India's Power Sector Transformation

India's power sector has seen significant changes, transitioning from a state of shortages and access deficits to having an installed capacity exceeding 500 gigawatts, achieving universal household electrification, and meeting renewable capacity targets ahead of schedule. Despite these achievements, challenges such as financial fragility, distorted pricing, and institutional inefficiency, especially in distribution, persist.

Draft National Electricity Policy (NEP), 2026

The NEP, 2026, released by the Union Ministry of Power, aims to tackle these persistent challenges. It builds on the Draft Electricity (Amendment) Bill, released previously, with hopes that some of the identified issues will be addressed therein.

• Tariff Dysfunction: Recognized as a core issue, with distribution companies showing a net profit in 2024-25 despite accumulated debt over ₹7.1 trillion.
• Automatic Tariff Revisions: Proposed to ensure discipline and prevent cash-flow crises by using a pre-specified cost index if state regulators delay tariff orders. 
• Cross-Subsidisation: The policy proposes reducing cross-subsidies, suggesting a minimum tariff floor of 50% of the average cost of supply, with exemptions for large consumers. 
  • Large consumers like manufacturing units and railways may be exempt from cross-subsidy and additional surcharges.
  • Relaxation of universal service obligation for consumers above 1 megawatt.

Energy Transition and Resource Management

With the increasing share of solar and wind energy, the policy emphasizes managing intermittency and ensuring reliability through resource adequacy planning at multiple levels.

• Support for variable renewables through storage, hydro, gas, coal flexibility, and grid services.

Distribution Reforms

The draft policy suggests phasing out monopoly distribution by introducing multiple supply licensees, promoting public-private partnerships, and professionalizing utility governance.

Challenges and Investment

• Implementation challenges due to inefficiencies, political constraints, and financial dependencies of state-owned discoms.
•  Estimated investment needs: 
  • ₹50 trillion by 2032
  • ₹200 trillion by 2047
• Regulatory capacity and resistance to tariff changes vary widely across states.

The policy provides an economic blueprint for reforms, but political economy and electoral challenges need to be considered for successful implementation.