India’s power generation sector is undergoing a significant transformation, driven by rapid renewable energy expansion and growing electricity demand. While coal-based generation continues to play a critical role in ensuring grid reliability and meeting baseload requirements, renewable energy sources are increasingly shaping the country’s capacity addition trajectory. The sector is moving towards a cleaner and more reliable power system, supported by the rapid expansion of solar and wind energy, increasing use of energy storage technologies and a strong focus on reducing carbon emissions.
Indian Infrastructure takes a look at India’s power generation segment…
Segment growth and performance
According to the Central Electricity Authority (CEA), as of May 2026, the total installed generation capacity in the power sector stood at 542.35 GW. Fuel-wise, coal- and lignite-based power plants had the highest share at 42.43 per cent, followed by solar at 28.96 per cent. Wind energy contributed to 10.47 per cent of the installed generation capacity, followed by large hydro at 9.58 per cent, gas at 3.71 per cent, bioenergy at 2.17 per cent, nuclear at 1.62 per cent and small hydro at 0.95 per cent. The share of renewables reached nearly 52.13 per cent (including large hydro) as of May 2026.
The installed power capacity grew at a CAGR of 6.26 per cent between 2019-20 and 2025-26. While conventional power capacity has grown at a CAGR of 1.31 per cent during the past six years, renewable energy (excluding large hydro) surged ahead and grown at a CAGR of around 17 per cent, driven by falling costs of renewable electricity generation, robust government policies, record investments, cost-reflective tariffs, rapid tendering and project allocation activities.
In 2025-26, about 63,865.25 MW of generation capacity was added, the highest-ever capacity addition recorded in a single year. The renewable energy segment contributed the highest capacity addition of 50,905.25 MW, followed by thermal at 8,640 MW, hydro at 3,620 MW and nuclear at 700 MW. The cumulative electricity generation grew at a CAGR of 4.87 per cent between 2019-20 and 2025-26. Likewise, thermal generation grew at 3.5 per cent and renewable energy generation at 14.43 per cent during this period.
On the operational performance front, during 2025-26, the plant load factor (PLF) of thermal power plants (TPPs) declined to 65.18 per cent from 70.15 per cent in the same period of the previous year. With respect to sectors, the PLF of TPPs in the central sector declined to 69.5 per cent from 75.54 per cent in the previous year. Likewise, the PLF in the state sector declined to 58.1 per cent from 63.31 per cent in the previous year. Till May 2026, the PLF of TPPs increased to 71.77 per cent from 70.28 per cent during April-May 2025.
Recent developments
Draft National Electricity Policy, 2026: The draft NEP, 2026, notified in January 2026, has highlighted multi-pronged approaches to ensure energy security and integrate clean energy generation into the grid. It recognises the importance of coal-based power stations in catering to baseload electricity demand, along with an emphasis on co-firing/blending of alternative fuels and coal gasification to facilitate clean operations in TPPs. With respect to issues such as fuel transportation cost and logistical roadblocks, the draft NEP 2026 has recommended the development of new coal-based power plants in proximity to coal mines. Likewise, the draft policy spotlights coal quality monitoring and recommends coal suppliers to keep quality checks on an “as-delivered-at-plant-end” basis to reduce coal grade slippage. Regarding the operationalisation of gas-based power plants in India, the draft NEP 2026 acknowledges the need for adequate arrangements for flexible gas supply to cater to peak and balancing loads.
SHANTI Bill, 2025: In December 2025, the government notified the Sustainable Harnessing and Advancement of Nuclear Energy for Transforming India (SHANTI) Bill, which aims to modernise India’s nuclear energy legal framework. Among multiple developments, the bill intends to enable private sector participation and repeal the Atomic Energy Act of 1926 as well as the Civil Liability for Nuclear Damage Act of 2010. Further, it confers statutory status to the Atomic Energy Regulatory Board and strives to enhance regulatory oversight over safety, security, safeguards and liability in nuclear power generation operations. The bill also reserved certain activities and facilities to be undertaken only by the central government or its wholly owned institutions.
Electricity (Amendment) Rules, 2026: In March 2026, the Ministry of Power (MoP) notified the Electricity (Amendment) Rules, 2026. The amendments retain the core statutory thresholds of a minimum 26 per cent ownership and 51 per cent consumption by captive users, while revising the framework for implementation and verification of captive status. Key changes include greater flexibility in proportional consumption for group captive users, clarification that captive consumption will be assessed with reference to the aggregate output of the generating unit or units identified for captive use, and adoption of a weighted average shareholding test during the financial year. The amended rules also provide that a captive user, its subsidiaries, its holding company and other subsidiaries of that holding company will be treated as a single captive user.
Future outlook
The CEA, in March 2026, released the National Generation Adequacy Plan (2026-27 to 2035-36) to evaluate the generation adequacy mix to meet the projected electricity demand for the next 10 years. This plan estimates India’s installed generation capacity to reach 1,121 GW, comprising 315 GW of coal, 20 GW of gas, 22 GW of nuclear, 78 GW of large hydro, 509 GW of solar, 155 GW of wind, 16 GW of biomass and 6 GW of small hydro by 2035-36. Further, energy storage capacity is expected to reach 174 GW/888 GWh by 2035-36, comprising battery energy storage systems (BESSs) with a capacity of 80 GW/321 GWh and pumped storage projects (PSPs) with a capacity of 94 GW/567 GWh. It notes that BESSs will play an important role in short-duration applications such as peak shaving and grid balancing, while PSPs will support longer-duration requirements. The report also states that non-fossil fuel sources are expected to account for nearly 70 per cent of the installed capacity by 2035-36, while coal-based capacity of about 315 GW will continue to provide grid support and flexibility.
Notably, as of April 2026, the under-construction capacity of thermal stood at 39.36 GW (including 4.8 GW of stressed TPPs), while under-construction hydropower capacity stands at 13.37 GW. Likewise, under-construction nuclear capacity is 6.6 GW and is envisaged to be completed by FY 2029-30, while the planned capacity stands at 7 GW.
Gencos are investing in technologies and solutions for decarbonising their fleets and aligning with the clean energy landscape through new and emerging solutions such as carbon capture and utilisation. Additionally, there is a strong focus on digital technologies such as digital twins, automation, AI and predictive analytics to further help gencos in reducing carbon emissions, enhancing asset efficiency and improving sustainability.
Challenges and the way forward
The thermal power sector faces several operational, financial and compliance-related challenges. Flexible operation requirements, including lower minimum operating loads and frequent ramping up and down, can reduce plant life, increase maintenance costs and necessitate significant expenditure on renovation and modernisation of existing units. Financial stress remains a key concern, with delayed payments from distribution companies creating a ripple effect and resulting in significant receivables for generation companies.
Water usage norms also require substantial investments in zero-liquid discharge systems and sewage treatment plants. Ash utilisation remains challenging due to an insufficient number of ash takers and inadequate transportation infrastructure. The implementation of biomass co-firing mandates is further challenged by the limited availability of quality pellets and the absence of cost-effective, proven technologies for large-scale integration in boilers.
Other concerns include manufacturing capacity utilisation for supercritical and ultra-supercritical boiler pressure parts, a shrinking vendor base, shortages of skilled manpower, reluctance of states to sign PPAs for coal-based capacity, difficulties in financing new coal projects, challenges in meeting green-cover norms for brownfield projects, lengthy land acquisition processes, environmental and forest clearances, local opposition, long procurement lead times for imported turbine-generator forgings, ageing assets and difficulties in meeting ash-utilisation targets.
Going forward, India’s power generation sector must balance the expansion of clean energy with the need for reliable baseload power. Its success will depend on modernising TPPs for flexible operations, while supporting the integration of 500 GW of non-fossil fuel capacity by 2030.
