New Delhi: Power demand is anticipated to increase by 5-5.5% in the current fiscal year, as per estimates from Icra Ltd. This figure surpasses the 4.2% growth recorded in the previous fiscal year (FY25), yet it remains slower than the 7-9% growth observed during FY 2022-24. The expected growth rate is lower than the projected GDP growth for this fiscal year, which stands at 6.5%. Analysts indicate that if the country had not experienced an early onset of the monsoon, power demand would likely have aligned more closely with the GDP growth rate. “Icra forecasts the full-year demand growth for FY2026 to be between 5.0-5.5%, which is below its GDP growth expectation for this fiscal year (6.5%). This is attributed to the early arrival of the monsoon and the anticipation of an above-average monsoon, which reduces the demand for cooling and affects the agricultural sector. Although the demand growth in FY2026 is projected to exceed the 4.2% recorded in FY2025, it is expected to fall short of the over-8% growth seen during FY2022-2024,” stated Icra. It further noted that the total generation capacity addition in FY25 could reach 44 GW, encompassing both thermal and renewable sources, marking a 29.41% increase from the 34 GW in FY24, with the overall installed power generation capacity nearing 520 GW by March 2026. The rating agency also predicted that the all-India thermal plant load factor (PLF) would remain stable at 70% in FY2026, compared to 69.5% in FY2025. PLF is a measure of how effectively a plant uses its capacity. Icra attributed this rise in PLF to the anticipated growth in generation from renewable sources and the expected addition of 9-10 GW in the thermal segment in FY2026. “In the next five years, Icra projects that electricity demand will achieve a robust compounded annual growth rate (CAGR) of 6-6.5%, surpassing the 5% CAGR recorded over the past decade, driven by the increasing adoption of electric vehicles, green hydrogen, and the expansion of data center capacity,” remarked Vikram V, vice president & co-group head – corporate ratings, Icra.
The thermal segment is projected to contribute an additional 9-10 GW of capacity in FY2026, with the remainder primarily coming from renewable sources. Although renewable energy is anticipated to be the main factor driving the increase in generation capacity in the future, Icra indicated that thermal energy has experienced a rise in under-construction capacity over the last year, currently exceeding 40 GW. The report also highlighted that the coal inventory for domestic power plants has reached a five-year peak, approximately 20 days as of May 21, 2021, due to enhanced supply and a deceleration in the growth of thermal generation. It was noted that the losses incurred by distribution companies at the national level have decreased in FY2024 compared to FY2023, attributed to increased tariffs and subsidies, along with revenue grants from state governments to cover losses from the previous year. However, the disparity between the cost of supply and tariff realization continues to exist in most states. Furthermore, the gross debt of state-owned distribution companies has surged to Rs. 7.4 trillion as of March 2024, up from Rs. 6.6 trillion in March 2023, driven by borrowing to settle past dues to generators and to finance working capital and capital expenditures amid ongoing losses. This level of debt is deemed unsustainable for distribution companies, considering their current revenue and profitability. In discussing the distribution sector, Vikram V remarked: “Icra’s outlook for the power distribution sector remains pessimistic due to limited tariff increases and ongoing operational losses. The advancement of the smart metering initiative, along with the prompt execution of the fuel and power purchase cost adjustment framework, will be crucial in enhancing the financial health of distribution companies in the future.”
