India’s electricity demand is expected to rebound sharply to 5-5.5% growth in 2026-27 after slowing to around 1% in the previous fiscal, driven by weak monsoon risks, rising industrial activity and growing electricity consumption from electric vehicles and data centres, according to rating agency Icra.
The projected recovery in demand is triggering a renewed investment push in thermal power generation even as renewable energy capacity additions continue at a rapid pace, signalling rising concerns over grid stability and baseload supply amid surging power requirements.
Thermal Revival
Icra expects India to add around 50 GW of power generation capacity in 2026-27, including nearly 6 GW from thermal projects, while the balance is expected to come largely from renewable energy sources.
The rating agency said power demand growth in 2025-26 was compressed by weather-related disruptions, resulting in lower electricity consumption and a decline in thermal utilisation levels. The all-India thermal plant load factor (PLF) fell to 65-66% in 2025-26 and is expected to remain at similar levels in 2026-27 despite the expected demand rebound, due to strong renewable generation and fresh thermal capacity additions.
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“The thermal power sector in India is witnessing a revived investment emphasis, even as the renewable capacity continues to expand at a rapid pace. Thermal power acts as a reliable base-load supply, aiding grid stability, amid expectations of power demand growth,” said Ankit Jain, Vice President and Co-Group Head-Corporate Ratings, Icra.
The agency said electricity demand in 2026-27 is likely to be supported by the agricultural and household sectors due to expectations of sub-par rainfall linked to a potential El Niño weather pattern. Industrial demand, along with emerging consumption from EV charging infrastructure and data centres, is also expected to contribute to the rise in electricity requirement.
Reflecting the shift in policy and investment focus, under-construction thermal power capacity has crossed 45 GW after several years of subdued activity.
“This is also reflected in the new project announcements by public sector undertakings and private power producers as well as long-term power purchase bids called by state distribution utilities after a long period of limited activity,” Jain said.
Icra, however, cautioned that execution timelines remain a key challenge for the thermal sector because of long project gestation periods and elevated order books of domestic boiler, turbine and generator equipment manufacturers.
The moderation in demand during 2025-26 also softened short-term electricity prices. Average spot tariffs in the day-ahead market on the Indian Energy Exchange declined to Rs 3.8 per unit in 2025-26 from Rs 4.4 per unit in 2024-25 amid slowing demand growth and higher renewable energy supply.
Discom Distress
Coal stock levels at domestic thermal plants remained comfortable at around 19 days as of April 8, 2026 due to improved local coal availability.
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Despite some improvement in the financial performance of state-owned electricity distribution companies, stress in the segment continues. Icra said aggregate discom debt declined to Rs 7.1 trillion as of March 2025 from Rs 7.4 trillion a year earlier, while book losses narrowed because of moderation in the gap between cost of supply and tariff realisation.
However, tariff hikes approved by states for 2026-27 remain muted. Tariff orders have been issued in only 17 out of 28 states as of April 2026, and Icra estimates that the all-India cash gap for discoms could remain elevated at 30-33 paise per unit because of rising power purchase costs and limited tariff revisions.
Icra retained a negative outlook on the power distribution segment, stating that progress in smart metering, operational efficiency improvements and implementation of fuel and power purchase cost adjustment mechanisms would remain critical to improving discom finances.
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