India’s electricity demand will grow at a compound annual growth rate (CAGR) of 6.0–6.5% over the next five years, higher than the 5.0% CAGR achieved over the past decade—according to a new report from credit rating agency ICRA. This growth will be driven by the rising penetration of electric vehicles (EVs), green hydrogen and the increase in data centre capacity.
“EVs, data centres & green hydrogen are expected to contribute to 20-25% of the incremental power demand over the next five-year period from FY2026 to FY2030. The growth in demand for grid capacity is expected to be offset to some extent, by the rising adoption of rooftop solar and off-grid projects, driven by schemes such as the Pradhan Mantri Surya Ghar Yojana,” said Vikram V, vice president & co-group head – Corporate Ratings, ICRA.
The EV segment is expected to witness an increase in penetration across the segments, with three-wheelers leading the adoption followed by two-wheelers, e-buses and passenger vehicles. With respect to green hydrogen, ICRA considered a gradual scale-up in capacity, given the relatively higher cost of green hydrogen against grey hydrogen currently.
While a major portion of the incremental power demand is expected to be met through increase in the renewable energy (RE) capacity, the Central and state governments are encouraging new thermal power projects to ensure sufficient buffer in the installed capacity to meet the growing demand. This is reflected in the new project announcements by public sector undertakings and private power producers as well as long-term power purchase bids called by state distribution utilities after a decade of dormancy.
ICRA expects the power generation capacity addition to reach an all-time high of 44 GW in FY2026, a sharp step up from the previous high of 34 GW in FY2025, with the overall installed power generation capacity reaching close to 520 GW by March 2026. The thermal segment is expected to contribute 9-10 GW in FY2026, with the balance largely contributed by the RE segment.
While RE would remain the key driver of the generation capacity addition, going forward, the thermal segment has seen an increase in under-construction capacity over the past 12 months and currently stands at over 40 GW. Given these factors, ICRA maintains a Stable outlook on the thermal power segment.
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