Draft National Electricity Policy, 2026: Regulatory Direction for India’s Power Sector under Viksit Bharat @2047

Introduction

The Ministry of Power has released its draft National Electricity Policy for the year 2026 (Draft NEP 2026) as required by section 3 of the Electricity Act of 2003. This draft will modify India’s electricity governing framework based on recent changes to our energy supply system from power generation through power trading to consumer involvement and to ensure that all planning within the electric power sector is compatible with Viksit Bharat @ 2047 aspirations (i.e., strong economy and infrastructure). The draft provides an update to National Electric Policy (NEP) 2005 and will address long-standing regulatory and institutional problems through less rigid policy guidelines than have been provided under the current regulatory/statutory framework.

Background

The Electricity Act of 2003, section 3 provides that the central government will create a National Electricity Policy (NEP) in consultation with the states. As per its original purpose, the draft NEP for 2026 serves only as a subordinate policy to the Electricity Act and does not change or alter the statutory scheme of law governing all electricity related matters. The purpose of the draft NEP for 2026 is to provide guidance for the interpretation of regulatory authorities, to provide guidance for planning processes used by the regulators and to provide guidance for the actions of the executive authorities in the electricity sector.

The draft NEP acknowledges that a number of objectives in the National Electricity Policy of 2005, in particular with respect to the financial viability of electricity distribution licensees and the development of the electricity market, are still not fully completed. Adding to this, there have been a number of developments post the creation of these policies and regulatory instruments with other related legislation. Therefore, the draft NEP acts as a tool to consolidate the previously disparate regulatory initiatives through the provision of a coherent document to assist in the development of the electricity sector.

Generation Planning and Legal Treatment of Resource Adequacy

A significant policy shift under the Draft NEP 2026 is the emphasis on resource adequacy as a legal and planning obligation. The draft recognises that generation planning must move beyond capacity addition targets and incorporate enforceable adequacy norms to ensure reliable supply.

From a legal perspective, this approach has implications for:

• Regulatory oversight of long-term procurement plans
• Approval of power purchase agreements by regulatory commissions
• Alignment of capacity obligations Swith load forecasts

The central authority of electricity will have administrative responsibilities under this policy; however, regulatory commissions will maintain jurisdiction over tariff and procurement approvals. This represents an effort to achieve synergy between technical planning (i.e., electricity development) and regulatory accountability (i.e., the Electricity Regulator’s various powers) without undermining the statutory powers of the authorities involved.

The Draft National Electricity Policy 2026 also views transmission as a necessary part of common-carrier infrastructure that facilitates the integration of electricity markets and supports the deployment of renewable energy sources. It reaffirms the legal authority of the central authority of electricity with regard to national transmission planning and states that there should be co-ordination amongst both the Central Electricity Authority and state-owned utilities in relation to their respective transmission systems.

Legal issues included delays in obtaining approvals; the allocation of costs related to interconnections between states; and the inability to obtain rights-of-way for the construction of facilities used to transmit electricity. The administrative and regulatory co-ordination proposed in the draft policy indicates a plan to utilise existing authority under the Electricity Act and applicable tariff regulations to effectively resolve disputes that arise with respect to the transmission of electricity.

Distribution Sector Reform

The distribution industry will continue to be a focus area for the reform agenda within the Policy Framework. The Draft substantive version of the NEP 2026 has identified ongoing losses, late payment of subsidies and poor enforcement of regulatory standards as issues that have become systemic in nature.

The policy reinforces certain legal principles, namely:

1. Cost-reflective tariff setting subject to regulatory determination;
2. Mandatory and timely state government payment of subsidies under s.65 of the Electricity Act; and
3. Enforced performance standards by the respective State Electricity Regulatory Commissions;

The draft’s emphasis is therefore on enhancing compliance with and creating greater accountability for regulatory systems and processes, rather than on recommending either structural separation from or privatisation of the sector. There is a clear understanding of the limits to central intervention in distribution as noted by the state jurisdictions over distribution and their emphasis on regulatory compliance.

Renewable Energy Integration

Renewable purchase obligations would remain a regulatory measure, with a focus on compliance of existing statutory obligations rather than new statutory obligations. The discussion will also reference the role of forecasting, scheduling and deviation settlement regulations in addressing the impact of variability and therefore the need for subordinate legislation rather than just policy direction will be necessary to correct this.

Conclusion

The Draft National Electricity Policy 2026 is founded by statute under the Electricity Act, 2003, to provide guidance on regulatory interpretation, planning and enforcement throughout the electricity value chain and to facilitate the resolution of long-standing industry issues while aligning the power industry governance framework with the Viksit Bharat @2047 vision.