New Delhi: India’s energy requirement is projected to grow by 5.5% year-on-year (YoY) in FY25, supported by an incremental capacity addition of 32-35 GW, primarily led by renewable energy projects, according to India Ratings and Research (Ind-Ra). The all-India peak demand reached a record high of 250 GW in May 2024 but moderated during Q2 due to favorable monsoon conditions and slower industrial activity.
In the first seven months of FY25, India’s energy demand grew by 4.75%, down from 7.4% in FY24 and 9.7% in FY23. Extreme weather conditions drove a 10.9% YoY surge in Q1FY25 demand, but demand growth flattened to 0.1% in Q2FY25.
Thermal power dominates, renewable growth accelerates
Thermal power continued to dominate the energy mix, contributing 73% of power generation during the first seven months of FY25. Thermal plant load factors (PLFs) are expected to average 69-70% for the year, reflecting steady utilization. Thermal capacity additions of 6-7 GW are projected in FY25, with 29 GW under construction and another 50 GW planned by 2032.
Renewables, including large hydro, account for 45% of India’s total installed capacity, which stood at 453 GW as of September 2024. Renewable energy’s contribution to power generation is expected to reach 23% in FY25. Solar continues to dominate renewable energy additions, with 11 GW added in the first half of FY25 and 28-30 GW expected by the end of the fiscal year.
Focus on storage and hybrid solutions
The increasing share of solar energy highlights the need for reliable storage solutions to address variability during non-solar hours. Peak demand on May 23, 2024, demonstrated this challenge: while total demand hit 235 GW at 3 PM, thermal power load peaked at 176 GW by 11 PM due to low renewable energy availability.
Ind-Ra estimates India will require 8-12 GWh of storage by 2027 and 300-350 GWh by 2030, particularly with storage capacities of 4-6 hours during peak evening demand. Auctions for renewable energy projects with storage capabilities reached 25 GW during April-October 2024, reflecting the increasing demand for firm and dispatchable renewable energy.
Merchant prices moderate amid stable coal stocks
Improved coal supplies have helped stabilize the merchant power market. Average prices in the day-ahead market dropped to ₹4.83/unit during 7MFY25, compared to ₹5.66/unit in 7MFY24. Coal stock levels also improved but remain slightly below normative levels of 18-24 days.
Ind-Ra expects average merchant prices to range between ₹4.5 and ₹5/unit in the near term. However, higher merchant tariffs during evening peak hours compared to solar hours reflect growing pressure on discoms to address non-solar supply gaps.
Outlook for FY25 and beyond
India’s renewable energy pipeline includes 80 GW of under-construction projects and an additional 95 GW under development. With the push for renewable auctions and hybrid tenders, capacity additions are expected to support growing energy demand while reducing dependence on thermal power in the long term.
The agency emphasized the need for timely project execution and investments in grid connectivity and storage to sustain renewable energy growth and ensure uninterrupted supply during peak demand hours.
