India's power demand to grow 5.5% in FY26: Icra

New Delhi: Power demand is expected to grow 5-5.5% in the current fiscal year, according to estimates by Icra Ltd. Although this is higher than the 4.2% growth last fiscal (FY25), it would be slower than the 7-9% growth seen in FY 2022-24.

The projected growth is lower than expected GDP growth for this fiscal year at 6.5%. Analysts suggest that had the country not seen an early onset of the monsoon, the power demand would have been much closer to the GDP growth rate.

"Icra projects the full-year demand growth for FY2026 at 5.0-5.5%, lower than its expectation for the GDP growth for this fiscal (6.5%). This is owing to the early onset of the monsoon and expectations of an above average monsoon, which dampens the demand for cooling as well as demand from the agriculture segment. While the demand growth in FY2026 is expected to be higher than the 4.2% reported in FY2025, it is expected to trail the over-8% growth seen during FY2022-2024," said a statement from Icra.

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It said the total generation capacity addition in FY25 may reach 44 GW, including both thermal and renewable, logging a 29.41% increase compared with 34 GW in FY24, with the overall installed power generation capacity reaching close to 520 GW by March 2026.

The rating agency also projected the all-India thermal plant load factor (PLF) level to remain flat at 70% in FY2026 against 69.5% in FY2025. PLF measures how efficiently a plant utilizes its capacity. Icra attributed this increase in PLF to the growth in generation expected from renewable sources and 9-10 GW capacity addition expected in the thermal segment in FY2026.

“Over the next five years, Icra expects the electricity demand to achieve a healthy compounded annual growth rate CAGR of 6-6.5%, higher than the 5% CAGR achieved over the past decade, driven by the demand from rising adoption of electric vehicles, green hydrogen and the increase in data centre capacity,” said Vikram V, vice president & co-group head - corporate ratings, Icra.

The thermal segment is expected to add 9-10 GW capacity in FY2026, with the balance largely contributed by renewables. While renewable energy would remain the key driver of the generation capacity addition going forward, Icra said thermal has seen an increase in under-construction capacity over the past 12 months and currently stands at over 40 GW.

The statement also noted that the coal stock for domestic power plants is at a five-year high at around 20 days as of 21 May 21, following improved supply and a slowdown in thermal generation growth.

It said distribution companies' losses at the all-India level had witnessed a decline in FY2024 over FY2023, led by higher tariff and subsidy along with the revenue grants from state governments to fund previous year’s losses.

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However, the gap between the cost of supply and tariff realization persists across most states. Moreover, the gross debt for state-owned discoms' witnessed a sharp increase to Rs. 7.4 trillion as of March 2024 from Rs. 6.6 trillion in March 2024, driven by debt availed to clear the past dues to generators and to fund working capital and capex amid continued losses, it said, adding that such high debt levels are unsustainable for discoms, given their current revenues and profitability.

Commenting on the distribution segment, Vikram V said: “Icra’s outlook for the power distribution segment remains negative amid limited tariff hikes and continued loss-making operations. The progress in the smart metering programme along with the timely implementation of fuel & power purchase cost adjustment framework would play an important role in improving the discom finances, going forward.”