NEW DELHI: The share of fossil fuels in power generation is set to drop below 70% next fiscal owing to slower growth in power demand and a surge in renewable energy (RE) generation, ratings agency Crisil said on Monday.The agency said the share of thermal power—coal, lignite, gas and diesel—is expected to slip to 72% in 2025-26 from nearly 75% in the last fiscal. As a result, plant load factors (PLFs) of thermal power plants are likely to fall to 64-66% in the current and next fiscal from 69% in the last financial year.An uptick in long-term power purchase agreements (PPAs) and a healthy outlook for base-load demand are reviving capital expenditure in the thermal segment. Crisil said this will push up leverage for thermal power producers over the next 3-4 years, while steady cash flows and controlled debt levels are expected to keep credit profiles stable.“Growth in power demand is expected to decelerate to 1-2% this fiscal because of an early monsoon and a relatively cool summer, but rebound to 4-6% next fiscal on a low base. Despite this, the compound annual growth rate will be less than 4% over this fiscal and the next, weaker than the 5.6% recorded over the last five fiscals,” Crisil said in its report.In contrast, RE generation is poised to log a CAGR of 18-20% over this fiscal and the next, driven by 75-85 gigawatt (GW) of capacity additions amid a robust pipeline of utility-scale projects and a ramp-up in commercial, industrial and rooftop installations. This will result in RE meeting most of the incremental power demand in the country.India’s total installed power generation capacity currently stands at nearly 514 gigawatts (GW), comprising about 247 GW of thermal and 267 GW of non-fossil capacity. While the government continues to expand non-fossil generation capacity in line with its 500 GW target for 2030, coal is expected to remain central to India’s electricity system over the next few years.“Despite its declining share, thermal power remains crucial as grid absorption of RE is constrained by its intermittent nature and the nascent adoption of energy storage solutions. This has sparked a revival in capex in the thermal power sector,” said Manish Gupta, deputy chief ratings officer, Crisil Ratings.
About the Author
