New Delhi [India], January 19 : The share of thermal power in India's electricity generation is expected to fall below 70% in the next financial year for the first time, driven by slower growth in power demand and a sharp rise in renewable energy (RE) generation, according to a report by Crisil Ratings.
Crisil Ratings estimated that thermal power's share will decline to about 72% in the current fiscal from nearly 75% in FY25, before slipping further below the 70% mark next year. As a result, plant load factors (PLFs) of thermal power plants are projected to moderate to 64-66% in the current and next fiscal, compared with 69% in FY25.
Growth in power demand is expected to decelerate to 1-2% this fiscal because of an early monsoon and a relatively cool summer, but rebound to 4-6% next fiscal on a low base.
Despite this, the compound annual growth rate (CAGR) will be less than 4% over this fiscal and next, weaker than the 5.6% over the last five fiscals. In contrast, RE generation is poised to log a CAGR of 18-20% over this fiscal and next, driven by 75-85 gigawatt (GW) of RE capacity additions amid a robust pipeline of utility projects and a ramp-up in commercial and industrial and rooftop additions. This will result in RE meeting most of the incremental power demand in the country, it highlighted.
The increase in power purchase agreement (PPA) signings, which provide better cash-flow visibility and a healthy outlook for long-term base-load power demand are driving a revival in capital expenditure (capex) in thermal power.
Manish Gupta, Deputy Chief Ratings Officer, Crisil Ratings, said, "Despite its declining share, thermal power remains crucial as grid absorption of RE is constrained by the intermittent nature of RE and the nascent adoption of energy storage solutions. This has sparked a revival in capex in the thermal power sector. Furthermore, distribution utilities have begun entering into long-term thermal PPAs to ensure round-the-clock power supply."
"Thus, almost 85% of the 60 GW operational capacity held by independent power producers (IPPs) is now tied up (vs 79% at the end of last fiscal) through PPAs, providing improved revenue visibility and reducing volatility associated with the merchant market," he added.
Despite the declining share of thermal power, Crisil Ratings noted that coal- and gas-based generation will continue to play a critical role in ensuring grid stability, given the intermittent nature of renewables and the early stage of energy storage adoption. This has led to a revival in thermal power capital expenditure, supported by a rise in long-term power purchase agreements (PPAs) with distribution utilities.