The share of thermal power in India’s electricity generation is expected to fall below 70% next fiscal, driven by slower growth in power demand and a sharp rise in renewable energy (RE) generation, according to Crisil Ratings. Thermal power’s share is projected to decline to 72% in FY26 from 75% in FY25, with a further reduction anticipated next year. As a result, plant load factors (PLFs) at thermal power plants are expected to moderate to 64–66% this fiscal from 69% in FY25. [Here, thermal power includes power generated through coal, lignite, gas and diesel.]
In contrast, renewable energy generation is set to expand at a robust pace of 18–20% annually over the current and next fiscals. This growth will be supported by 75–85 GW of new RE capacity additions, backed by a strong pipeline of utility-scale projects and a ramp-up in commercial, industrial, and rooftop installations. Consequently, renewables are expected to meet most of the incremental power demand in the country.
That said, the increasing signing of long-term power purchase agreements (PPAs), which improve cash-flow visibility, along with a healthy outlook for base-load power demand, is driving a revival in capital expenditure in the thermal power segment.
Manish Gupta, Deputy Chief Ratings Officer, Crisil Ratings, said, “Despite its declining share, thermal power remains crucial as grid absorption of RE is constrained by the intermittent nature of RE and the nascent adoption of energy storage solutions. This has sparked a revival in capex in the thermal power sector. Furthermore, distribution utilities have begun entering into long-term thermal PPAs to ensure round-the-clock power supply. Thus [as of Nov. 30, 2025] almost 85% of the 60 GW operational capacity held by independent power producers (IPPs) is now tied up (vs 79% at the end of last fiscal) through PPAs, providing improved revenue visibility and reducing volatility associated with the merchant market.”
Overall power demand growth is expected to slow to 1–2% this fiscal due to an early monsoon and a relatively cool summer, before rebounding to 4–6% next fiscal on a low base. Despite this, the compound annual growth rate (CAGR) is projected to be less than 4% over this fiscal and next, weaker than the 5.6% over the last five fiscals.
The analysis covered 26 IPPs with a combined operational capacity of nearly 60 GW, accounting for more than 75% of the country’s private thermal power capacity.
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