The Indian power sector is undergoing a significant shift as the government pushes for increased renewable energy (RE) capacity. According to Crisil Ratings, the share of coal-based power in overall electricity generation is projected to drop from 73% in fiscal year 2023-24 to 67% by fiscal year 2025-26. This decline follows a steady rise in thermal power’s share over the past five years.

In contrast, the proportion of renewable energy is expected to rise to 20% of the power generation mix, driven by a robust government effort to expand RE capacity by over 50 gigawatts (GW) in the next two years. This increase in RE generation is set to surpass the overall power demand growth of 5-6% expected over fiscal 2025 and 2026. Despite this shift, the plant load factors (PLFs) of existing coal-based plants are anticipated to remain relatively stable, declining slightly from 69% to above 65% by FY26. This stability is due to the ongoing need for thermal power to meet nearly half of the incremental power demand in the near to medium term.

Although RE capacity growth will lead to a reduction in the share of thermal power, Crisil notes that the business risk profile for thermal power providers will remain solid. This is because around half of the thermal capacity operates under tariff models that ensure the recovery of fixed costs. Additionally, improved coal supply and healthy inventory levels are expected to support earnings. Thermal power companies have also reduced their debt by 25% from FY21 to FY24, maintaining strong cash flows and benefiting from government support schemes, which helps stabilize their credit profiles.