Draft National Electricity Policy 2026 Moves to Inter-Ministerial Consultation

The Union power ministry has forwarded the draft National Electricity Policy 2026 for inter-ministerial consultation, power secretary Pankaj Agarwal said on Thursday. Speaking at the second edition of the Indian Power Sector Conference organised by the Federation of Indian Chambers of Commerce and Industry, Agarwal said all stakeholder comments had been aggregated and the cabinet note moved for the consultation process.

"We have aggregated all the stakeholders' comments. We have already moved the cabinet note for the inter-ministerial consultation, and I think it shouldn't be taking very long," he told reporters on the sidelines of the event.

The new policy will replace the National Electricity Policy 2005. According to the secretary, it places emphasis on grid flexibility in view of rising renewable energy integration and anticipated demand from data centres and green hydrogen plants.

Tariff reform proposals

A draft of the policy released in January proposed index-linked tariff revisions to enforce cost-reflective pricing in cases where state electricity regulatory commissions fail to act. The nature and methodology of the index would be devised by the commissions.

Under the draft, tariff orders must be issued before the start of each fiscal year, while true-up orders for the previous fiscal year must be issued within the current year. True-ups reconcile actual revenue and costs with initial estimates.

The ministry had said that from FY27, state commissions must ensure tariffs fully reflect costs without creating regulatory assets, and that tariffs must be linked to a suitable index for automatic annual revision if no tariff order is passed. It noted that recovery of the cost of service is essential for the sustainability of the power sector.

A regulatory asset arises when a regulator accepts certain expenditures but does not factor them into the present tariff, leaving them to be adjusted in future tariffs. Such assets now amount to around ₹3 trillion, adding to the burden on the sector.

Opening up distribution

The draft policy also proposes to open up the power distribution sector by allowing multiple players within a single distribution area. At present, only one distribution company supplies power to consumers in a given area.

It states that monopoly in distribution will be phased out by allowing multiple players, and that public-private partnerships and listing of utilities shall be promoted, with the central government extending necessary support. While supply areas are currently coterminous with distribution areas, state commissions may allow multiple licensees in the same areas to promote competition.