As the government aggressively adds renewable energy (RE) capacities till March 2026, the share of thermal power in India’s power generation is expected to decline by the end of FY26.
According to Crisil Ratings, strong addition of RE capacities will pull down the share of coal-based (thermal) plants in power generation by over 500 basis points (bps) to around 67 per cent by next fiscal after rising continuously in the past five years through FY24.
The share of thermal power in overall power generation had increased to 73 per cent in FY24 from around 69 per cent in FY20. This was mainly because the growth in demand (at about 7 per cent during FY21 - FY24) was being met largely by thermal generation. RE and other sources (nuclear, hydel, biomass) clocked just about 3 per cent compound annual growth rate (CAGR) during this period, it added.
Rising RE capacities
Crisil Ratings, Senior Director Manish Gupta said that for the first time, we would see incremental RE generation growth (at 20 per cent) will be higher than the overall power demand growth of 5-6 per cent over FY25 and FY26.
This is because a strong government push has led to a significant step-up in RE capacity addition of more than 50 gigawatts (GW) in the next two years by FY26, which, although operating at relatively lower PLFs, will outpace thermal generation growth over the period,” he added.
Thermal PLFs to remain healthy
The PLFs of existing thermal plants will see a marginal fall but will remain healthy at more than 65 per cent by FY26 compared with 69 per cent last fiscal, Crisil Ratings said.
“This is because thermal power is needed to meet almost half of the incremental annual power demand over the near to medium term. This, along with limited capacity addition, will lead to continued dependence on the existing thermal capacities. Furthermore, thermal power will remain important for meeting the base load requirements due to the intermittent nature of RE capacity and absence of sustainable storage solutions,” it added.
Crisil Ratings Director Ankit Hakhu said, “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 per cent over FY21 to FY24 — and have healthy cash flows and support from government-driven schemes for the power sector such as LPS and Aatmanirbhar. Debt levels are expected to remain in check with limited capex requirements for these plants, supporting the credit profiles of the players.”