The Ministry of Power has released the Draft National Electricity Policy (NEP), 2026, for public consultation, aiming to align India’s power sector with the country’s long-term energy transition goals. The central vision of NEP 2026 is to ensure a reliable, affordable, and high-quality 24×7 electricity supply through a financially viable and environmentally sustainable power sector.

Draft NEP 2026 has been formulated under the mandate of the Electricity Act, 2003, replacing the earlier policy notified in 2005.

Resource Adequacy Planning

Under NEP 2005, the Central Electricity Authority (CEA) was tasked with preparing short- and long-term plans, covering a five-year period with a 15-year outlook. However, states and DISCOMs have struggled to translate these into actionable state-level strategies. Resource adequacy planning is now being emphasized to ensure reliable, cost-effective supply, optimize the resource mix, and guide scientifically assessed capacity additions and investment.

To enable decentralized, forward-looking capacity expansion, NEP 2026 proposes that DISCOMs and SLDCs prepare resource adequacy plans at the utility and state levels in line with State Commission regulations. CEA, in consultation with stakeholders, will prepare a corresponding national plan to ensure adequacy at the national level.

Energy Generation Including Renewables

India will need significant investment to scale non-fossil energy capacity through 2047, and the Draft NEP 2026 lays out measures to mobilize capital and accelerate deployment. It calls for aligning central programs and incentives with a CEA-led least-cost generation mix and resource adequacy planning. Tighter enforcement of Renewable Consumption Obligations (including green attributes and buyout mechanisms) is supported by market-based frameworks, such as virtual PPAs and bilateral contract settlement, to attract investment.

It also pushes for seamless open access and captive procurement for commercial and industrial (C&I) consumers, promotion of renewables-plus-storage hybrids with capacity utilization factor (CUF) norms, and consumer-driven adoption through rooftop solar with storage and peer-to-peer trading, while discouraging net metering beyond 5 kW and shifting from banking toward storage as costs fall.

It proposes introducing aggregators to pool distributed demand and supply without charges beyond network costs, strengthening balancing capacity procurement, improving forecasting through a national meteorological data portal, and ensuring parity in deviation settlement rules for RE by 2030. Additional focus areas include repowering aging projects, developing renewables-based microgrids for remote areas, and siting projects closer to load centers to reduce transmission costs.

Thermal, Nuclear, and Hydropower

NEP 2026 acknowledges that coal-based thermal power will continue to play a critical role in meeting baseload demand and ensuring grid stability, especially during periods of low renewable generation. The policy advocates strategic use of thermal power rather than unchecked expansion.

Nuclear power is considered clean energy, and the policy targets expanding nuclear capacity to 100 GW by 2047, making it eligible for green bond funding.

The policy suggests repurposing retired thermal plant sites for nuclear projects where feasible and encouraging large C&I consumers to procure nuclear-sourced power. It also proposes exploring flexible operation and a two-part tariff structure for future nuclear plants to better integrate variable renewable energy, within the broader resource adequacy framework.

NEP 2026 flags geological risks, clearance delays, land acquisition hurdles, funding constraints, and procedural bottlenecks as the main barriers, and proposes a multi-pronged push to unlock hydropower capacity. The policy emphasizes accelerating storage-based hydropower for flood moderation, irrigation, and energy security, supported by appropriate financing mechanisms. NEP 2026 also proposes assessing hydro-kinetic potential, introducing a supportive policy and regulatory framework, including higher carbon credits and renewable energy certificate (REC) multipliers for hydropower and pumped storage, and exploring viability gap funding (VGF) with capped tariffs for strategic capacities.

Energy Storage

Energy storage systems (ESS) are being positioned as critical to integrating variable renewable energy and strengthening grid stability through ancillary services. NEP 2026 notes that storage can also enable arbitrage, reduce peak deficits, and defer transmission and distribution investments, and calls on governments and regulatory commissions to introduce enabling policies, schemes, and regulatory frameworks to accelerate ESS deployment.

The policy recognizes that ESS can be deployed across the value chain, as part of generation, transmission, distribution, or as standalone assets. It proposes exploring emerging models such as “cloud energy storage” to provide more affordable, on-demand storage services to consumers and utilities. In addition, the policy asks governments and regulators to facilitate consumer-owned storage adoption to improve the utilization of distributed renewable energy.

NEP 2026 calls for a stronger push toward battery energy storage systems (BESS) and supports emerging storage technologies that can deliver longer-duration, lower-cost storage with reduced import dependence, alongside incentives for domestic manufacturing of cells and other BESS components.

To speed up deployment, the policy asks regulators to promote co-located batteries with renewable projects and to enable grid operators to use storage for ancillary services. Beyond long-term PPAs, it proposes scaling ESS through market-based mechanisms, including bilateral contract settlement, with the Central Commission tasked with establishing the regulatory framework for settlement-linked capacity procurement.

Pumped Storage Projects

There is untapped pumped storage potential (PSP), especially at off-stream sites with lower environmental and rehabilitation issues. Clearances for such projects will be fast-tracked. Distribution licensees must procure PSP capacity, whether within or outside the state. Where the state government allots a PSP site for use by entities other than state utilities, incentives to the host State may be explored.

Power Markets

The draft NEP 2026 seeks to deepen and expand electricity markets to improve efficiency and attract investment. Measures include promoting bilateral contract settlements, standardised exchange-based contracts, capacity markets, and expanded ancillary services markets.

The policy also supports the aggregation of distributed resources, demand response participation, and predictable open-access charges with a declining surcharge trajectory.  The appropriate Commissions should facilitate long-term open access for consumers by ensuring stable, predictable open access charges, along with a unidirectional, progressively reducing trajectory for cross-subsidy and additional surcharges.

Distribution Sector

A central concern of NEP 2026 is the persistent financial distress of DISCOMs, which continue to incur losses and debt despite multiple bailouts over the years. The policy recognises that inadequate cost recovery, delayed tariff orders, high technical and commercial losses, and excessive cross-subsidisation have undermined the sector’s sustainability.

DISCOMs will be given greater operational flexibility to make market-based power procurement decisions and manage energy portfolios efficiently. Monopoly in distribution is proposed to be phased out by allowing multiple licensees in the same area, encouraging public–private partnerships and listing of utilities to improve efficiency and governance.

The policy emphasizes reducing technical and commercial losses through technology upgrades, strict financial discipline, and cost-reflective tariffs.

To manage the integration of distributed renewable energy to the grid, the policy proposes adopting advanced technologies, such as smart inverters and Vehicle-to-Grid systems, and creating a distribution system operator for real-time network management. Supply reliability will be strengthened through mandatory redundancy norms, underground cabling in dense urban areas, and strict monitoring of performance standards.

Transmission System

With increasing renewable penetration and market-based power flows, NEP 2026 emphasizes strengthening transmission infrastructure, especially intra-state networks. Transmission planning is to be consumer-oriented and forward-looking, rather than contingent on prior beneficiary agreements.

Competitive bidding is proposed as the default mode for transmission projects, along with the adoption of advanced technologies such as dynamic line rating, flexible AC transmission systems, and plug-and-play substations.

The Central Transmission Utilities (CTUs) and State Transmission Utilities (STUs) will formulate five-year capacity expansion plans incorporating generation growth, general network access demand, congestion mitigation, adequate margins and redundancy, and Right-of-Way constraints.

Grid Operations

To manage rising system complexity, NEP 2026 emphasises modernisation of grid operations through advanced forecasting tools, artificial intelligence, and automation. Functional unbundling of state transmission and load dispatch functions is proposed to professionalise grid management.

The order states that appropriate Commissions must establish regulatory frameworks for ancillary services, generation reserves, and security-constrained economic dispatch. They will also implement the Deviation Settlement Mechanism for the intrastate transmission system aligned with the mechanism of the Central Commission for ISTS.

Energy Efficiency

The Draft NEP 2026 emphasises energy efficiency as a key tool to curb rising electricity demand and reduce peak load across major end-use sectors. In agriculture, the policy targets efficiency improvements in electric pumps, which account for a large share of subsidised power consumption, by progressively upgrading minimum energy performance standards to global best-practice levels.

In the building sector, where cooling demand is increasing rapidly, states must adopt and enforce Energy Conservation and Sustainability Building Codes for both residential and commercial buildings.

For energy-intensive industries and MSMEs, the policy proposes a phased transition of large industries to the Carbon Credit Trading Program, while governments are encouraged to roll out targeted programs to improve energy efficiency in the MSME sector.

Financing

The draft policy estimates investment requirements of around ₹50 trillion (~$549.4 billion) by 2032 and ₹200 trillion (~$2.19 trillion) by 2047. To mobilize capital more efficiently, the policy proposes setting up sector-specific funds and developing a Climate Finance Taxonomy to attract concessional and green financing. It also envisages dedicated platforms and funds under institutions such as the National Bank for Financing Infrastructure and Development (NaBFID) and the National Investment and Infrastructure Fund (NIIF) to channel capital toward India’s energy independence goals.

In June last year, the Ministry of Power issued the latest guidelines for designating Renewable Energy Implementing Agency (REIAs) under the tariff-based competitive bidding (TBCB) framework to meet the country’s increasing demand for renewable energy and support its green goals.

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