The draft National Electricity Policy envisions a profitable power sector focused on phasing out subsidies and establishing a cost-effective model for generation, transmission and distribution. The draft, which is up for public consultation till February 19, highlights the need for an optimal power mix with a thrust on increasing the share of non-fossil-fuel capacity, promoting competition in supply, and strengthening grids for better integration of renewable energy. The aim is to prepare for per-capita power consumption of 2,000 kWh by 2030, just over double the current level.
Structural issues have made the power sector unattractive to private investment. The sector continues to be plagued by high aggregate technical and commercial (AT&C) losses, tariff revisions delays and differential tariffs. The draft policy seeks to address these by proposing an index-linked, automatic tariff revision mechanism to ensure timely cost recovery. It recommends that increases in power purchase costs be automatically passed on to consumers. At the same time, it proposes exempting cross-subsidy charges for certain large consumers such as manufacturing units and the railways to enhance their competitiveness. The policy also calls for reducing subsidies by ensuring that no tariff falls below 50 percent of the average supply cost.
If implemented, these measures could lead to a short-term rise in electricity prices, with consumers bearing the immediate brunt. However, the policy outlines a broader plan to ensure that consumers ultimately pay the ‘right’ price. A key pillar of this approach is a sharp reduction in AT&C losses to single-digit levels from the current 16 percent. Achieving the right energy mix would be another tool to keep prices affordable, with a larger role for solar and wind energy, hydropower and nuclear power. The draft opens up the possibility of direct use of nuclear power by commercial and industrial consumers.
The challenge, however, will lie in ensuring a resilient and flexible grid—not only to integrate renewable energy at scale but also to address emerging cybersecurity and climate risks. While the policy’s objectives are pragmatic, aimed at preparing for new-age challenges, the adequacy of infrastructure and the political will to sustain these reforms will be put to serious tests. Only if the government demonstrates resolve in implementing these measures can India move towards a more consumer friendly and commercially sustainable power sector.