The Ministry of Power has released the draft National Electricity Policy (NEP) 2026, proposing significant reforms, including automatic annual revisions to electricity tariffs. This measure aims to address the financial challenges faced by state-run power distribution companies (discoms) due to delayed tariff revisions and mounting losses.
The draft NEP 2026, released on January 21, 2026, suggests linking electricity tariffs to a suitable index for automatic annual revision if state electricity regulatory commissions fail to issue tariff orders on time. This marks a shift from the current system, where tariff revisions often face delays, contributing to the financial instability of discoms. Union Power Minister Manohar Lal has emphasized the need for cost-reflective tariffs and cautioned against populist pricing and unpaid subsidies, which he identified as key reasons for the sector's financial stress. He stated that free power should not be promised unless the state government pays subsidies to utilities on time.
The proposed policy includes several provisions mirroring those under discussion in the proposed Electricity (Amendment) Bill, 2025, such as measures on tariff discipline, payment security, and faster dispute resolution. Government officials argue that legislative backing is necessary to enforce reforms, especially with India's power sector expected to attract investments of around Rs 4.5 trillion by 2032.
The draft NEP 2026 is intended to replace the existing National Electricity Policy notified in 2005, which focused on tackling shortages, expanding access, and building basic infrastructure. Since then, India's installed power capacity has increased fourfold, and the government claims to have achieved universal electrification in 2021, with per capita electricity consumption rising to 1,460 kilowatt-hours in 2024-25. Despite this progress, structural weaknesses remain, particularly in electricity distribution. Discoms continue to report high accumulated losses, tariffs in several states do not reflect actual costs, and cross-subsidization has pushed industrial power prices well above global benchmarks, affecting competitiveness.
Besides automatic tariff revisions, the draft policy proposes a progressive recovery of fixed costs through demand charges and a phased reduction of cross-subsidies. The policy also advocates for greater integration of renewable energy, market-based deployment of energy storage systems, and allowing consumers to trade surplus power. It targets increasing per capita electricity consumption to 2,000 kWh by 2030 and over 4,000 kWh by 2047. The policy promotes exempting cross-subsidies for industries, railways, and metros, lowering power costs and boosting India's global manufacturing competitiveness under the "Make in India" initiative.
The draft policy also focuses on nuclear power generation, aiming to achieve 100 GW by 2047 through adopting advanced nuclear technologies, developing modular reactors, setting up small reactors, and encouraging the use of nuclear energy by commercial and industrial consumers. Additionally, it proposes functional unbundling of State Transmission Utilities (STUs) to create independent SLDCs, ensuring transparent grid operations.
The Ministry of Power has invited stakeholders to comment on the draft NEP 2026. Once adopted, it will replace the NEP, 2005.
