Daijiworld Media Network - New Delhi
New Delhi, Jan 19: Thermal power’s dominance in India’s electricity generation is set to weaken further, with its share expected to fall below 70 per cent in the coming years as renewable energy capacity expands rapidly, according to a report released by Crisil Ratings on Monday.
The agency said thermal power’s contribution is projected to decline to about 72 per cent in FY26, down from nearly 75 per cent in FY25, reflecting the accelerating pace of renewable energy additions across the country.
Renewable power generation is expected to grow at a robust compound annual growth rate of 18–20 per cent over the current and next fiscal years. This surge will be supported by the addition of 75–85 gigawatts of new capacity, backed by a strong pipeline of utility-scale projects as well as rising installations in the commercial, industrial and rooftop segments.
Crisil noted that the expansion in renewable capacity will account for most of India’s incremental power demand, reducing the relative role of thermal generation. As a result, plant load factors at coal-based power stations are likely to soften to around 64–66 per cent over the current and next fiscal years, compared with 69 per cent in the previous year.
Despite the declining utilisation, thermal power producers are witnessing improved cash-flow visibility due to a higher number of power purchase agreements being signed. This has triggered a renewed phase of capital expenditure in the thermal segment. While this revival is expected to push up leverage for thermal generators over the next three to four years, Crisil said credit profiles are likely to remain stable, supported by healthy cash flows and prudent debt management.
On the demand side, power consumption growth is expected to moderate sharply to 1–2 per cent in the current fiscal, largely due to an early monsoon and a relatively mild summer. Demand is forecast to recover to 4–6 per cent in the next fiscal, aided by a low base effect. Overall, power demand is projected to grow at a CAGR of under 4 per cent over the current and next fiscal years, compared with 5.6 per cent recorded over the previous five years.
“Even as its share declines, thermal power continues to play a vital role in ensuring grid stability,” said Manish Gupta, deputy chief ratings officer at Crisil Ratings. He pointed out that the intermittent nature of renewable energy and the still-limited adoption of energy storage solutions constrain the grid’s ability to absorb large volumes of renewable power.
Meanwhile, independent power producers (IPPs) covered under Crisil’s portfolio have benefited from strong cash flows, leading to a reduction in leverage. However, with fresh investments picking up, leverage levels are expected to rise again and peak at around three times by FY29, said Dushyant Chauhan, associate director at Crisil Ratings.