The Union Ministry of Power on Wednesday released the draft National Electricity Policy (NEP) 2026, proposing an index-linked annual revision of electricity tariffs in cases where State Electricity Regulatory Commissions (SERCs) fail to revise tariffs on time. At present, power tariffs are fixed by regulators based on tariff petitions filed by electricity distribution companies (discoms).
The proposal assumes significance as power tariffs have not been revised regularly in several states despite repeated emphasis by the Centre on cost-reflective tariffs to reduce discom losses. The average tariff for residential electricity consumption in the country is around Rs 6 per unit, while industrial consumers pay about Rs 10 per unit.
Financial Strength Mandate
Speaking at an event, Union Power Minister Manohar Lal urged discoms to move towards cost-reflective tariffs and asked utilities not to commit free power supply unless state governments release subsidies in advance.
“In the coming years, the power sector will become much larger. A growing economy requires a strong power sector. For this, discoms must be financially strong,” the Minister said, adding that strong discoms would lead to improved services and greater consumer responsiveness.
The draft NEP 2026 states that from FY 2026-27 onwards, SERCs must ensure that tariffs fully reflect costs and do not result in the creation of regulatory assets. “Tariffs must be linked to a suitable index for automatic annual revision which operates if no tariff order is passed by the State Commission,” the draft policy said.
The Ministry has also proposed that tariffs progressively recover fixed costs through demand charges and that any increase in power purchase cost be automatically passed through to consumers on a monthly basis. Discoms have been advised to create stabilisation funds to manage fluctuations in power purchase costs.
Distribution Sector Debt
The proposal comes at a time when the power distribution sector remains under financial stress, with accumulated debt of over Rs 7 lakh crore. Although discoms reported a cumulative net profit of Rs 2,701 crore in FY25, compared to a loss of Rs 25,553 crore in the previous year, officials said the overall financial position remains weak.
Currently, tariff revision remains a politically sensitive issue, and discoms in several states do not approach regulators regularly for tariff revisions. The draft policy mandates that tariff orders be issued before the start of each financial year and that true-up orders for the previous year be completed within the current year.
The proposed tariff reforms are aligned with the draft Electricity (Amendment) Bill, 2025, which is expected to be introduced in Parliament in the upcoming Budget Session. The Bill also proposes a progressive reduction of cross-subsidies, a mechanism under which industrial and commercial consumers pay higher tariffs to subsidise domestic and agricultural users.
Addressing concerns over tariff increases for farmers, the ministry had earlier said the reforms would lead to fairer tariffs while preserving federal balance. The draft NEP 2026 states that industrial tariffs remain higher than in many economies, affecting competitiveness. “While competition has been introduced in generation and transmission, the supply segment remains a monopoly, limiting consumer choice and elevating industrial tariffs,” the policy said.
Cybersecurity and Data Sovereignty
Apart from tariff reforms, the draft policy proposes measures across generation, transmission and distribution, the policy also proposes establishment of a robust cybersecurity framework and mandatory storage of power sector data within India to ensure data sovereignty and system resilience. The proposal follows instances of cyberattacks on the grid during Operation Sindoor last year.
Addressing an event here, power secretary Pankaj Agarwal also said that the government is working on a data sharing policy in order to streamline sharing of data among discoms and load despatch centres to better forecast the power demand in the country.
The draft NEP 2026 aims to replace the existing National Electricity Policy notified in 2005. It sets targets for per capita electricity consumption of 2,000 kWh by 2030 and over 4,000 kWh by 2047, while aligning with India’s climate commitments.
India’s electricity demand is expected to rise sharply in the years ahead. In FY25, overall demand increased by around 4%. While power consumption during the summer months was relatively subdued due to an extended monsoon, winter demand has been strong, with peak load touching 241 GW. The highest recorded all-India peak demand remains 250 GW, achieved in May last year.
Disha Agarwal, Senior Programme Lead, Council on Energy, Environment and Water (CEEW), said, “The demand for electricity could well outpace projections over the next 5-7 years. Several states are already anticipating growth rates above historical averages. In 2047, we will consume four times as much electricity as we did in 2024. States, therefore, need to plan for and add new capacities quickly. However, the choice of capacity is crucial and must be governed by robust demand forecasting, followed by integrated generation and transmission adequacy planning.”
“New investments in any technology, whether thermal, hydro, renewables, or nuclear, must be evaluated for delivering four outcomes simultaneously: minimising the cost of supply to consumers, rapid deployment, reduced exposure to imported fuels, and maximising social and environmental benefits. These are the outcomes which the NEP must guide all stakeholders to ensure,” she added.