India is poised to enhance its power generation capacity by 30 gigawatts (GW) in the current fiscal year, predominantly driven by the renewable energy sector. According to a report by rating agency ICRA, over 80% of this new capacity will be sourced from renewable energy, reflecting a significant shift towards sustainable power solutions. This follows the addition of 25 GW in the previous fiscal year (FY24).
ICRA attributes this anticipated growth to a robust project pipeline and favourable pricing for solar modules, projecting an addition of 25 GW in renewable energy capacity alone. As the demand for electricity continues to escalate, the country is set to intensify its efforts in capacity augmentation across the sector. Additionally, the government has plans to bolster investment in new thermal power projects, targeting an 80 GW increase in thermal capacity by 2032.
The rating agency noted that the expansion in thermal capacity for this fiscal year would be primarily led by state and central utilities, facilitated by improved plant load factors (PLF). “ICRA’s outlook for the thermal power segment is stable, following the improvement in the thermal PLF and healthy demand growth, thereby improving visibility on signing of new power purchase agreements (PPAs),” the agency stated.
ICRA projects a slight increase in the all-India thermal PLF level to 70% in FY25 from 69% in FY24, driven by growing electricity demand and limited thermal capacity additions. “The thermal segment is expected to add 5-5.5 GW capacity in FY25, with the balance 25 GW contributed by the renewable energy segment. While the RE segment would remain the key driver of the generation capacity addition going forward, ICRA expects the thermal segment to witness new project announcements, given the healthy demand growth,” said an official from ICRA.
The agency highlighted that if the current growth rate of 6.5-7% in electricity demand continues till 2030, there would be a need for an additional 40-50 GW of thermal capacity beyond the existing 35 GW under development.
However, ICRA’s outlook for the power distribution segment remains negative, citing limited tariff hikes and ongoing loss-making operations. The average spot power tariffs in the day-ahead market (DAM) of the Indian Energy Exchange moderated to ₹5.2 per unit in FY24, down from ₹5.9 per unit in FY23.
The report also noted improvements in the coal stock levels for domestic power plants due to better supply from domestic sources and the use of imported coal for blending. “The contraction in open market coal prices and the improved coal stock situation, along with the moderation in demand growth, are expected to ease the short-term tariffs in FY25,” ICRA said.
In the distribution sector, the agency foresees a significant acceleration in the installation of smart meters under the Revamped Distribution Sector Scheme (RDSS) launched in July 2021. The government has sanctioned the replacement of 222 million meters across the country, with tenders for 118 million meters already awarded. Despite the slow progress, with only 11.6 million smart meters installed as of June 12, ICRA expects a substantial increase in installations over the next two years, enhancing billing and collection efficiency for discoms.
Despite the discoms’ loss-making operations, the tariff hikes approved for FY25 remain muted across most states. “The delays in pass-through of cost variations, along with elevated AT&C losses and large dues from state governments, remain the key challenges for the discoms,” an ICRA official noted. The agency further expects the cash gap per unit for discoms at the all-India level to remain high at 45 paisa per unit in FY25.
