India, which has around 211 gigawatts (GW) of coal-based power capacity, will add 18 GW of additional coal-based capacity by March 2026.

According to India Ratings and Research (Ind-Ra), thermal capacity additions are expected to pick up pace with the commissioning of around 7 GW and 11 GW of under-construction thermal capacity in FY25 and FY26, respectively.

The rating agency expects the plant load factor, or capacity utilisation, of thermal power plants (TPPs) to remain healthy at around 70 per cent during FY25 and FY26, driven by continued higher thermal power contribution.

This will be attributed to continued power demand growth of 5.5-6 per cent y-o-y (8M FY25: 4.5 per cent; FY24: 7.4 per cent), an increase in domestic coal production, and continued dependence on coal-based generation, it added.

Bhanu Patni, Associate Director (Corporate Ratings) at Ind-Ra, said the agency continues to see healthy thermal plant load factors led by a continued dependence on coal-based generation. The power supply situation is expected to improve with increased capacity additions led by renewables.

The agency expects average merchant market prices to remain ₹4.5-5 per unit over FY25-FY26, amid an improved power supply position led by capacity additions.

The weighted exchange tariffs moderated to Rs 4.35 per unit in 8M FY25, led by a moderation in the power demand due to the excess rainfall during the year and improved supply.

Renewables

Patni added that the annual renewable capacity addition is expected to be around 30 GW over FY25-FY26 owing to reduced equipment prices, waiver of interstate transmission system charges, continued policy support, availability of liquidity, and established large corporate growth plans.

“However, the energy transition towards renewables will continue to hinge on the development of hybrid & energy storage capacities and a commensurate increase in evacuation infrastructure,” he pointed out.

The current capacity of domestic module manufacturing is around 67 GW, which is estimated to cross 115 GW over the next two years. The added focus on backward integration in cell manufacturing capabilities in the value chain should bode well for the sector.

Under the CPSU scheme, PM Kusum Scheme, and solar rooftop schemes, the domestic content requirement for renewables is increasing.

The government is also mulling to introduce an Approved List of Models and Manufacturers for solar cells, such as modules, to boost manufacturing capacity. However, an inflationary price scenario amid the higher cost of production of domestic cells and modules and a high basic customs duty on imports could create pricing pressure for developers.

Apart from renewables, Ind-Ra expects to add around 4 GW each of nuclear and hydro capacity over the next three years.

Nuclear and hydro projects would remain exposed to execution risk, given their long gestation period due to geological and technological aspects. However, Ind-Ra expects the government to continue supporting these projects to ensure their viability, given their strategic importance.