The country’s power generation segment is witnessing a major shift, with renewables replacing thermal power in the installed capacity mix at a fast pace. During 2023-24, 18,562 MW of renewable energy has been added, whereas only 7,348 MW of thermal capacity has been added during the same period. Going forward, the pace of energy transition is expected to accelerate, given the government’s focus on meeting its climate change targets. Indian Infrastructure provides an overview of the country’s power generation segment…
Segment growth and performance
As of April 2024, the total installed capacity in the power sector stood at 442 GW. Fuel-wise, coal- and lignite-based power had the highest share in the total installed power capacity at 49 per cent, followed by solar at 19 per cent.
Large hydro contributed to 11 per cent of the capacity, followed by wind at 10 per cent, gas at 6 per cent, bioenergy and nuclear at 2 per cent each and small hydro at 1 per cent. The share of renewables reached nearly 43 per cent with the inclusion of large hydro (46,928.17 MW).
The installed power capacity grew at a compound annual growth rate (CAGR) of 4.4 per cent between 2018-19 and 2023-24. While conventional power capacity has grown at a CAGR of 1.5 per cent during the past five years, renewable energy has grown at a CAGR of 9.1 per cent.
Conventional capacity addition has considerably slowed down in recent years, with generators and lenders moving away from coal/gas-based projects due to environmental concerns. Meanwhile, renewable capacity addition has continued to grow due to increased tendering activity, reduced execution risks and cost-reflective tariffs.
In absolute terms, around 25,698 MW of net capacity was added in 2023-24, of which 5,754 MW was based on thermal power sources, 18,484 MW on renewables (including small-hydro), 60 MW on large hydro and 1,400 MW on nuclear.
Meanwhile, the total recorded generation (including renewable energy sources) stood at 1,739 BUs in 2023-24. The renewable energy generation during 2023-24 (including large hydro) was around 360 BUs. In terms of fuel sources, thermal power accounted for the largest share of the generation mix at 76 per cent, followed by renewable sources at 21 per cent and nuclear power at approximately 3 per cent. The total generation grew at a CAGR of 4.79 per cent between 2018-19 and 2023-24. Thermal generation grew at 4.3 per cent and renewable energy generation at 12.24 per cent during this period.
On the operational performance front, the thermal plant load factor (PLF) improved to 76.79 per cent in April 2024 from 71.39 per cent in April 2023. During April 2024, the PLF of gas-based plants was 20.65 per cent and thermal power plants (TPPs) was 76.87 per cent. This could be attributed to healthy electricity demand growth leading to improved capacity utilisation.
Recent developments
In April 2024, the Ministry of Power (MoP) initiated steps to operationalise gas-based power plants to address the escalating electricity demand during the summer months. Under Section 11 of the Electricity Act, 2003, directives were issued to gas-based generating stations to maximise power generation capacity. A substantial portion of these stations remains underutilised due to commercial considerations. The order, effective from May 1, 2024, to June 30, 2024, is aimed at optimising power availability during the peak demand period, akin to measures taken for imported-coal-based plants. Grid Controller of India Limited will coordinate with gas-based plants regarding power requirements, prioritising power purchase agreement (PPA) holders. Any surplus power will be offered in the open market. A high-level committee chaired by the Central Electricity Authority (CEA) will oversee implementation.
In March 2024, the MoP advised all coal-fired TPPs to continue importing coal at 6 per cent for blending in a bid to prepare for the upcoming peak demand season. This is in continuation of its October 2023 order for blending imported coal at 6 per cent (by weight) till March 2024.
In April 2024, the MoP directed power generating companies to offer surplus power for sale in the power markets. It was observed that some power generators were not offering their un-requisitioned surplus power—after fulfilling medium and long-term procurement agreements—in the power market, leading to unused power capacity nationwide. This directive was issued in response to the surge in peak power demand.
During the 2024 interim budget presentation, the finance minister announced important initiatives promoting sustainable energy and electric mobility. A noteworthy revelation includes the solarisation of 10 million households through the implementation of rooftop solar plants. The announcement comes in the wake of the recent Pradhan Mantri Suryodaya Yojana initiative, which seeks to decrease electricity costs for impoverished and middle-class households, concurrently fostering India’s self-sufficiency in the energy sector. The finance minister highlighted that the initiative would result in households saving between Rs 15,000-Rs 18,000 per year through the opportunity to sell excess power to distribution companies.
Additionally, India will invite private firms to invest approximately $26 billion in its nuclear energy sector to boost electricity production from non-carbon-emitting sources. This marks the first time the country seeks private investment in nuclear power, a sector that currently contributes less than 2 per cent to India’s total electricity generation. The investment is aimed at helping India achieve its goal of having 50 per cent of its installed electric generation capacity come from non-fossil fuels by 2030, up from the current 42 per cent.
Outlook
The CEA’s National Electricity Plan (NEP) released in 2023 projects 900 GW of total power capacity by 2031-32. Of this, roughly 40 per cent is expected to come from solar power, which is higher than the 29 per cent share from coal and lignite power. Wind power is expected to make up 13 per cent of the capacity, while small-hydro, hydropower and pumped storage will contribute only 11 per cent in total. The required funding for generation capacity addition is estimated to be Rs 14,541.88 billion for 2022-27 and Rs 19,064.06 billion for 2027-32. As per the NEP projections, the energy storage capacity of 16.13 GW/82.37 GWh with pumped storage plant (PSP)-based storage of 7.45 GW capacity and 47.65 GWh storage and battery energy storage system (BESS)-based storage of 8.68 GW/34.72 GWh is required by 2026-27. The storage capacity requirement increases to 73.93 GW (26.69 GW PSP and 47.24 GW BESS) with storage of 411.4 GWh (175.18 GWh from PSP and 236.22 GWh from BESS) 2031-32.
According to the NEP document, the projected all-India peak electricity demand and electrical energy requirement is 277.2 GW and 1,907.8 BUs for 2026-27 and 366.4 GW and 2,473.8 BUs for 2031-32 as per the 20th Electric Power Survey demand projections. The domestic coal requirement has been estimated to be 866.4 million tonnes (mt) for 2026-27 and 1,025.8 mt for 2031-32, and an estimated requirement of 28.9 mt of coal imports for the plants designed to run on imported coal.
Issues and challenges
Outstanding dues from discoms continue to weigh on the growth of the generation segment. As of June 2024, the outstanding amount from discoms to independent power producers stood at Rs 893.02 billion (as per data from the PRAAPTI [payment ratification and analysis in power procurement for bringing transparency in invoicing of generators] portal). While the central government has taken adequate measures to address the current crisis, a sustainable solution needs to be explored to resolve these issues and prevent the recurrence of such crises in the future.
Additionally, coal-based plants frequently encounter fuel shortages. The overall coal stock in the country, including that in transit and at mines, was about 160 mt as of March 2024. Despite a steady rise in coal production to meet growing demands, logistical issues often result in coal shortages at power plants, especially during periods of peak demand. Furthermore, the slow resolution of distressed thermal assets presents a major challenge. An estimated 41 GW of coal-based capacity is currently stressed due to factors such as the absence of long-term PPAs, inadequate coal linkages and the inability of promoters to secure necessary funding for project completion.
That said, the outlook for the thermal power segment remains stable due to improvements in thermal PLF and healthy demand growth, enhancing the likelihood of signing new PPAs. While the renewable energy segment will continue to be the primary driver of generation capacity additions, the thermal segment is expected to see new project announcements, driven by the robust demand growth.
