Tariff Reforms, Discom Health, and Long-Term Power Market Overhaul

The government has unveiled the Draft National Electricity Policy 2026, marking the first comprehensive update to India’s power policy since 2005. The draft outlines a long-term roadmap for tariff rationalisation, financial stability of discoms, competitive power markets, and capacity expansion, aligned with the broader Viksit Bharat vision.

Big Picture: Demand Growth and Consumption Targets

The policy sets ambitious electricity consumption goals as India’s economy and industrial base expand.

Per capita electricity consumption target of 2,000 kWh by 2030

Over 4,000 kWh by 2047, up from 1,460 kWh in FY25

This implies sustained growth in generation capacity, grid infrastructure, and distribution efficiency over the next two decades.

Tariff Reforms: Focus on Cost Discipline and Transparency

A central theme of the draft policy is restoring tariff discipline while reducing long-standing distortions.

Key proposals include:

State regulators to ensure cost-reflective tariffs without accumulation of regulatory assets

Automatic tariff revision through indexation if tariff orders are delayed

Progressive reduction in cross-subsidies, with no tariff set below 50 percent of average supply cost

Introduction of differential pricing during peak hours to manage demand efficiently

Select exemptions for manufacturing, Indian Railways, and metro rail to preserve competitiveness

These measures aim to strengthen discom balance sheets while improving price signals for consumers.

Distribution and Transmission: Opening Up Competition

To improve service quality and efficiency, the policy proposes structural changes in distribution.

Shared distribution infrastructure to allow multiple distribution licensees

Introduction of a distribution system operator model

Risk-sharing frameworks to address timing mismatches between generation and transmission projects

This could gradually transform distribution from a monopoly-driven model to a more competitive framework.

Generation Strategy: Renewables, Nuclear, and Storage

The draft policy reinforces the role of clean energy while ensuring system reliability.

Key highlights:

Enforced renewable consumption obligations and support for virtual PPAs

Improved renewable forecasting via a national meteorological portal

Target of grid parity between renewable and conventional power by 2030

Nuclear power eligible for green bond financing, fleet-mode deployment, and brownfield expansions

Incentives for domestic battery cell and energy storage manufacturing

Repurposing retired thermal plant sites for nuclear projects

This reflects a diversified generation strategy balancing sustainability with baseload stability.

Financing the Power Transition

The investment requirements outlined are significant.

Estimated ₹50 lakh crore by 2032

Around ₹200 lakh crore by 2047 across generation, transmission, and distribution

Funding support mechanisms include:

Dedicated platforms under NaBFID and NIIF

Risk mitigation and reserve funds

Multilateral financing support

Exploration of a climate finance taxonomy to unlock concessional green capital

Power Markets: Moving Towards Market-Based Pricing

The policy pushes for deeper and more transparent power markets.

Settlement of bilateral contracts through market platforms

Standardised exchange-based power contracts and PPAs

Gradual introduction of capacity markets

Expanded ancillary services including demand response mechanisms

These steps aim to improve price discovery, grid stability, and investment visibility.

What This Means for Investors

The Draft National Electricity Policy 2026 signals a clear shift towards tariff realism, competitive distribution, diversified generation, and market-based power pricing. While execution risks remain, the direction is supportive of long-term capital deployment across power generation, grid infrastructure, and clean energy value chains.