By Saurav Anand
For the first time, thermal power’s share in India’s electricity generation is expected to fall below 70 per cent in the next fiscal, as a combination of slower power demand growth and a sharp acceleration in renewable energy generation reshapes the country’s power mix, according to a report by Crisil Ratings.
Thermal power’s share is projected to decline to about 72 per cent in the current fiscal from nearly 75 per cent in fiscal 2025, before slipping below the 70 per cent mark next year.
This shift is expected to weigh on the utilisation levels of coal-based plants, with plant load factors (PLFs) likely to moderate to 64–66 per cent in the current and next fiscal, down from 69 per cent in fiscal 2025.
Crisil attributes the near-term moderation in demand to weather-related factors. Power demand growth is expected to slow to 1–2 per cent this fiscal due to an early monsoon and a relatively cooler summer.
Growth is forecast to rebound to 4–6 per cent in the next fiscal, but the two-year compound annual growth rate is expected to remain below 4 per cent, compared with 5.6 per cent over the previous five fiscals.
Renewable Generation Surges
In contrast, renewable energy generation is poised to grow at a compound annual rate of 18–20 per cent over the current and next fiscal, driven by capacity additions of 75–85 GW. The growth pipeline spans utility-scale solar and wind projects, alongside a ramp-up in commercial and industrial installations and rooftop solar.
As a result, renewables are expected to meet most of the incremental power demand in the country.
Despite the declining share of thermal power in generation, Crisil notes that coal-based capacity continues to play a central role in ensuring grid stability.
“Despite its declining share, thermal power remains crucial as grid absorption of RE is constrained by the intermittent nature of RE and the nascent adoption of energy storage solutions,” said Manish Gupta, Deputy Chief Ratings Officer, Crisil Ratings.
This has led to a revival of capital expenditure in the thermal power segment, supported by an increase in long-term power purchase agreements (PPAs) signed by distribution utilities to secure round-the-clock supply.
According to the report, nearly 85 per cent of the 60 GW operational capacity held by independent power producers (IPPs) is now tied up under PPAs, compared with 79 per cent at the end of the previous fiscal. This provides improved revenue visibility and reduces exposure to volatility in the merchant power market.
The structure of these PPAs further cushions cash flows. Capacity charges are fully recoverable if the normative plant availability factor is achieved, insulating a portion of revenues from fluctuations in PLFs. Around 40 per cent of the tied-up capacity follows a cost-plus bidding framework, allowing full pass-through of coal costs.
For capacity awarded through competitive bidding, Crisil expects only a limited impact on operating cash flows from lower PLFs, as variable charges—after accounting for coal costs—form a relatively smaller portion of total revenues.
Rated Portfolio Analysis
Crisil’s analysis covers 26 IPPs with a combined operational capacity of nearly 60 GW, accounting for more than three-fourths of the country’s private thermal power capacity.
Buoyed by stable cash flows in recent years, leverage levels across rated IPPs have declined sharply. “Debt-to-Ebitda declined from around seven times in fiscal 2020 to 2.2 times in fiscal 2025,” said Dushyant Chauhan, Associate Director, Crisil Ratings.
However, the report notes that leverage is expected to rise modestly as select players undertake fresh thermal capacity additions. “Leverage is expected to peak at around three times by fiscal 2029 before normalising as new capacities are commissioned and start generating cash flows,” Chauhan said.
Most of the upcoming expansions are extensions of existing plants by established players and are backed by tied-up offtake arrangements, limiting implementation risks. Crisil said sustained cash flows are expected to support debt servicing despite higher borrowings.
The outlook remains sensitive to weather patterns affecting demand and the pace of renewable capacity additions, the report added.