The draft National Electricity Policy, 2026, brought out by the Ministry of Power in January and open for public comments till March 19, mentions a bunch of new concepts, reflecting the government’s efforts to modernise the electricity sector. These concepts are not entirely new globally — they are being tried out sporadically in the developed markets — but were practically unheard of in India. The singular thrust of these ideas is to streamline electricity generation, transmission, and distribution by making them market-oriented.

Bilateral contract

One line in the draft NEP reads: “The Central Commission must establish required regulatory framework to implement bilateral contract settlement-based capacity procurement.” Bilateral contract settlement (BCS) is mentioned several times in the draft.

The Central Electricity Authority (CEA) has, for some time, been talking about ‘market-based economic despatch’ (MBED). Broadly, under MBED, all electricity supplies would be pooled and despatched on ‘cheapest-first’ basis (merit order despatch). Instead of each State scheduling its contracted generators, all running power plants would submit their bids into a common pool, and the cheapest available units would run first to meet total demand, subject to transmission constraints.

BCS is the other side of the coin. While MBED is about despatch of electricity, BCS is about the financial settlement between two contracting parties after the despatch. To illustrate, suppose ReNew Power has a power purchase agreement (PPA) with a Karnataka discom, say for ₹4 a kWhr. Today, ReNew will inject its power (after informing the load despatch centre in advance) and the Karnataka discom will draw power (though it may not be electricity produced at ReNew’s plant).

Under MBED, ReNew will bid into a common pool (likely run by Grid Controller India Ltd). Suppose the market-clearing price for supply of that time block is ₹3 a kWhr. Then the Karnataka discom will pay ₹3 to the pool and ₹1 to ReNew. The framework for this is called BCS.

Capacity markets

Another line in the draft policy reads: “Central Commission will explore introduction of capacity markets in a phased manner to ensure required capacity addition.”

At a conceptual level, ‘capacity markets’ are similar to ‘spinning reserves’, which are generation capacities (usually gas or coal) kept in readiness to inject power into the grid in case generation from a wind or solar farm suddenly falls. However, while spinning reserves are operational tools meant to activate within minutes, ‘capacity markets’ are procured years in advance, essentially as a standby. They address multi-day, seasonal adequacy. The standby capacities are procured through separate auctions.

‘Capacity markets’ contrast with ‘energy markets’. Energy market capacities are paid for the electricity they supply; capacity market generators are paid for being available when needed, whether or not they run. Think of energy markets as a lawyer employed by a company under a long-term, salaried contract, and capacity markets as a lawyer under a retainer.

The UK Department of Energy and Climate Change explains it thus: “The capacity market will deliver security of supply by providing generators with a steady retainer payment to be available to provide additional capacity when needed.”

Under the two-part tariff system in India (and elsewhere), capacity payments to generators are embedded in the tariff. In a PPA-heavy, regulated market like India, ‘capacity markets’ are a little out of place.

However, capacity markets will have their role in a fully liberalised market, with centrally pooled despatch and market-determined (as opposed to mutually agreed) prices — which is where the government is steering the sector. Further, whether capacity markets are needed when battery storage is fast becoming cheaper is a moot point.

This is why the draft policy uses the word “explore” in this context.

Cloud energy storage

The draft policy notes that “innovative concepts like ‘cloud energy storage’ can be explored to provide affordable and on-demand energy storage to consumers/utilities”.

Cloud energy storage is ‘storage-as-a-service’, which is becoming common in India, except that it refers to storage being available even to small generators such as rooftop solar. Today, the services of a pumped storage plant or battery energy storage system (BESS) are accessible only to large generators and discoms. ‘Cloud energy storage’ brings a “retail” scale to storage.

P2P trading

The draft NEP aims to promote peer-to-peer trading. While P2P is not new in India, it is yet to be operationalised. P2P refers to “anybody (rooftop solar, energy in a vehicle battery) selling electricity to anybody else (a shop, small plant, and so on)”.

This will happen when there is a common protocol for exchanging information (sellers, buyers), which is what the India energy stack is all about.

P2P has the potential to flatten peak demand by shifting some of it into solar hours; the government is understandably keen on that.

Published on March 2, 2026