Draft National Electricity Policy 2026 Pushes Nuclear Power to Replace Coal, Opens Sector to Private Players
- Aditya
- Jan 23
- 5 min read
Weeks after the government enacted the SHANTI Act, which opened India’s nuclear power sector to private participation, the Draft National Electricity Policy (NEP) 2026 signals a decisive policy shift — positioning nuclear power as a long-term substitute for coal-based thermal generation, especially for captive and industrial use.
The draft policy, released by the Ministry of Power, seeks to recalibrate India’s power mix at a time when the country remains heavily dependent on coal, not only for grid-based electricity but also for captive power generation used by industries.
Set to replace the two-decade-old National Electricity Policy notified in 2005, the draft NEP 2026 outlines a comprehensive roadmap covering generation mix, tariffs, grid stability, distribution reforms, cybersecurity and energy storage, while aligning the power sector with India’s long-term climate and development goals.
Why Is a New National Electricity Policy Needed?
India’s power sector has undergone significant transformation since 2005, making the existing policy framework outdated.
Key achievements since the last NEP:
Universal electrification achieved in 2021, ensuring electricity access to all households
Unified National Grid operational since 2013, enabling seamless inter-state power transfer
Per capita electricity consumption rose to 1,460 kWh in 2024–25, reflecting rising demand
However, major challenges persist:
Financial stress in distribution companies (DISCOMs)
Heavy reliance on coal-based thermal power
Rising industrial tariffs due to cross-subsidisation
Need to integrate large-scale renewable energy without destabilising the grid
Against this backdrop, the Draft NEP 2026 seeks to modernise India’s electricity framework for a rapidly growing economy.
Nuclear Power Takes Centre Stage in NEP 2026
A standout feature of the draft policy is its strong push for nuclear power as a clean, reliable and scalable energy source.
The policy explicitly states:
“Nuclear power is a clean, reliable, and sustainable energy source with significant potential for India’s long-term energy security.”
Key nuclear-related proposals include:
Adoption of Small Modular Reactors (SMRs)
Development of Bharat Small Reactors
Deployment of other small-capacity reactors
Direct use of nuclear power by commercial and industrial consumers
Collaboration between the central government and private sector
This push aligns with India’s ambition to scale nuclear capacity to 100 GWe by 2047, more than ten times the current installed capacity of 8.8 GWe.
The policy builds directly on the SHANTI Act, which removed long-standing legal and regulatory barriers that had earlier prevented private participation in nuclear power generation.
Nuclear Power as a Substitute for Coal-Based Captive Plants
While acknowledging that coal will continue to play a role in meeting base-load demand, the draft NEP places particular emphasis on replacing coal-based captive power plants with nuclear power wherever feasible.
Key measures proposed include:
Brownfield expansion of existing facilities
Replacement of coal-based captive plants with nuclear units
Fleet-mode implementation with standardised reactor sizes
Development of local supply chains to optimise costs
Repurposing retired thermal power plant sites for nuclear generation
This is significant given that India’s captive power capacity remains overwhelmingly coal-based.
Captive power capacity in 2023–24 (NITI Aayog data):
Coal: 46 GW
Diesel: 19.6 GW
Gas: 6.2 GW
Nuclear: 0 GW
India has so far seen no captive nuclear power use by industry, a gap the draft policy seeks to address.
Financing Nuclear Expansion: Green Bonds and New Models
To ease financing constraints, the draft NEP proposes making nuclear projects eligible for Green Bond funding, a mechanism typically used to fund projects that mitigate climate change or enhance climate resilience.
The policy also suggests:
Designing future nuclear plants for flexible operation
Introducing two-part tariff structures so nuclear plants can better complement variable renewable energy such as solar and wind
Demand Growth and Climate Commitments
The draft NEP sets out ambitious demand-side projections:
Per capita electricity consumption of 2,000 kWh by 2030
Over 4,000 kWh by 2047
These targets reflect the scale of electricity demand expected from India’s expanding economy and growing industrial base.
The policy explicitly links this growth to India’s climate commitments:
45% reduction in emissions intensity from 2005 levels by 2030
Net-zero emissions by 2070
This linkage underscores the need for a decisive shift towards low-carbon energy pathways, including nuclear, renewables and storage.
Focus on DISCOM Reforms and Tariff Rationalisation
Beyond generation, the draft NEP places strong emphasis on restoring the financial health of DISCOMs, which have accumulated large losses and outstanding debt.
The policy states:
“NEP 2026 seeks to restore financial health of the DISCOMs by promoting cost-reflective tariffs, timely cost pass-through, and reduction of AT&C losses.”
Key tariff-related proposals:
Index-linked automatic annual tariff revision
If State Electricity Regulatory Commissions fail to revise tariffs on time
Continued use of cost-plus tariff methodology
Covering generation, transmission and distribution costs
Ensuring timely cost pass-through to prevent revenue gaps
Rajasekhar, Fellow at the Centre for Social and Economic Progress, cautioned that operational clarity is still needed:
“It has only been mentioned in the policy. Operational details are still awaited. What is crucial is maintaining regulatory sanctity so consumer confidence in tariff-setting is not undermined.”
Exemptions to Boost Industrial Competitiveness
Another major reform proposed is the exemption of manufacturing enterprises, Indian Railways and Metro Rail systems from paying:
Cross-subsidy charges
Surcharges when procuring power through open access
Currently, large consumers that bypass DISCOMs must pay these levies to compensate for lower tariffs for residential and agricultural users.
The draft policy argues that exemptions will:
Keep Indian goods competitively priced
Optimise logistics costs
Reduce commuting costs for the workforce
Renewables, Storage and Grid Stability
The draft NEP continues to support renewable energy expansion through:
Market-based mechanisms
Captive renewable power plants
At the same time, it places greater emphasis on:
Energy storage systems
Battery Energy Storage Systems (BESS)
Vehicle-to-Grid (V2G) technologies, where electric vehicles supply power back to the grid
These measures aim to ensure grid stability as variable renewable energy penetration rises.
New Institutional and Cybersecurity Measures
The policy introduces several structural and technological reforms:
Establishment of a Distribution System Operator (DSO)
To manage and operate distribution networks
Enable network sharing among multiple users
Facilitate integration of distributed renewable energy
Mandatory data localisation for power sector data
Creation of a robust cybersecurity framework for critical power infrastructure
These measures reflect growing concerns over data sovereignty and cyber risks in essential services.
Industry Caveats: Cost and Fuel Control Concerns
Despite the policy push, industry leaders remain cautious about nuclear power.
National Aluminium Company Limited Chairman and Managing Director Brijendra Pratap Singh has warned about the high capital costs of nuclear power:
“Thermal power may cost around ₹6–7 crore per MW, while nuclear power costs around ₹30 crore per MW. That is a very large capital requirement, and it would significantly increase power costs and, in turn, aluminium costs.”
Industry insiders also point to limited control over nuclear fuel as a deterrent. Unlike coal, where fuel costs are market-linked, uranium supply and pricing are tightly controlled by the government, limiting private players’ influence over a key cost component.
As a result, many companies see their role restricted to operation and maintenance, reducing appetite for large-scale private investment.
A Strategic Recalibration of India’s Power Future
The Draft National Electricity Policy 2026 marks a strategic recalibration of India’s power sector, signalling a clear shift towards nuclear power, energy storage, and tariff rationalisation, while maintaining support for renewables and grid stability.
By aligning power sector reforms with industrial competitiveness, climate goals and energy security, the policy sets an ambitious framework. However, its success will depend on operational clarity, regulatory consistency, cost management and industry confidence, especially as India attempts to scale nuclear power more than tenfold by 2047.
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