The Government of India has outlined a comprehensive policy and regulatory framework aimed at ensuring the financial sustainability of the electricity sector while protecting consumer interests. The framework operates under the Electricity Act, 2003 and includes the National Electricity Policy, Tariff Policy and subordinate legislation framed by the Appropriate Government, Central Electricity Authority and Electricity Regulatory Commissions.
The information was given by Minister of State in the Ministry of Power, Shri Shripad Naik, in a written reply in the Rajya Sabha today.
Electricity tariffs in India are determined by the Appropriate Electricity Regulatory Commissions under the Electricity Act, 2003. These Commissions are guided by the National Tariff Policy formulated by the Central Government. State Electricity Regulatory Commissions determine the retail tariff considering power procurement, transmission, wheeling and supply costs. State Governments may provide subsidies to any class of consumers, including domestic consumers, in the tariff determined by the State Commission.
The Central Government has taken various initiatives aimed at reducing the cost of electricity. Guidelines have been issued for competitive procurement of electricity by Distribution licensees. Distribution licensees have also been enabled to purchase electricity from power exchanges at competitive prices.
Under the scheme for flexibility in utilisation of domestic coal, plants supplying electricity to Distribution licensees have been allowed to use cheaper coal for generation. Lower-cost inter-state generating stations are being prioritised for dispatch of electricity. Distribution licensees have also been incentivised to reduce their technical and commercial losses under the Revamped Distribution Sector Scheme (RDSS).
The Draft National Electricity Policy, 2026 proposes that distribution licensees prepare Resource Adequacy Plans to ensure least-system-cost-based power procurement. It further provides that tariffs should progressively recover fixed costs through demand/fixed charges so that tariff design better reflects the cost of supply while promoting efficient consumption.
The Draft Policy also proposes that variations in power purchase costs, including fuel costs, be passed through to consumers through automatic monthly Fuel and Power Purchase Cost Adjustment (FPPCA) mechanisms. Further, it envisages the creation of a suitable stabilisation fund to moderate the impact of fluctuations in power purchase costs on consumers.
The Draft Policy further provides that State Electricity Regulatory Commissions should ensure that tariffs progressively reflect the prudent cost of supply without the creation of regulatory assets. It also proposes timely annual tariff revisions, including through suitable indexation-based mechanisms where appropriate, in cases where tariff orders are not issued within the defined timelines, so as to maintain the financial sustainability of distribution licensees.
Consumer protection has been strengthened through the Electricity (Rights of Consumers) Rules, 2020, which prescribe standards relating to new electricity connections, quality and reliability of supply, metering, billing, grievance redressal, compensation for specified service deficiencies, and consumer-centric service delivery.
In addition, the Draft National Electricity Policy, 2026 proposes that distribution licensees ensure reliable, affordable and quality 24×7 electricity supply, and strengthen grievance redressal through robust online complaint registration, tracking and disposal mechanisms, including virtual hearings by Consumer Grievance Redressal Forums and the Ombudsman.
The Government of India has supplemented the efforts of the States earlier through schemes such as Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY), Integrated Power Development Scheme (IPDS), Pradhan Mantri Sahaj Bijli Har Ghar Yojana (SAUBHAGYA), and currently under the Revamped Distribution Sector Scheme (RDSS), to help them achieve the objective of providing quality and reliable supply of power.
In addition to RDSS, the Government has taken several key initiatives to support power distribution licensees. These include additional borrowing consent of 0.5% of Gross State Domestic Product (GSDP) to State Governments, conditional on them undertaking specific reforms in the power sector.
Additional prudential norms have also been prescribed for sanctioning loans to State-owned power utilities, contingent on the performance of power distribution licensees against prescribed conditions.
Rules have been framed for implementation of Fuel and Power Purchase Cost Adjustment (FPPCA) and cost-reflective tariffs to ensure that all prudent costs of supply of electricity are passed through.
Rules and a Standard Operating Procedure have also been issued for proper subsidy accounting and their timely payment.
The Government has also taken measures to expand the integration of renewable energy.
The Draft National Electricity Policy, 2026 further provides a long-term roadmap for strengthening the power sector by achieving single-digit AT&C losses through smart metering, regular energy audits, GIS-based asset mapping, and consumer indexing.
It also proposes strengthening the corporate governance of distribution licensees, introduction of shared distribution networks, and establishment of Distribution System Operators (DSOs) to facilitate integration of distributed renewable energy, energy storage systems and Vehicle-to-Grid (V2G) technologies.
For effective transmission capacity expansion and integration of higher shares of renewable energy, the Draft Policy envisages modernisation of the transmission network through adoption of technologies such as Flexible AC Transmission Systems (FACTS), Dynamic Line Rating, underground cabling where appropriate, simplified utilisation-based transmission connectivity, use of dated thermal generating stations as synchronous condensers, and accelerated deployment of energy storage systems to support a resilient and flexible grid.
Any impact of changes in fuel prices or electricity demand on consumer tariffs is assessed by the State Electricity Regulatory Commissions in accordance with the applicable tariff regulations, including the Fuel and Power Purchase Cost Adjustment (FPPCA) mechanism, and is allowed to be recovered through tariffs only with due regulatory scrutiny.
The Government of India has taken several measures to ensure affordable, reliable and sustainable electricity supply.
As per the National Electricity Plan (Generation), installed generation capacity in 2031-32 is likely to be 874 GW. With a view to ensuring that generation capacity remains ahead of projected demand, all the States, in consultation with CEA, have prepared their Resource Adequacy Plans (RAPs). These are dynamic 10-year rolling plans and include power generation as well as power procurement planning.
All the States were advised to initiate the process for creating or contracting generation capacities from all generation sources, as per their Resource Adequacy Plans.
In order to augment power generation capacity, the Government of India has initiated a capacity addition programme covering thermal, hydro, nuclear and renewable energy sources.
The projected thermal capacity requirement based on coal and lignite by the year 2035-36 is estimated at approximately 3,15,000 MW. To meet this requirement, the Ministry of Power has envisaged setting up an additional minimum 1,05,000 MW of coal- and lignite-based thermal capacity.
Accordingly, thermal capacities of around 21,080 MW have been commissioned since April 2023 till 30.06.2026. In addition, 47,545 MW of thermal capacity, including 4,845 MW of stressed thermal power projects, is currently under construction. Contracts for 16,000 MW have been awarded and are due for construction.
The Central Electricity Authority has projected hydro power capacity addition of about 16,448 MW during the period 2026-27 to 2031-32. Of this, 400 MW has been commissioned as on 30.06.2026, while 12,973 MW is presently under construction.
In the nuclear power sector, 8,000 MW of nuclear capacity is under construction and targeted to be completed by 2031-32. A further 5,600 MW of nuclear capacity is under various stages of planning and approval.
In the renewable energy sector, 1,47,720 MW of renewable capacity, including 119,580 MW of solar capacity, including Hybrid-Solar, and 27,720 MW of wind capacity, including Hybrid-Wind, is under construction.
Another 47,830 MW of renewable capacity, including 44,440 MW of solar capacity, is at various stages of planning and is targeted to be completed by 2029-30.
As on 30.06.2026, 15,870 MW/95,220 MWh of Pumped Storage Projects (PSPs) are under construction. Further, a total of 6,580 MW/39,480 MWh capacity of PSPs has been concurred and is yet to be taken up for construction.
As on 30.06.2026, 15,754 MW/42,530 MWh of Battery Energy Storage System (BESS) capacity is under construction. A further 11,747 MW/38,425 MWh has been awarded, while 19,192 MW/67,574 MWh of BESS capacity is at the tendering stage.
Coordinated transmission planning is undertaken in the National Electricity Plan (Transmission) to avoid congestion, minimise curtailment and optimise network augmentation requirements.
To address the intermittency associated with renewable energy sources, the Government is promoting a combination of energy storage and hybrid solutions to ensure grid stability and reliable power supply.
Under the plan, around 47 GW of Battery Energy Storage Systems (BESS) has been considered for integration by 2031-32. Further, a roadmap for integrating 100 GW of Pumped Storage Plants (PSPs) from the year 2025-26 to 2035-36 has been prepared.
In addition to the above, the Ministry of Power has issued guidelines dated 14.06.2024, 21.03.2025 and 15.12.2025 regarding the payment of compensation for Right of Way (RoW) for transmission lines, wherein the land rate has been linked to the prevailing market rate.
These guidelines address the key challenges of RoW arising from landowners demanding higher compensation than the rates determined by the State Government.
The Government of India launched RDSS in July 2021 with the objective of improving the quality and reliability of power supply to consumers through a financially sustainable and operationally efficient distribution sector.
The scheme has an outlay of Rs. 3,03,758 Cr. and estimated Gross Budgetary Support (GBS) from the Central Government of Rs. 97,631 Cr.
Under the scheme, financial assistance is being provided to Distribution licensees, excluding Private Sector licensees, for loss reduction infrastructure works and smart metering works.
Projects worth Rs. 1.53 lakh crore for loss reduction infrastructure and Rs. 1.31 lakh crore for smart metering works have been sanctioned under the scheme. These projects would help improve the reliability and quality of power supply in the country.
With the concerted efforts of the Central and State Governments, the average hours of supply in rural areas have increased from 12.5 hours in FY14 to 22.6 hours in FY26. In urban areas, the average hours of supply have increased from 22.1 hours in FY14 to 23.4 hours in FY26.
