India’s power sector is witnessing a transition from thermal to renewable energy generation. While coal continues to play a critical role in meeting baseload demand, accounting for almost 70 per cent of energy generation, the government is actively advancing policy initiatives to accelerate renewable energy deployment, achieve 500 GW of renewable energy capacity by 2030 and become a net zero emission economy by 2070.
Segment growth and performance
As of May 2025, the total installed power capacity stood at 472.46 GW. Fuel-wise, coal- and lignite-based power had the highest share at 46.4 per cent, followed by solar at 22.8 per cent.
Large hydro contributed to 10.1 per cent of the capacity, followed by wind at 10.8 per cent, gas at 4.3 per cent, bioenergy at 2.5 per cent, nuclear at 1.9 per cent and small-hydro at 1 per cent. The share of renewables reached nearly 49 per cent with the inclusion of large hydro (47,928.17 MW).
India’s installed power capacity grew at a CAGR of 4.9 per cent between 2018-19 and 2024-25. While conventional power capacity expanded at a CAGR of 1.4 per cent in the past six years, renewable energy witnessed a significantly higher CAGR of 10.1 per cent, driven by declining costs of renewable electricity generation, robust government policies, record investments, cost-reflective tariffs, rapid tendering and project allocation activities.
In 2024-25, about 33,399 MW of generation capacity was added. The renewable energy segment contributed to the highest capacity addition of 28,724 MW, followed by thermal at 3,875 MW and hydro at 800 MW.
In FY 2025-26 (till April), capacity addition stood at 4,582 MW. This comprised 350 MW of thermal, 200 MW of hydro and 3,332 MW of renewables. After a long gap, the Rajasthan Atomic Power Station RAPS was commissioned, adding 700 MW to nuclear capacity.
The cumulative electricity generation in 2024-25 stood at 1,824 BUs. Source-wise, thermal generation accounted for 74.76 per cent at 1,364 BUs and renewables 14 per cent at 255 BUs (excluding large hydro), while large hydro stood at 148 BUs and nuclear at 57 BUs. The total energy generation grew at a CAGR of 4.8 per cent between 2018-19 and 2024-25, while thermal generation grew at 4 per cent and renewable energy generation at 12.3 per cent.
The energy demand in 2024-25 reached 1,683 BUs, about 4 per cent higher than the previous year. Peak demand stood at 250 GW, about 3 per cent higher than the previous year.
On the operational performance front, the thermal plant load factor (PLF) declined to 73.35 per cent in April 2025 from 77.51 per cent in April 2024. The PLF for gas-based power plants, however, improved to 22.13 per cent in April 2025 compared to 20.81 per cent in April 2024.
Recent developments
In May 2025, the Cabinet Committee on Economic Affairs approved the revised Shakti Policy for the grant of fresh coal linkages to thermal power plants (TPPs) of central sector/state sector/independent power producers (IPPs). The revised Shakti Policy underscores two elements – Window I for coal linkages to central/state power generating stations/at the notified price; and Window II for coal linkages to all power generating stations at a premium above the notified price. The revised Shakti policy aims to simplify the coal linkage process, facilitate capacity addition by IPPs and private players and eliminate the requirement for power purchase agreements (PPAs) for selling electricity generated using coal secured under Window II.
In May 2025, the Ministry of Power (MoP), under Section 11 of the Electricity Act, 2023, directed all gas-based power plants to remain operational from May 2025 to June 2025. A similar order was issued previously that mandated imported coal-based (ICB) power plants to run at full capacity until June 30, 2025. These measures were implemented to ensure adequate energy supply during the peak summer season.
In a significant development in the battery energy storage system (BESS) space, the central government approved a viability gap funding (VGF) plan with a value of Rs 54 billion in June 2025. The funding will support the construction of 30 GWh of BESS capacity. This initiative is expected to attract investments of Rs 330 billion and assist India in meeting its storage requirements by 2028.
Recent and upcoming trends
As per the 20th Electric Power Survey (EPS) Report, the nationwide peak electricity demand and electrical energy requirement are projected to reach 277.2 GW and 1,907.8 BUs in 2026-27, and 366.4 GW and 2,473.7 BUs in 2031-32, respectively.
As per the National Electricity Plan (NEP), the total installed generation capacity is expected to reach 900 GW by 2031-32. This includes 40.5 per cent capacity from solar, 28.8 per cent capacity from coal and lignite, 13.5 per cent from wind, 6.9 per cent from hydro, 3 per cent from pumped storage projects (PSPs), 2.8 per cent from gas, 2.2 per cent from nuclear, 1.7 per cent from biomass and 0.6 per cent from small hydro. Regarding capital requirement, between 2022 and 2027, about Rs 11,154.78 billion will be required to establish renewable energy generation projects and Rs 3,387.10 billion to set up conventional energy generation projects.
Further, according to the NEP, by 2026-27, the energy storage capacity requirement is projected to be 16.13 GW/82.37 GWh, including 7.45 GW/47.65 GWh of PSP capacity and 8.68 GW/34.72 GWh of BESS. By 2031-32, the storage requirement would further escalate to 73.93 GW/411.4 GWh, comprising 26.69 GW/175.18 GWh of PSP capacity and 47.24 GW/236.22 GWh of BESS.
Green energy remains a priority for the government. The budgetary allocation to the Ministry of New and Renewable Energy was increased to Rs 265.49 billion, accounting for about one-third of the entire energy sector outlay. Furthermore, in April 2025, the Central Electricity Authority (CEA) announced its plan to approve at least 13 PSPs of about 22 GW during 2025-26. The majority of these projects are expected to be operational within four years, or by 2030. These projects are expected to significantly increase the country’s energy storage capacity, improve grid reliability and support India’s renewable energy targets.
Conventional power plants are likely to remain the backbone of the power generation segment. Almost 80 GW of thermal capacity is planned to be added by 2031-32. As per the MoP, in FY 2025, contracts were awarded for 22,640 MW of thermal power capacity, of which 5,600 MW has already moved to the construction stage.
Nuclear energy is also a key component of India’s long-term energy plan. Under the Nuclear Energy Mission announced in the 2025-26 budget, the government aims to develop 100 GW of nuclear power capacity by 2047. The mission aims to expand domestic nuclear capacity, increase private sector engagement and accelerate the adoption of advanced technologies such as small modular reactors (SMRs). To promote SMR research and development, the government has allocated Rs 200 billion for constructing and operationalising at least five indigenously developed SMRs by 2033.
Key challenges and the future outlook
The outstanding dues from discoms continue to impede the growth of the power generation segment. As of June 2025, discoms owed Rs 819.02 billion to IPPs, as per the PRAAPTI portal.
Issues such as inadequate fuel supply agreements, cost overruns, non-viable tariffs, delays in project implementation, inadequate PPAs and other associated issues have contributed to the rising number of stressed generation assets in India. The slow resolution of these assets remains a significant challenge for the power generation segment. As of March 2025, about 49 power plants totalling 47.5 GW were recognised as stressed assets. Of these, 30 have been resolved, while 15 projects have been acquired by public and private players over the past three years and in the current year.
While India has ramped up coal generation and stockpiling in recent years, legacy challenges such as siting major facilities in water-scarce areas and poor water management continue to expose the segment to recurring shortages.
However, early rains and warmer weather in mid-2025 have helped reduce energy demand, easing concerns around a coal supply crisis. In FY 2025, the power sector received approximately 764.5 million tonnes (mt) of coal, slightly exceeding the total coal demand of 757.70 mt from domestic coal-fired stations. Coal stock at these plants stood at around 56.46 mt, enough to sustain operations for more than 20 days at an 85 per cent PLF.
Although India is rapidly developing renewables, the pace of renewable capacity and storage deployment is still insufficient to replace thermal generation assets for round-the-clock supply. TPPs remain crucial for grid stability and flexibility, balancing the fluctuating output from solar and wind sources. These plants are deeply integrated with India’s existing transmission, coal supply and water infrastructure. Their continued operation is critical until alternative sources and supporting infrastructure become fully developed and reliable.