Fossil Fuel Share in Power Generation Set to Drop Below 70% Next Fiscal
India's power generation landscape is undergoing a significant shift. The share of fossil fuels in electricity production will fall below 70% in the next financial year. This change comes from slower growth in power demand and a strong surge in renewable energy generation. Ratings agency Crisil made this announcement on Monday.
Thermal Power Share Declines
Crisil expects the share of thermal power to slip to 72% in 2025-26. This is down from nearly 75% in the last fiscal year. Thermal power includes coal, lignite, gas, and diesel sources. As a result, plant load factors for thermal power plants will likely fall. They are projected to drop to 64-66% in the current and next fiscal years. This compares to 69% in the last financial year.
Power Demand Growth Slows
Growth in power demand is expected to decelerate to 1-2% this fiscal year. An early monsoon and a relatively cool summer are the main reasons. However, demand should rebound to 4-6% next fiscal year on a low base. Despite this recovery, the compound annual growth rate will be less than 4% over this fiscal and the next. This is weaker than the 5.6% recorded over the last five fiscal years.
Renewable Energy Surges Ahead
In contrast, renewable energy generation is poised for strong growth. It will log a compound annual growth rate of 18-20% over this fiscal and the next. This surge is driven by 75-85 gigawatts of capacity additions. A robust pipeline of utility-scale projects supports this expansion. Ramp-ups in commercial, industrial, and rooftop installations also contribute. Renewable energy will meet most of the incremental power demand in the country.
Thermal Capex Revival and Credit Outlook
An uptick in long-term power purchase agreements is reviving capital expenditure in the thermal segment. A healthy outlook for base-load demand also plays a role. Crisil says this will push up leverage for thermal power producers over the next 3-4 years. However, steady cash flows and controlled debt levels should keep credit profiles stable.
India's Current Power Capacity
India's total installed power generation capacity currently stands at nearly 514 gigawatts. This comprises about 247 gigawatts of thermal capacity and 267 gigawatts of non-fossil capacity. The government continues to expand non-fossil generation capacity. This aligns with its 500 gigawatt target for 2030.
Thermal Power Remains Crucial
Coal is expected to remain central to India's electricity system over the next few years. Despite its declining share, thermal power stays crucial. Grid absorption of renewable energy faces constraints from its intermittent nature. Nascent adoption of energy storage solutions also limits integration. This situation has sparked a revival in capital expenditure in the thermal power sector.
Manish Gupta, deputy chief ratings officer at Crisil Ratings, commented on the trend. He highlighted the ongoing importance of thermal power for grid stability.
