"50 GW RE Capacity Addition by FY26 Expected to Reduce Thermal Power's Share in Generation"

As the Indian government accelerates the addition of renewable energy (RE) capacities through March 2026, the share of thermal power in the country's power generation is projected to decrease. Crisil Ratings forecasts that this shift will result in a decline of over 500 basis points in the share of coal-based (thermal) plants, bringing it to approximately 67% by the end of the fiscal year 2026.

Thermal power's share had increased to 73% in FY24 from around 69% in FY20, driven by a 7% annual growth in demand met largely by thermal generation. During this period, RE and other sources, such as nuclear, hydel, and biomass, experienced only a 3% compound annual growth rate (CAGR).

Crisil Ratings Senior Director Manish Gupta noted that for the first time, the incremental growth in RE generation, expected to be around 20%, will surpass the overall power demand growth of 5-6% over FY25 and FY26. This is attributed to the government's robust push for RE, with more than 50 gigawatts (GW) of new capacity set to be added in the next two years. Although these new RE capacities will operate at lower plant load factors (PLFs), they will still outpace the growth of thermal generation.

Existing thermal plants will see a slight decline in PLFs but are expected to maintain a healthy rate above 65% by FY26, compared to 69% last fiscal. Thermal power will continue to be crucial for meeting nearly half of the incremental annual power demand and fulfilling base load requirements due to the intermittent nature of RE and the current lack of sustainable storage solutions.

Crisil Ratings Director Ankit Hakhu added that the impact of reduced PLFs on the business profiles of thermal power companies is anticipated to be minimal. These companies have significantly reduced their debt—by 25% from FY21 to FY24—and benefit from strong cash flows and government support through schemes like LPS and Aatmanirbhar. Debt levels are expected to remain stable with limited capital expenditure needs, supporting the credit profiles of these companies.

HBL