Rewiring India’s Power Architecture

In a bid to transform the power sector for achieving the vision of ‘Viksit Bharat @2047, the Ministry of Power announced the release of a new draft National Electricity Policy (NEP) 2026. Once finalised, the policy intends to replace the existing NEP notified in 2005.

Notified in February 2005, the first NEP addressed fundamental challenges of the power sector. The focus included demand-supply deficits, limited access to electricity, and inadequate infrastructure. Thereafter, the sector underwent transformational progress.

Installed generation capacity has increased fourfold with significant private sector participation; universal electrification was achieved by March 2021; a unified national grid became operational in December 2013; and per capita electricity consumption reached 1,460 kWh in 2024–25. Power markets and exchanges have improved flexibility and efficiency in power procurement across the country.

Despite these achievements, persistent challenges remain, particularly in the distribution segment such as high accumulated losses and outstanding debt. Tariffs in several segments remain non-cost reflective, and high cross-subsidisation has resulted in elevated industrial tariffs, adversely affecting the global competitiveness of Indian industry.

Against this backdrop, the draft NEP 2026 sets ambitious yet necessary goals. The policy targets per capita electricity consumption of 2,000 kWh by 2030 and over 4,000 kWh by 2047.

An engineer inspects high-voltage transmission infrastructure as India modernises its power grid under the draft National Electricity Policy 2026.

It also aligns with India’s climate commitments, including reduction of emissions intensity by 45 percent below 2005 levels by 2030 and achievement of Net Zero emissions by 2070, necessitating a decisive shift towards low-carbon energy pathways. The following are the major interventions of the draft NEP 2026:

To ensure required capacity expansion through decentralised advance planning, distribution companies (DISCOM) and State Load Despatch Centres (SLDC) shall prepare RA plans at utility and state levels complying State Commissions’ regulations. CEA will prepare a corresponding national plan to ensure adequacy at the national level. This institutionalises forward-looking capacity planning across tiers of the power sector. Furthermore, it signals a shift from reactive short-term procurement towards structured, demand-backed supply security at both state and national levels.

Tariffs must be linked to a suitable index for automatic annual revision, which operates in absence of tariff order passed by the State Commission. They should progressively recover fixed costs through demand charges to avoid cross-subsidisation between the tariff components and various categories of consumers.

Exemption of cross-subsidies and surcharges on manufacturing industry, railways and metro railways to increase the economic competitiveness of Indian goods and reduce logistics cost. Regulatory Commissions, in consultation with Appropriate Governments, may exempt the distribution licensees from the Universal Service Obligation for consumers with a contracted load of 1 MW and above.

Besides, strengthening of dispute resolution mechanism to reduce burden on Regulatory Commissions to enable faster dispute resolution and reduce financial burden on consumers. These propose a formula-based tariff discipline and cost-reflective pricing, reducing cross-subsidies and strengthening industrial competitiveness and regulatory efficiency.

The draft NEP 2026 calls for Renewable Energy (RE) capacity addition through market-based mechanisms and captive power plants. Installation of storage by distribution licensee on behalf of small consumers to get benefit of economies of scale and by bulk consumers themselves to facilitate adoption of Distributed Renewable Energy (DRE) sources.

Illuminated thermal power plant with cooling towers and transmission lines reflecting on water at night.

Also, trading of surplus energy from DRE as well storage by consumers themselves (P2P) or through aggregators. Parity between RE and conventional sources in scheduling and deviation by 2030. Market-based deployment of storage, use of emerging Battery Energy Storage System (BESS) technologies, domestic manufacturing of cells and other components of BESS and demand side incentives like VGF for BESS and pumped storage projects. This framework deepens renewable integration through market mechanisms, storage deployment, and distributed energy participation.

To enable greater RE integration, the draft policy seeks the integration of storage, and repurposing of older units for grid support. Besides, exploring possibility of direct utilisation of the steam generated from thermal plants for applications such as district cooling or industrial processes for optimum utilisation. This reframes thermal plants as flexibility assets supporting renewable integration and efficiency.

In line with the provisions of SHANTI Act, 2025, adoption of advanced nuclear technologies, developing modular reactors, setting up small reactors, and use of nuclear energy by commercial and industrial consumers to achieve 100 GW by 2047. This signals long-term nuclear expansion as a major pillar of low-carbon baseload capacity.

The draft NEP bats for an accelerated development of storage-based hydroelectric projects for flood moderation, irrigation, and water as well as energy security. This positions storage hydro as multipurpose infrastructure linking water management and grid stability.

A storage-based hydroelectric dam releasing water, highlighting hydro’s role in grid stability, water management, and energy security.

A strong regulatory framework for market monitoring and surveillance to prevent collusion, gaming, or market dominance.

Adoption of latest technologies and suitable compensation for land use to address Right of Way (RoW) challenges. Parity of transmission tariff with conventional power by 2030 for all types of new RE capacity. Utilisation-based framework for allocation of transmission connectivity, along with appropriate regulatory mechanisms to ensure optimal use and prevent speculative holding of connectivity.

The policy seeks to modernise transmission through advanced technologies and fair land compensation, ensure tariff parity for new renewable capacity by 2030, and introduce utilisation-based connectivity rules to optimise network use and curb speculative holding.

The draft policy proposes measures to achieve single-digit AT&C losses and introduce shared distribution networks to enhance competition and efficiency, while eliminating the requirement of duplication of network.

It also calls to establish a Distribution System Operator (DSO) to facilitate sharing of network and integration of distributed renewables, storage, Vehicle-to-Grid (V2G) systems. Besides, N-1 redundancy at distribution transformer level in all cities with population more than 10 lakh by 2032, with consideration for undergrounding of distribution network in congested areas. This aspect indicates a structural overhaul of distribution by prioritising loss reduction, network sharing, decentralised integration, and urban reliability standards to modernise the last-mile power architecture.

The document proposes functional unbundling of State Transmission Utilities (STUs) and creation of independent state-level entities to manage SLDC operations and transmission planning functions. Alignment of state grid codes with Indian Electricity Grid Code specified by Central Electricity Regulatory Commission. The objective is to strengthen operational neutrality, improve planning transparency, and align state-level grid governance with national standards.

The draft policy aims to develop a comprehensive cybersecurity framework and mandates domestic storage of power sector data to safeguard sovereignty and strengthen system resilience.

Digital cybersecurity systems protecting power grid data and ensuring secure operation of modern energy infrastructure.

It also calls for structured sharing of operational and market data under a central government–prescribed framework, while ensuring real-time visibility of Distributed Energy Resources to DISCOMs and SLDCs. This positions data governance and digital security as core infrastructure priorities, recognising that grid stability in a decentralised energy system increasingly depends on real-time information control and cyber resilience.

The policy envisages transition to indigenously developed SCADA system by 2030 and development of domestic software solution for all critical applications in the power system. This underscores a strategic push toward technological self-reliance in grid control and system management, reducing dependence on imported digital infrastructure while strengthening long-term operational security.

The Draft NEP 2026 marks a decisive shift from an era defined by capacity expansion and access creation to one centred on financial discipline, market deepening, system flexibility and digital resilience. It attempts to reconcile rising electricity demand, industrial competitiveness and climate commitments within a single structural framework.