Thermal share in India’s power generation to fall below 70% in FY27: Crisil Ratings

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• Thermal power's share in India's electricity to drop below 70% next fiscal
• Renewable energy generation to grow 18–20% CAGR, meeting most new demand
• 85% of IPP thermal capacity now secured by long-term PPAs, up from 79% last year

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The share of thermal power in India’s electricity generation is expected to drop below 70% for the first time next fiscal, weighed down by slower demand growth and a sharp ramp-up in renewable energy capacity, according to Crisil Ratings.

Thermal power’s share is seen slipping to about 72% in the current fiscal (FY26) from around 75% in FY25, with plant load factors (PLFs) moderating to 64–66% in FY26 and FY27 from 69% last year.

“Despite its declining share, thermal power remains crucial as grid absorption of renewable energy is constrained by its intermittent nature and the nascent adoption of energy storage solutions,” said Manish Gupta, deputy chief ratings officer at Crisil Ratings. This has led to a revival in thermal sector capital expenditure, even as renewables dominate incremental capacity additions.

Crisil noted that distribution utilities have increasingly been entering into long-term thermal power purchase agreements (PPAs) to secure round-the-clock supply. Nearly 85% of the 60 GW operational capacity held by independent power producers (IPPs) is now tied up through PPAs, compared with 79% at the end of last fiscal, improving revenue visibility and reducing exposure to the merchant market. These PPAs typically follow a two-part tariff structure, ensuring recovery of fixed costs if normative availability levels are met, while a significant portion also allows full pass-through of coal costs.

Power demand growth is expected to slow to 1–2% in the current fiscal due to an early monsoon and relatively cooler summer, before rebounding to 4–6% next fiscal on a low base. In contrast, renewable energy generation is projected to grow at a compound annual rate of 18–20% over the current and next fiscal, supported by 75–85 GW of capacity additions, enabling renewables to meet most of the incremental demand in the country.

“Buoyed by healthy cash flows, leverage in our rated thermal portfolio has declined sharply over the last few years,” said Dushyant Chauhan, associate director at Crisil Ratings. He added that debt-to-Ebitda levels fell to about 2.2 times in FY25 from nearly seven times in FY20, though leverage is expected to rise modestly and peak at around three times by FY29 as fresh thermal capacities are commissioned, before normalising thereafter.