annual tariff revisions based on a predefined index if state regulators fail to issue tariff orders on time. In other words, electricity tariffs will adjust gradually in line with rising costs, helping prevent sudden financial shocks to utilities.
The draft also suggests exempting manufacturing industries, railways, and Metro systems from cross-subsidy surcharges. Currently, these consumers pay additional charges to subsidise cheaper electricity for farmers and households.
The policy also proposes easing the burden on DISCOMs by allowing large consumers with contracted loads of 1 megawatt (MW) or more to be exempt from the universal service obligation. In addition, stronger and faster dispute resolution mechanisms are proposed to reduce delays, litigation costs, and uncertainty for both consumers and utilities.
Free power supply is discouraged; any subsidy must be paid by state governments in advance. As per the draft bill, states are expected to bring aggregate technical and commercial (AT&C) losses down to single digits and clear government dues to DISCOMs on time. By 2030, all agriculture feeders are to be run by solar energy, along with wider use of solar pumps, to reduce the subsidy burden and improve the reliability of power supply.
Promoting renewable energy
One major feature of the draft NEP is the expansion of renewable energy, including solar, wind, and other clean sources. As per the policy, renewable energy capacity will be added through power markets as well as captive power plants set up by industries for their own use. The draft also gives equal importance to energy storage, as renewable energy is intermittent in nature. DISCOMs may install large-scale storage systems on behalf of small consumers so that costs can be reduced through economies of scale. Large consumers will be encouraged to install their own storage systems.
The policy 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 through aggregators who pool and manage such power.
The draft 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.
Expansion of nuclear power
In line with the SHANTI Act, 2025, the draft NEP proposes a significant expansion of nuclear energy as a clean and reliable source of base-load power. The focus will be on advanced nuclear technologies, including small and modular reactors that can be deployed more quickly and safely. The policy also opens up the possibility of direct use of nuclear power by commercial and industrial consumers.
Thermal still matters
The draft NEP emphasises that thermal power, particularly coal-based generation, will remain a key part of India’s energy mix. To cut costs and reduce logistics issues, the policy recommends locating new coal plants closer to coal mines, though some may still be built near major load centres for grid stability. The government aims to strengthen the coal supply chain by improving rail connectivity, conveyor belts, and other transport infrastructure to ensure reliable and timely fuel delivery. For cleaner operations, thermal plants are encouraged to co-fire biomass or waste-derived fuels with coal and to explore coal gasification for producing synthetic natural gas for power and fertiliser use. Older plants will be renovated and modernised where feasible, while inefficient ones may be retired or repurposed. The policy also mandates strict coal quality monitoring and 100% ash utilisation.
Gas-based plants, currently underutilised due to high fuel costs, are proposed for peak demand and grid balancing through flexible gas supply and potential capacity markets. The draft also pushes for faster development of hydropower projects, especially storage-based ones, which provide benefits beyond power generation, including flood control, irrigation support, improved water security, and large-scale energy storage.
Reforming power distribution
Power distribution continues to be the weakest link. The draft NEP aims to reduce Aggregate Technical and Commercial (AT&C) losses to single-digit levels through efficiency improvements and better governance. Shared distribution networks are proposed to increase competition and efficiency while avoiding duplication of infrastructure. A new entity, the Distribution System Operator (DSO), will be established to manage network sharing, integrate distributed renewable energy, and support emerging technologies such as vehicle-to-grid systems.
Large cities with populations above 10 lakh will be required to have backup systems at the distribution transformer level and encouraged to underground cables in congested areas by 2032.