India’s power sector is poised for robust growth in the fiscal year 2025, with a projected demand surge of approximately 6%, despite a moderation from the previous fiscal year.
The sector’s healthy demand growth continued in the first two months of FY25, exceeding 10%, supported by a favourable base. This optimistic outlook is substantiated by the record maximum power demand of 250 GW on May 30, as announced by the Ministry of Power. In FY24, the power sector witnessed a significant upturn in electricity demand, marked by a 7.6% increase year-on-year. This surge was driven by resilient economic activity and weather-related loads. Consequently, the nationwide average thermal plant load factor (PLF) increased to 69.1% in FY2024, up from 64.2% in FY2023. The total power generation capacity addition improved significantly to 25.4 GW in FY24, up from 16.9 GW in FY23. This growth was propelled by enhancements in the renewable energy and thermal segments, alongside the commissioning of 1.4 GW of nuclear power capacity. The thermal generation segment was pivotal in meeting the escalating demand, reaching an all-time high of 176 GW during non-solar hours.
The growth trajectory extends to the renewable energy (RE) sector, which is anticipated to witness a substantial increase in installed capacity, contributing significantly to the overall power generation landscape. The gross addition in installed power capacity is expected to exceed 30 GW in FY25, with the RE segment leading the charge, following a commendable performance of 25 GW in FY24.
Tariff hikes approved for FY25 have been relatively modest, with an average increase of 2.5%, lower than the 3.9% approved for FY24. This subdued increase comes at a time when the subsidy dependence of distribution companies (Discoms) on state governments is projected to rise significantly. The subsidy dependence is estimated to reach Rs 1.9 trillion in FY25, up from Rs 1.7 trillion in FY23, attributed to the rising cost of supply and the introduction of additional subsidy schemes in certain states.
Despite the positive outlook, challenges persist, notably in the distribution segment. The progress in the issuance of tariff orders for state distribution utilities (Discoms) remains sluggish, with only 11 out of 28 states having issued orders as of May 2024. This delay is partly attributed to ongoing elections. Furthermore, the average tariff hikes approved for FY25 have been relatively muted, standing at 2.5%, lower than the preceding fiscal year.
The coal import dynamics have also witnessed a shift, with imports by power utilities surging by 18.1% year-on-year in FY24. This reversal in trend was influenced by governmental directives to blend imported coal for domestic coal-based projects, reflecting evolving policy interventions aimed at optimising resource utilisation. The sustainability of these achievements hinges on addressing structural inefficiencies, particularly in high-loss states such as Bihar, Jharkhand, Madhya Pradesh, Odisha, and Uttar Pradesh, where aggregate technical and commercial (AT&C) losses exceed 20%. The power sector’s ability to navigate these challenges and capitalise on growth opportunities underscores the coordinated efforts of stakeholders, including government agencies, power generation companies, and grid operators.
Their steadfast commitment to enhancing generation capacity and implementing policy reforms remains pivotal in meeting the nation’s energy demands. The Ministry of Power reiterated the significance of renewable energy sources, especially solar and wind, in augmenting the power supply during peak hours, highlighting the sector’s transition towards a sustainable and diversified energy ecosystem.
