National Electricity Policy 2026: Will power tariffs go up?

The power ministry on Wednesday (January 21) sought to know stakeholders’ stance on the draft National Electricity Policy (NEP) 2026, which aims to tackle major losses and debts of distribution companies (discoms), tariffs that do not reflect costs, and excessive cross-subsidisation.

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According to the ministry, while it has seen several achievements since 2005 when the first NEP was notified, the power sector continues to face challenges, especially in the distribution segment, such as “high accumulated losses and outstanding debt”.

'Affecting competitiveness of Indian industry'

“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,” the ministry said.

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A non-cost-reflective tariff refers to a pricing model where the fees imposed on a specific consumer category fall below the utility's average cost of generating, transmitting, and distributing electricity to that category.

In contrast, cross-subsidisation is a pricing strategy whereby certain consumer segments (including industrial, commercial, and affluent domestic users) are charged rates that exceed the supply cost, thereby compensating and subsidising the lower rates offered to other groups, such as agricultural consumers and low-income households.

Additionally, the draft aims to promote competition, enhance grid resilience to accommodate a greater share of variable renewable energy, and deliver consumer-focused services with demand-side interventions, as stated by the ministry.

Comments must be submitted within a period of 30 days.

In the context of the power ministry citing challenges that the sector faces, the Draft NEP 2026 establishes ambitious but essential objectives. The policy aims for a per capita electricity consumption of 2,000 kWh by 2030 and more than 4,000 kWh by 2047, the year India celebrates the centenary of its Independence.

Aligning with climate commitments

Additionally, the policy is also in accordance with India’s climate commitments, which include a reduction in emissions intensity by 45 per cent from 2005 levels by 2030 and the attainment of net-zero emissions by 2070, thereby requiring a significant transition towards low-carbon energy pathways.

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The NEP 2026 delineates strategies to address these challenges and fulfill the outlined goals.

For resource adequacy, it said the discoms and the state load dispatch centres (SLDCs) shall prepare resource adequacy (RA) plans both at the utility and state levels, in accordance with the regulations of state commissions. The Central Electricity Authority (CEA) will prepare a corresponding national plan to ensure adequacy at the national level.

Cybersecurity among key targets

The new electricity policy also focuses on key issues such as cybersecurity, technology adoption, and skill development.

The ministry has proposed developing a robust cybersecurity framework to protect power stations and electricity grids from cyberattacks. It will also be mandatory to store power sector data within the country, ensuring that electricity-related data remains domestically hosted.

Regarding grid operations, it is suggested to implement functional unbundling of state transmission utilities (STUs) and to establish independent state-level entities responsible for managing SLDC operations and transmission-planning work.

Tariffs via index

According to the draft, the tariffs must be linked to a suitable index for automatic annual revision, which operates if no tariff order is passed by the state commission. This would allow for an annual review of power tariffs.

Tariffs should progressively recover fixed costs through demand charges to avoid cross-subsidisation, it said.

The policy proposes recovering fixed costs from different categories of consumers through demand charges imposed via tariffs, to curb cross-subsidisation. This is expected to provide relief to the manufacturing sector, railways and Metro systems from the burden of cross-subsidy and surcharges, thereby improving the economic competitiveness of Indian goods and reducing logistics costs.

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To support discoms, it has proposed establishing a distribution system operator (DSO) to aid network sharing and the integration of distributed renewables, storage, and vehicle-to-grid (V2G) systems.

In transmission, it has suggested a utilisation-based framework for allocation of transmission connectivity, along with appropriate regulatory mechanisms to ensure optimal use and prevent speculative holding of connectivity.

A robust regulatory framework is essential to facilitate market monitoring and surveillance, thereby preventing collusion, gaming, or market dominance, as stated in the draft.

Additionally, the draft suggested the integration of storage solutions and the repurposing of older units to provide grid support to allow more renewable energy integration.

Furthermore, the draft has requested feedback on the implementation of advanced nuclear technologies, the development of modular reactors, the establishment of small reactors, and the utilisation of nuclear energy by commercial and industrial users to reach a target of 100 GW nuclear capacity by the year 2047.

Underground networks in congested cities

The draft NEP 2026 also sets a target to reduce losses in power distribution, known as AT&C (Aggregate Technical & Commercial) losses, to single digits and proposes undergrounding electricity distribution networks in congested areas of cities that are home to populations of over one million.

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The draft also states that following consultations with state governments, the regulatory commissions may exempt distribution licensees from the Universal Service Obligation in respect of consumers with a contracted load of one megawatt or more.

Consumer-friendly dispute resolution

It also stresses the need to strengthen mechanisms for faster dispute resolution, which would ease the burden on the commissions and reduce the financial load on consumers.

The government has argued that the draft NEP 2026 is a strong blueprint for the future, laying out a power sector that is financially viable and environmentally friendly. This, it says, will help ensure reliable, quality electricity at affordable rates to meet the goal of a developed India by 2047.

(This article was first published in The Federal Desh)