The share of thermal power in India’s overall power generation is projected to decline to 67% by the fiscal year 2025-26, down from 73% in FY24, according to Crisil Ratings. While thermal power has met growing electricity demand over the past five years, the upcoming surge in renewable capacity—over 50 gigawatts (GW) by FY26—will outpace thermal power generation growth. This marks the first time incremental RE generation growth, at 20%, will surpass overall power demand growth of 5-6% in FY25 and FY26.
Despite the anticipated decline in thermal power’s share, Crisil expects the plant load factors (PLFs) of existing coal-based plants to remain healthy, with only a slight drop from 69% in FY24 to over 65% by FY26. Thermal power will continue to play a crucial role in meeting base load requirements due to the intermittent nature of renewable energy and the lack of sustainable storage solutions.
Crisil also highlighted that thermal power companies are well-positioned to handle the reduced PLFs, thanks to a tariff model that ensures the recovery of fixed costs, such as operational expenses and return on equity, as long as plants operate above required levels. Additionally, improved coal supply and healthy inventory levels are expected to cushion the earnings of these plants.
Thermal power companies have strengthened their financial positions by reducing debt by 25% from FY21 to FY24 and maintaining healthy cash flows. With limited capex requirements and support from government schemes like the Late Payment Surcharge, the credit profiles of these companies are expected to remain robust.