Background

The Regulatory Assistance Project (RAP) thanks the Ministry of Power for this opportunity to comment on the Draft National Electricity Policy (NEP), 2026.

Our interest is to contribute to the Ministry of Power’s efforts to reform the country’s electricity system, to make it more efficient, to achieve important public policy goals and to contribute to serving the public good in India. We trust that you will find our observations below to be objective, independent and designed to support the Ministry of Power’s guidance.

RAP wishes to offer some general comments and some specific comments on the draft regulations, as well as some suggestions on the envisaged reforms.

The draft NEP 2026 and complementary regulatory and policy initiatives across states are forward-looking and well aligned with the emerging architecture of modern power systems. The focus on advanced market design, demand flexibility, balancing markets, storage (including battery energy storage systems), security of supply, access and affordability, data sharing, and deeper market integration are timely and necessary. We also appreciate the clear vision articulated by the draft policy.

The efficacy of many of these progressive instruments rests on a more foundational system operational discipline: assured resource adequacy across all time horizons, precise load–generation balance, adequate reserves and firm control of Area Control Error (ACE) as a non-negotiable pillar of grid security. The structured operationalization of automatic generation control (AGC) at the state level, largely absent thus far, must evolve into a binding obligation, so that balancing responsibility is borne where it originates rather than being transferred to the inter-state grid. State Grid Codes, therefore, warrant appropriate strengthening, with measurable compliance treated as a priori to the effective functioning of advanced market, flexibility, and storage frameworks. The desired impact of many of the policies and actions outlined in the draft NEP will be reduced if these gaps are not addressed.

Please find below a few specific comments we believe will strengthen the policy and advance the vision.

1) Financially Settled Contracts — Including Virtual Power Purchase Agreements and Bilateral Contract Settlements — and Market Transactions

RAP welcomes the draft NEP’s emphasis on market transactions and innovative new contracting approaches — notably virtual power purchase agreements (VPPAs) and bilateral contract settlements (BCS) — as tools to bring about better outcomes for Indian consumers. VPPAs and BCS are types of financially settled contracts (FSCs). ¹

Examples include the draft NEP’s emphasis on market mechanisms to stimulate power exchange transactions and to support investment, as well as the determination that distribution companies (DISCOMs) should take market-based decisions for power purchases. Specific FSCs mentioned in the draft NEP include VPPAs for renewables and BCS for renewables and storage. These FSCs are contracts for difference, with the former open only to designated consumers, and the latter available to DISCOMs.

We agree with the draft NEP view that FSCs are well-poised to address multiple policy challenges in India’s energy transition. Our paper How financially settled contracts can reduce the cost of electricity and improve reliability in India from January 2026 outlines the many positive outcomes that can be brought about through a shift in long-term contracting from traditional PPAs to FSCs:

• Scheduling efficiencies and cost savings for consumers. Simulations of illustrative DISCOMs suggest potential savings of around 0.33 INR/kWh.
• Avoided waste of renewable energy.
• Enhanced availability of contracted resources when demand stretches the limits of supply by placing risk on the parties best placed to manage it, such as contracted generation and storage.²
• Protect consumers from spiky market prices without bypassing the market, thereby easing price caps.
• Revenue confidence for prudent and well-operated investments.
• Enhanced market liquidity.

The scale and breadth of these benefits underline the importance of addressing regulatory obstacles to unleash the full transformative potential of FSCs. RAP recommends that the NEP and accompanying framework are developed to unlock the full value of FSCs, by putting in place enablers and addressing barriers, including:

• Swift resolution of any jurisdictional uncertainty between the competition authority Security and Exchange Board of India (SEBI) and energy regulators Central Electricity Authority (CEA) / Central Electricity Regulatory Commission (CERC).
• Ensuring a level playing field for FSCs with PPAs in resource adequacy frameworks.
• Devising standard contracting frameworks, including formulating procedures and guidelines, and codes for regulatory oversight and governance.

RAP is engaging with state regulators, DISCOMs, and procuring entities to pilot FSCs to demonstrate feasibility, identify areas that merit regulatory clarity and build familiarity with these tools.

In time, policy may seek to support widespread deployment, allowing for VPPAs and BCS to become the norm for contracting resources like renewables and storage, and ultimately unlock a wide spectrum of FSCs

• Across different instruments like contracts for difference, call options and swaps.
• Across resources like renewables, storage and thermal.
• By DISCOMs as well as by designated consumers.
• With financial flows de-linked from own output as well as linked (like VPPAs and BCS).
• Bilaterally negotiated as well as through exchanges.

RAP welcomes further engagement with Indian authorities to accommodate FSCs in policy and regulatory frameworks to unlock the full potential of FSCs and to support pilots.

2) Storage

RAP commends the inclusion of a section dedicated to energy storage and welcomes the acknowledgement that governments and regulatory commissions must work proactively to take full advantage of energy storage technologies.

Our first suggestion is to clarify that, rather than requiring entirely new regulations to promote energy storage, energy storage systems (ESS) should be effectively integrated into existing regulatory frameworks, with a focus on removing barriers that prevent ESS from competing on equal terms with other technologies across different use cases.

As the efficient deployment of energy storage depends on a range of system-specific factors — such as the availability of existing flexibility resources and the level of congestion in transmission and distribution networks — we suggest revising the language of point (6).

Co-location with renewable energy projects should not be mandated as a default approach because 1) it is not always the most efficient solution, and 2) renewable energy project developers are not necessarily best placed to operate energy storage assets optimally.

In some jurisdictions, compulsory co-location has increased the costs of variable renewable energy. For this reason, a similar policy was eliminated in China in February 2025.³

Decisions regarding the location and configuration of ESS should therefore be guided by market signals and well-designed regulatory frameworks, reflecting system needs rather than technology-specific preferences.

We suggest the following change in point (6) Incentives, Procurement, and Regulation: To accelerate ESS deployment, Appropriate Commission should provide access to ESS to all the potential revenues coming from different services, including ancillary services, transmission management and energy arbitrage promote co-located battery storage with variable renewable energy projects

Finally, we would suggest making competitive processes the default option to contract energy storage, with contracts that foster the participation of these devices and installations in markets and ancillary services.

Demand-Side Response

We offer several comments associated with the broader topic of demand-side management, including demand response.

Role of System Operators

The draft Policy statement correctly suggests that demand response (DR) programs play a major role in the future of the power sector. For example, in Chapter 9 on distribution, it states on page 26 that “Demand response programmes will be promoted by the distribution licensees.” While distribution licensees have a major role in facilitating DR, as they are closest to the customer, the wholesale bulk power system operators should also play a major role in facilitating DR.  

As the policy statement points out on page 19 “A market-based system will be introduced for competitive procurement of ancillary services, including consumer participation via demand response individually or through aggregators,” the bulk power system operators (including Grid India, regional load despatch centres (RLDCs) and state load despatch centres (SLDCs)) are in the best position to ascertain the types of ancillary services they need and what DR products are best suited to offer those services. We recommend that, in addition to DISCOMs, the role of bulk power system operators be recognized and strengthened in facilitating and promoting DR.  

Resource Adequacy

The draft policy rightly recognizes the importance of resource adequacy (RA) in ensuring reliability of the power system. For example, in the explanatory note on page 2, the draft states that “Resource adequacy (RA) planning is essential to ensure that enough electricity is available to meet demand reliably at reasonable cost. To ensure required capacity expansion through decentralised advance planning, NEP 2026 proposes that DISCOMs and SLDCs shall prepare RA plans at utility and state levels, in accordance with the regulations of State Commissions.” Traditionally, only generation has been considered as the means to ensure system RA. Lately, DR is playing an important role in complementing generation in meeting system RA needs, at a lower overall cost and in a more environmentally friendly manner. We recommend that RA planners be required to consider and evaluate DR along with generation resources in system planning in meeting system RA needs.  

Broader Consideration of Distributed Energy Resources

Distributed energy resources (DERs) may include, but are not limited to, resources that are in front of and behind the customer meter, including electric storage resources, intermittent generation, distributed generation, demand response, energy efficiency, thermal storage and electric vehicles. DERs broadly offer various benefits to the system, including:

• Reliability: DERs offer products and services to assist the wholesale operators and DISCOMs in maintaining and/or enhancing system reliability. The products and services include providing energy, capacity and various ancillary services.
• Resilience: The implementation of DERs adds to system resiliency as the resources are more localized and can continue to provide power to consumers even if the central generating resources and transmission assets fail. Further, DERs accelerate service recovery; localized systems that ride through system outages can help accelerate the re-energization of the whole system.
• System costs: DERs can be cheaper resources than those that are centrally generated and thus, when optimally utilized, can lead to lower overall system costs, especially in market-based systems where prices typically are set by the cost of generation units on the margin.
• Integration of intermittent renewable resources: As intermittent resources rise in the system, the need for flexible resources becomes significant — and will continue to grow with rapid penetration of intermittent resources. Many DERs can provide the flexibility that system operators require.
• Improve competitiveness of wholesale markets: As more load becomes elastic and can modify its usage and participate in the wholesale competitive markets, it reduces the market power potential of sellers and can improve efficiency of the wholesale market.

These benefits should be recognized in the NEP, and corresponding policies and regulations must be pursued to advance DERs.

We hope the comments above assist with finalization of the Draft National Electricity Policy, 2026. RAP India team is committed and available to further clarify these points and provide any support needed.

Once more, we wish to applaud the Ministry of Power for developing these critical policies, and we lend our support to the reforms and advances articulated therein.

Thank you for this opportunity to comment. If we can be of further assistance, please do not hesitate to contact us. We would be keen to collaborate with the Ministry of Power on these and related matters.

Sincerely,

Dr. Ashwini Swain
Director, India Program
Regulatory Assistance Project

1. RAP defines FSCs as tools that provide financial flows that allow contracting parties to buy or sell energy on the market at a pre-agreed price. In contrast to traditional power purchase agreements (PPAs), FSCs do not contract for the ‘physical’ exchange of ownership of electricity. Example FSCs include contracts for difference, call options and swaps — which can be used by DISCOMs or other consumers as an alternative for PPAs to strike contracts with energy resources like renewables generation, thermal generation and storage. ↩︎
2. From Shortages to Security: How financially settled contracts support generator availability, January 2026, PowerLine Magazine,  https://powerline.net.in/2026/01/12/from-shortages-to-security-how-financially-settled-contracts-support-generator-availability/ ↩︎
3. See https://www.ess-news.com/2025/03/14/china-scraps-energy-storage-mandate-for-renewable-energy-plants/ ↩︎