The Ministry of Power has released the Draft National Electricity Policy (NEP) 2026, a landmark document aimed at steering India’s power sector towards the vision of Viksit Bharat @2047. Once finalised, the policy will replace the existing National Electricity Policy notified in 2005, reflecting the transformation that the sector has undergone over the past two decades and the new challenges that have emerged.
Since the National Electricity Policy (NEP) 2005 was issued, India’s power sector has undergone a transformation. The access challenge has largely been addressed through universal electrification, with all villages and willing households connected. Generation delicensing has attracted significant private investment, and the private sector now accounts for over 50 per cent of the installed generation capacity. Regional grids have also been unified into a single national grid, enabling seamless power flow across regions.
However, the draft NEP, 2026, notes that the financial condition of distribution utilities has deteriorated even as sector outcomes improved on access and adequacy. Looking ahead, the draft frames the next phase of sector reforms around the energy transition and the national development vision. By 2047, over 80 per cent of the installed capacity and nearly two-thirds of the total electricity generation are expected to come from non-fossil sources, while the share of electricity in total energy consumption is projected to double.
The draft NEP, 2026, includes the following major interventions.
Resource adequacy
The draft NEP, 2026, places renewed emphasis on resource adequacy as a planning tool to ensure that sufficient capacity and energy are available to meet demand reliably and at a reasonable cost. The draft proposes a decentralised planning framework under which discoms and state load despatch centres (SLDCs) would prepare resource adequacy plans at the utility and state levels, in line with regulations issued by state electricity regulatory commissions (SERCs). Parallelly, the Central Electricity Authority (CEA) is expected to prepare a corresponding national resource adequacy plan, in consultation with stakeholders, with the objective of ensuring adequacy at the all-India level.
Financial viability and economic competitiveness and distribution sector reforms
The draft NEP, 2026, argues that in many states, tariffs have continued to be set below the cost of supply, contributing to persistent revenue gaps and repeated debt accumulation in the distribution segment. To address this, the draft places tariff and loss reforms at the centre of the proposed distribution turnaround. It emphasises cost-reflective tariffs, timely pass-through of legitimate costs and sharper outcomes on aggregate technical and commercial (AT&C) loss reduction. A notable provision is the proposal to link tariffs to a suitable index for automatic annual revision in cases where the SERC does not issue a tariff order, with the intent of reducing regulatory and procedural slippages that delay cost recovery. The draft also proposes that tariffs progressively recover a larger share of fixed costs through demand charges, with the objective of limiting cross-subsidisation across consumer categories and within tariff components. The draft proposes that appropriate commissions provide distribution licensees adequate freedom to take timely market-based power purchase decisions to ensure reliable and good quality supply, supported by structured training programmes to build market operation skills within utilities. The distribution infrastructure also needs to modernise using new technologies to reduce technical losses and theft alongside time-bound energy audits and accounting. To manage bidirectional flows from distributed renewables, storage and electric vehicles, the draft proposes adopting smart inverters, vehicle-to-grid systems and advanced control mechanisms and calls for establishing a distribution system operator at the discom level for real-time network management. Service quality is to be tightened through national benchmarks and online disclosure of performance, with state commissions monitoring indices such as SAIDI, SAIFI and CAIDI. For cities with a population of more than 1 million by 2032, N-1 redundancy at the distribution transformer level must be implemented and considered for the undergrounding of the distribution network in congested areas. It proposes exemption of cross-subsidy and surcharge components for the manufacturing industry, railways and metro railways to reduce power costs for key economic and logistics segments. Beyond tariffs, the draft flags two supporting measures. First, it targets the completion of solarisation of all agricultural feeders by 2030, backed suitably with storage, to enable stable daytime supply and reduce the subsidy burden on state governments. Second, it calls for strengthening dispute resolution mechanisms in addition to regulatory commissions, with the aim of reducing the caseload on commissions, speeding up dispute outcomes and limiting the downstream financial impact on consumers.
Renewable energy generation and storage
The draft NEP, 2026, places accelerated integration of renewable energy at the core of system planning, while also highlighting the need to manage the associated network and balancing requirements. It calls for transmission cost-optimised siting of renewable energy projects to reduce overall system costs and do away with avoidable network augmentation as variable capacity scales up. With renewable additions expected to outpace growth in conventional capacity, the draft also signals a tighter operational framework for maintaining grid discipline. It proposes that by 2030 or earlier, the central and state commissions should ensure parity in scheduling and deviation treatment between renewable energy and conventional sources, with the objective of strengthening grid stability as renewable penetration rises. The draft promotes market-based deployment of storage, including the adoption of emerging battery energy storage system technologies. On the demand side, the draft signals the use of targeted incentives where required, including viability gap funding for pumped storage projects. In addition, the draft proposes measures to expand the use of renewable energy through captive routes.
Thermal generation
The draft recognises the need to enhance flexibility in thermal operations, including through the integration of storage solutions and the repurposing of older units for grid support services so that the fleet can better respond to the variability introduced by higher renewable penetration. It also flags a broader utilisation approach for thermal stations during periods of high renewable output. In particular, it proposes exploring the direct use of steam from thermal plants for non-power applications such as district cooling and industrial processes, with the intent of improving overall asset utilisation.
Nuclear generation
Against the backdrop of Union Budget 2025–26, which has set a target of 100 GW of nuclear capacity by 2047 and the Sustainable Harnessing and Advancement of Nuclear Energy for Transforming India (SHANTI) Act, 2025, the policy framework encourages faster adoption of advanced nuclear technologies, including modular reactor designs and smaller reactor configurations. It also opens up the possibility of nuclear power being used by commercial and industrial consumers, indicating a push to expand deployment pathways beyond the traditional utility-led model.
Hydropower generation
Hydropower is a strategic resource, and there is a need for optimal utilisation of India’s hydropower potential through improved site assessment practices, streamlined clearances and supportive financing and tariff structures, along with incentive mechanisms to improve project viability. The draft proposal also links hydro development to climate adaptation and water security. With climate risks increasing and per capita storage capacity for water and energy requirements declining, it underlines the need for adaptation measures that can protect lives and economic activity. In this context, it highlights storage-based hydroelectric projects as a priority, given their potential role in flood moderation and irrigation support, alongside their value as firm and flexible capacity for the power system.
Power markets
The draft policy signals a push towards a broader set of market-enabling reforms, including stronger frameworks for bilateral contract settlements, greater standardisation of contract structures and the phased development of capacity market mechanisms. It also points to regulatory changes required to bring smaller and more distributed participants into organised market activity. These include enabling the aggregation of distributed renewable generation and small storage systems as well as market-based procurement of ancillary services and demand response arrangements. To support confidence in market operations, the policy calls for a stronger market monitoring and surveillance framework aimed at preventing collusion, market dominance and strengthening transparency for stakeholders.
Transmission
The draft proposal calls for a more flexible transmission system with a clear emphasis on strengthening intra-state networks to integrate variable renewable energy and support open access-driven flows. A key shift proposed is that transmission planning and execution should be consumer-oriented and anticipate network needs that would arise under an open access regime. The CEA is tasked with preparing rolling transmission plans including a detailed five-year plan and a 10-year perspective plan, in consultation with the Central Transmission Utility (CTU), state transmission utilities (STUs), load despatch centres (LDCs), state governments and industry associations. In line with these plans, the CTU and STUs are expected to formulate five-year capacity expansion plans that incorporate generation growth, general network access demand, congestion mitigation, margins and redundancy and right-of-way constraints.
Grid operations
To support smoother renewable integration, the policy emphasises the use of advanced forecasting and scheduling tools. It also outlines a role for energy storage systems in grid operations by suggesting that grid operators may be assigned storage for managing ancillary services. On the institutional side, a key proposal is the functional unbundling of STUs and the creation of independent state-level entities for SLDC operations and transmission planning functions. Strengthening LDCs through advanced technologies, along with adequately skilled and trained manpower, is also highlighted as necessary to manage operational challenges arising from large-scale renewable integration and the growing presence of distributed energy resources.
Cybersecurity
The policy calls for a robust cybersecurity framework, which is anchored in strict compliance with advisories issued by the central government and a stronger focus on mitigating supply chain vulnerabilities that can introduce systemic risks. A notable proposal is the mandatory storage of power sector data within India, positioned as a measure to ensure data sovereignty and strengthen system resilience. The policy also assigns a central coordination role to the CSIRT-Power (computer security incident response team for the power sector) as the nodal agency for cyber incident response and sector-wide coordination.
Data sharing
Data is framed as a foundational input for innovation and more efficient sector operations. The policy mandates that all power sector entities share operational and market data under a framework to be prescribed by the central government. It further proposes that all such data, except personally identifiable information, be made available to enable the development of technology-driven solutions by a wider set of participants and other new market entrants.
Technology and skill development
Grid modernisation is linked with domestic capability-building and for ramping up local manufacturing and the acquisition of critical technologies to reduce external dependence in key power system components. The proposal also emphasises the role of artificial intelligence and other digital tools in improving planning, operations and service delivery across the value chain. To address execution capacity, it recommends a structured skill development framework to align training programmes with emerging technology requirements and deepen industry–academia collaboration for workforce upskilling.
Conclusion
The draft NEP, 2026, signals a shift towards a more market-driven and technology-advanced power system that is anchored in decentralised resource adequacy planning, cost-reflective tariffs and faster integration of renewables and storage. Its success will hinge on timely regulatory follow-through on tariff and market reforms, along with accelerated transmission and distribution upgrades to manage bidirectional flows and maintain grid stability. As the consultation process advances, the key test will be whether states and utilities can translate the policy intent into measurable improvements in service quality and discom finances.