In Short : The share of thermal power in India’s energy mix is projected to decline to 67% by FY26. This reduction reflects the country’s shift towards renewable energy sources and its commitment to diversifying its energy portfolio. As renewable energy capacity continues to grow, thermal power’s dominance in electricity generation is expected to decrease, paving the way for a more sustainable and balanced energy future.
In Detail : In the fiscal 2023-24, thermal power accounted for 73% of the country’s cumulative power generation while the share of RE stood at 11%, as per data from Crisil.
Given the government’s push to add renewable energy capacities, the share of thermal power in the country’s overall power generation is expected to decline.
According to Crisil Ratings, the share of coal-based power in electricity generation is expected to fall to 67% by the fiscal year 2025-26 after witnessing a consecutive rise in the past five years. Consequently, the share of renewable energy in the power generation mix is set to increase 20%.
In the fiscal 2023-24, thermal power accounted for 73% of the country’s cumulative power generation while the share of RE stood at 11%, as per data from Crisil.
“The trend is set to reverse with the share of thermal expected to fall over 500 basis points (bps) to 67% by fiscal 2026. For the first time, we would see incremental RE generation growth (at 20%) will be higher than the overall power demand growth of 5-6% over fiscal 2025 and 2026,” said Manish Gupta, Senior Director, Crisil Ratings.
Gupta noted that a strong government push has led to a significant step-up in RE capacity addition of more than 50 gigawatt (GW) in the next two years by FY26, which, although operating at relatively lower plant load factors, will outpace thermal generation growth over the period.
The share of thermal power in overall power generation had increased to 73% in fiscal 2024 from 69% in FY20 primarily due to the growth in power demand (at 7% during fiscals 2021-2024) which was largely being met by thermal generation. RE and other sources including nuclear, hydel, and biomass clocked just 3% compound annual growth rate during this period.
However, even as the share of thermal power generation falls, Crisil does not see any major impact on the PLFs of the existing coal-based plants.
“The PLFs of existing thermal plants will see a marginal fall but will remain healthy at more than 65% by FY26 compared with 69% last fiscal,” it said. “This is because thermal power is needed to meet almost half of the incremental annual power demand over the near to medium term.”
Moreover, due to the intermittent nature of RE capacity and absence of sustainable storage solutions, thermal power is expected to remain important for meeting the base load requirements.
“Additionally, despite the marginal fall in PLF, the business risk profile of thermal players will still be comfortable,” Crisil said. “Around half of these capacities are under a tariff model which ensures full recovery of fixed costs, such as operational and maintenance expense, interest on loan, depreciation as well as a fixed return on equity, so long as the plant is available to operate above required normative levels.”
Improved supply of coal and healthy inventory levels is likely to provide cushion to earnings of the remaining capacities.
“While the impact of reduction in PLFs on the business profiles of thermal players is expected to be limited, these companies have positioned themselves well by materially reducing debt — down 25% over fiscals 2021 to 2024 — and have healthy cash flows and support from government-driven schemes for the power sector such as Late Payment Surcharge. Debt levels are expected to remain in check with limited capex requirements for these plants, supporting the credit profiles of the players,” said Ankit Hakhu, Director, CRISIL Ratings.
