Draft NEP 2026 signals a decisive shift in India’s power sector priorities

India’s power sector has moved beyond the challenge of access. With near-universal electrification achieved, policy focus has shifted to reliability, affordability, sustainability, and system resilience. The Ministry of Power’s Draft National Electricity Policy (NEP) 2026 marks a clear departure from the access-led framework of NEP 2005 and aligns electricity planning with the long-term objective of Viksit Bharat @ 2047.

The draft policy is not a routine revision. It reframes electricity from a capacity expansion problem to a system optimisation challenge. Financial discipline, market depth, consumer choice, and flexibility are placed on par with generation, signalling a structural reset across the value chain.

From access to resilience

NEP 2005 prioritised access and adequacy, with generation-led growth and limited market depth. Draft NEP 2026 pivots to reliability, sustainability, and resilience. Distribution reform and system flexibility take precedence over pure capacity addition. Markets are expected to mature beyond initial competition towards deeper price discovery and consumer participation. The energy mix shifts decisively towards non-fossil sources supported by storage, while climate considerations move from the periphery to the centre of policy design. Consumers are no longer treated as protected end-users but as informed participants.

Decentralising resource adequacy

Centralised planning under NEP 2005 often resulted in gaps between national projections and local demand realities. Draft NEP 2026 embeds resource adequacy as a decentralised, rule-based framework. States and distribution companies become primarily responsible for ensuring adequate and reliable capacity, under State Electricity Regulatory Commission regulations. The Central Electricity Authority shifts to long-term national forecasting, while State Load Despatch Centres and DISCOMs prepare granular utility-level plans. Resource adequacy is positioned as a core investment signal rather than a compliance exercise.

Energy storage becomes a core grid asset

Energy Storage Systems are treated as foundational infrastructure, not optional add-ons. Recognising renewable variability, the draft policy positions storage as essential for balancing, ancillary services, arbitrage, and network deferral. A technology-neutral approach allows deployment across generation, transmission, and distribution. Pumped storage projects are earmarked for long-duration, grid-scale needs, while battery systems address fast-response applications. Proposals such as cloud energy storage aim to lower entry barriers and enable shared capacity. Storage is formally integrated into grid planning.

Conventional generation redefined

Coal-based power transitions from baseload dominance to a flexibility-driven role. The policy promotes retrofitting for flexible operation, integration with storage, biomass co-firing, and repurposing of older units as synchronous condensers. Gas-based plants are designated for peaking and balancing, with compensation mechanisms for flexibility.

Nuclear power receives renewed emphasis, supported by recent legislative changes and a long-term target of 100 GW by 2047. The policy encourages private participation, small modular reactors, brownfield expansion, and green bond financing, positioning nuclear as a clean and firm capacity option. Hydropower policy shifts towards viability and climate resilience, with streamlined clearances, improved risk assessment, innovative tariff structures, and incentives for storage-linked projects.

Markets move to the centre

With only about 13–14% of power traded short-term, Draft NEP 2026 seeks to deepen market reliance. Long-term contracted power is proposed to be routed through exchanges for improved price discovery. A phased introduction of capacity markets by the Central Electricity Regulatory Commission is envisaged. Market access is expanded to commercial and industrial consumers, prosumers, and aggregators, alongside development of ancillary services and hedging instruments. Market surveillance is emphasised to limit abuse.

Transmission focus shifts to optimisation

With the national grid largely built, emphasis moves to flexibility and efficient utilisation. The policy prioritises strengthening intra-state transmission, deploying technologies such as FACTS and dynamic line rating, and ensuring uniform transmission charges for renewable energy by 2030. It also reiterates India’s commitment to regional and global interconnections under the One Sun One World One Grid initiative.

Distribution reform as the critical test

Distribution remains the sector’s weakest link. Draft NEP 2026 moves beyond structural unbundling to focus on financial and operational performance. Targets include single-digit AT&C losses through smart metering and prepaid billing, creation of distribution system operators for managing distributed resources, promotion of public–private partnerships on shared networks, and N-1 redundancy in large cities. The objective is to convert DISCOMs into financially viable, service-oriented utilities.

Financial discipline as a precondition

The draft policy treats financial viability as non-negotiable. It calls for cost-reflective tariffs, timely tariff orders, strict accounting timelines, and a phased reduction in cross-subsidies. State subsidies are to be paid in advance, with relief proposed for energy-intensive sectors such as manufacturing and railways. Solarisation of agricultural feeders by 2030, backed by storage, is positioned as a key lever to reduce subsidy burdens and stabilise DISCOM finances.

Consumers at the centre

Consumers are granted enforceable rights to reliable 24×7 supply, including compensation for outages. Digital grievance systems, real-time consumption data access, and support for rooftop solar, storage, and efficiency measures are mandated. Awareness of tariffs and consumer rights is treated as a policy responsibility.

Cybersecurity, data, and skills

With rising digitalisation, the policy mandates security-by-design principles, domestic data storage, and creation of a sector-specific computer security incident response framework. Standardised data sharing is intended to improve transparency, while indigenous SCADA systems are to be adopted by 2030. A structured skill development framework targets emerging technologies and system operations.

Financing the transition

Investment requirements are estimated at ₹50 lakh crore by 2032 and ₹200 lakh crore by 2047. Draft NEP 2026 proposes blended finance models, greater use of institutions such as NaBFID and NIIF, a climate finance taxonomy to attract green capital, and risk-mitigation tools including first-loss guarantees to improve bankability.

A system-level blueprint

Draft NEP 2026 presents a system-wide blueprint rather than a capacity roadmap. It integrates energy transition goals with market reform, financial sustainability, and consumer empowerment. Outcomes will depend on execution, particularly in distribution reform, regulatory certainty, and competitive market design. If implemented as intended, the policy can underpin a resilient, affordable, and clean power system aligned with India’s long-term development objectives.