More than two decades after the Electricity Act, 2003 sought to address shortages, inadequate infrastructure, and limited access, India’s power sector has made significant progress. Installed generation capacity has quadrupled, a unified national grid is operational, and rapid renewable capacity addition has lately been accompanied by renewed investor interest in thermal power after years of financial stress. Even distribution companies (discoms), the sector’s most persistent faultline, have begun making modest profits. Aggregate technical and commercial losses have fallen from 23% in 2013-14 to around 15%, with scope for improvement. Non-fossil sources already account for 52% of installed capacity and are projected to reach 70% within another decade. Against this backdrop, the central challenge for the Draft National Electricity Policy (NEP) 2026 is to reconcile rapidly rising electricity demand with financial discipline and the transition to cleaner energy. It envisages per-capita electricity consumption exceeding 4,000 kilowatt-hours (kWh) by 2047, from 1,460 kWh currently, while remaining aligned with India’s climate commitments.
The Central Electricity Authority expects peak power demand to grow at 5.58% annually between 2024-25 and 2035-36, while overall electricity requirements are projected to rise 6.41% annually. Meeting this demand will require not merely more generating capacity but an electricity system capable of delivering reliable, affordable power at scale. The policy reportedly proposes greater flexibility for large consumers such as data centres and green hydrogen projects while requiring them to manage fluctuating demand without adding stress to the grid. On-site batteries, smart energy-management systems, and time-of-day tariffs could help these power-intensive units shift loads and improve grid stability, although this will require substantial investment. Distribution, meanwhile, remains the weakest link. Accumulated discom losses exceed Rs 7 lakh crore. High debt, non-cost-reflective tariffs, and extensive cross-subsidisation have repeatedly necessitated financial bailouts.
The proposal for automatic annual tariff revisions, linked to an appropriate index when regulators fail to issue tariff orders, is therefore important. Equally significant is the emphasis on progressively recovering fixed costs through demand charges and reducing cross-subsidies, particularly for manufacturing, railways, and metro systems. Time-of-use tariffs, beginning with industrial and commercial consumers, could encourage more efficient consumption, while lower industrial tariffs would strengthen competitiveness. Greater competition in distribution, without wasteful duplication of networks, is another overdue reform. Removing discoms’ supply obligation to large open-access consumers and allowing them to charge a premium where such consumers demonstrate an ability to buy expensive spot power could further reshape the market. These reforms, however, require strong regulation to ensure competition does not undermine universal and reliable supply.
The proposed National Electricity Council, modelled on the GST Council, could help forge consensus between the Centre and states on difficult reforms, although states may resist any perceived erosion of their authority. The Supreme Court’s 2025 ruling that electricity tariffs must be cost-reflective could also strengthen the reform effort where measures encounter legal challenges. The significance of NEP 2026 lies less in another promise of reform than in its attempt to address structural weaknesses that have survived successive reform cycles. India’s challenge is no longer simply to generate enough electricity. Rising demand, a growing share of intermittent renewable energy, and new power-intensive industries require a system that is financially sustainable, competitive, flexible, and secure. The failure in the past has often been implementation. The real test, therefore, is whether the Centre, states, and regulators can translate these proposals into durable tariff, market, and institutional reforms while preserving affordability and reliability.