New Delhi [India], January 3 : India's power sector faces a critical juncture as demand is set to recover in 2026 to reverse a period of underperformance driven by weak consumption trends.
According to a recent report by Jefferies, the sector saw subdued activity throughout 2025, with power demand remaining flat year-on-year between April and November 2025 due to extended monsoons and sluggish industrial output.
The report notes that excessive rainfall during the monsoon months impacted residential cooling requirements and reduced the need for irrigation and pumping in the agricultural sector. Jefferies analysts observed that "power demand in India is weak in years of above-average rainfall," citing fiscal years 2008 and 2014 as historical precedents where demand rose by only 1 to 2 per cent. Consequently, the firm lowered its demand growth estimate for the 2026 fiscal year to 2 per cent, down from an earlier projection of 4 per cent.
Despite the current slowdown, the report expects a medium-term rebound in demand to levels of 5 to 6 per cent. This anticipated recovery is linked to normalized weather patterns, increased industrial activity, and the rising penetration of consumer durables, particularly cooling products. Long-term growth drivers also include a 10 per cent capital expenditure compound annual growth rate (CAGR) and the expansion of data centers and electric vehicles.
The stagnation in demand has trickled down to the renewable energy segment, leading to a slowdown in Power Purchase Agreement (PPA) signings. While renewable energy awards reached 41 GW in fiscal year 2025, the pace slowed to 8.7 GW between April and November 2025. State Electricity Boards have delayed signings, leaving approximately 44 GW of PPAs currently unsigned. Additionally, delays in transmission connectivity have emerged as a bottleneck for the sector.
Thermal power continues to play a fundamental role in meeting base load requirements. The Ministry of Power increased its thermal capacity addition target to 97 GW for the period between fiscal years 2024 and 2035, up from the previous goal of 80 GW. Currently, 36 GW of thermal capacity is under construction, with 23 GW awarded and another 24 GW in the pipeline. Jefferies highlights that "thermal generation remains essential to meet base load demand," as states issue new bids with established coal supplies to lower risks for generators.
The report concludes that while valuation re-rating prospects remain dim until demand fully recovers, the sector's outlook hinges on the return to normalized consumption patterns.