A Long-Delayed Overhaul Comes For India’s Power Sector In 2026
From the cost of electricity, how the country discovers its spot market power rates, and digital infrastructure, India’s electricity ecosystem is hoping for a year of transition.
The Gist
- A Supreme Court directive may lead to higher electricity costs in some states due to the liquidation of regulatory assets.
- The introduction of a market coupling mechanism aims to create a single spot price for power across exchanges.
- The rollout of the India Energy Stack seeks to enhance digital infrastructure, but its success depends on timely execution and political will.
For the past several years, India’s electricity sector has functioned on deferred tariff hikes, deferred reforms and delayed digital upgrades. Policies made in 2025 are set to attempt to address these strained discom balance sheets and market inefficiencies in 2026.
From the cost of electricity, how the country discovers its spot market power rates, and digital infrastructure, India’s electricity ecosystem is hoping for a year of transition that will be felt by everyone, from the end-consumer to those in the power business. Like all things in the Indian electricity market, this hopeful transition is riddled with many caveats.
In 2026, India’s electricity sector is expected to undergo a shift on three fronts — tariffs, technology and trading. A Supreme Court directive to clear long-pending regulatory assets could raise electricity costs in some states; a new market-coupling mechanism aims to deliver a single spot price for power across exchanges; and the rollout of the India Energy Stack seeks to digitally rewire the sector.
However, experts caution that the overhaul is contingent on various factors — legal go-aheads, on-ground timely execution and the fiscal health and political willingness of various states.
As Rajasekhar Devaguptapu, Fellow at the Center for Social and Economic Progress (CSEP) notes, a Supreme Court order on regulatory assets (RA), a central electricity regulator’s imitative on market coupling and the Power Ministry push for an India Energy Stack (IES), “are significant in their own right and carry deep impact on future of Indian electricity market.”
While these legislative moves were made in the last twelve months, their impact in terms of higher electricity tariffs for some states, better tech for the power industry eco-system and a single price discovery for the power spot markets, is expected to unfold in 2026.
Power Bills In 2026
Depending on the state and the state government, the year ahead may bring higher electricity costs for businesses and households.
In a September order, the Supreme Court directed state electricity regulators to liquidate regulatory assets in a time-bound manner. Regulatory assets are revenue gaps formed by the difference between the cost incurred by power distribution companies to procure electricity and the tariffs charged to end-consumers. These gaps have historically been parked as regulatory assets for recovery in the future.
The combined regulatory assets to be liquidated across India amount to nearly Rs 3 trillion, according to ICRA estimates, largely driven by Tamil Nadu, Uttar Pradesh, Rajasthan, Maharashtra, Delhi, West Bengal and Karnataka. “Liquidation of the same will have a bearing on retail tariffs in these states,” Devaguptapu notes.
Sabyasachi Majumdar, Senior Director, CareEdge Ratings terms this the most significant development to watch out for in 2026. “Many of those tariff orders will happen (for the first time since the SC order) in the Jan-March 2026 quarter,” he said.
Majumdar adds it is difficult to gauge the exact impact on retail tariff as “There are multiple moving parts to it, namely level of regulatory assets piled up, fiscal health of the states to compensate at their end and not pass on to the end customers and stand SERCs take in terms of at what pace they wish to clear the regulatory assets over four or seven years.”
For five to six states, where hikes may be steeper, Majumdar estimated the increase in high single digits annually over the next two to three years. To put this in perspective, ICRA data shows the median tariff hike at the all-India level was modest at 1.9% in FY26, lower than the 2.1% in FY25.
A Single Spot Price for Power
From January 2026, India’s day-ahead power market is expected to operate on a ‘market coupling’ principle.
Market coupling follows a July order passed by the Central Electricity Regulatory Authority (CERC), which mandates a centralised matching of bids from various power exchanges to arrive at a uniform market-clearing price.
At present, there are three such exchanges – the Indian Energy Exchange (IEX), Power Exchange India Ltd. (PXIL), and Hindustan Power Exchange (HPX), and each of which discovers its own price.
This is set to change gradually from January onwards.
“Market coupling will likely increase trading volumes by aggregating bids across exchanges, creating a single clearing price. While this improves efficiency and transparency, it reduces individual exchange autonomy and may limit flexibility in price discovery for participants,” said Vikas Gaba, Partner and National Head, Power and Utilities in KPMG in India.
In simpler terms, power procurers — like industrial units, big consumers and discoms facing — will have access to a unified cost for each unit of power, irrespective of which platform they buy from.
The move essentially removes price-discovery monopolies from the exchanges, shifting competition toward operational efficiencies.
Evidence from European markets that adopted market coupling suggests reduced price differentiation and improved overall efficiency, although price outcomes remain influenced by factors such as fuel costs, demand patterns and renewable generation.
This transition, however, faces resistance. IEX, which holds the largest market share in the power trading, has challenged the order at the Electricity Appellate Tribunal, arguing that the move is arbitrary and could cause significant loss of market share and without clear benefits. The appeal is up for hearing in the second week of January.
India Energy Stack
The power ministry often touts the India Energy Stack (IES) as the “Aadhaar for the electricity sector”. The proposed unified digital backbone is targeted to go live in July 2026.
According to the ministry, distribution utilities of Delhi, Gujarat, Andhra Pradesh, Uttar Pradesh and Mumbai have been identified for pilot implementation. The demonstration timeline extends into FY 2026-27, with Rs 51.3 crore of funds allocated for the development of the stack.
IES aims to digitally integrate assets across the value chain — both consumer and market-linked. For consumer-linked assets, however, smart meters are an essential, but their adoption has been lukewarm so far.
A CRISIL report released in October said that of the 25 crore conventional meters to be replaced with prepaid smart meters by March 2026, under the Smart Meter National Programme, only 2.56 crore had been installed as of July 2025. This is out of the 12.3 crore smart meters already awarded. “If the pace of execution was timely, ~ 6 crore smart meters should have been installed during the said period,” the report said.
Devaguptapu notes that if IES rollout gathers momentum in 2026, the “flow of data on generation, demand and transmission on a real-time or near real-time basis is expected to improve system planning and reduce information asymmetry.” Over time, this could enable better integration of distributed energy resources such as rooftop solar, EV charging and storage, while allowing for demand response and dynamic pricing.
Gaba lists IT–OT upgrades, standard APIs, cybersecurity readiness, and coordinated action across utilities, regulators and technology providers as critical to effective rollout — underscoring the ambition and complexity of the project.
If achieved, Devaguptapu adds, faster metering, billing and settlements, along with improved contract enforcement, could reduce both commercial and technical lags. In the long run, this would lead to better utilisation of low-cost renewable energy and support India’s low-carbon transition.
A New Electricity Law?
A legislative overhaul of India’s electricity framework has long been pending. The sector continues to be governed by the Electricity Act, 2003. “The Electricity Act, 2003, is outpaced by market realities,” Devaguptapu said.
A draft amendment bill was circulated in 2025, though the timing of its passage remains uncertain. “If implemented thoughtfully, the changes could make tariffs more rational, improve service quality, and strengthen utilities as reliable assets for growth,” Gaba said. “If rushed or inequitable, they risk eroding trust and leaving vulnerable consumers behind.”
Two provisions in particular have drawn resistance — opening up distribution to multiple players, including private discoms, and the gradual removal of cross-subsidies that protect economically weaker consumers.
Devaguptapu believes enactment in 2026 is plausible. “Ultimately, passage will depend on political consensus and fiscal realism,” he said. “If implemented earnestly, it could reset India’s power sector toward transparency, competition and long-term sustainability."
