India’s electricity demand is poised for a robust expansion, growing at a compound annual growth rate (CAGR) of 6.0–6.5% over the next five years, according to credit rating agency ICRA. This upsurge is largely fueled by increasing adoption of electric vehicles (EVs), the scaling up of green hydrogen (GH) production, and burgeoning data centre capacities.
“Over the next five years, ICRA expects the electricity demand to achieve a healthy compounded annual growth rate (CAGR) of 6.0-6.5%, higher than the ~5.0% CAGR achieved over the past decade,” said Vikram V, Vice President & Co-Group Head – Corporate Ratings, ICRA. He attributed this growth primarily to EVs, green hydrogen, and data centres, which are expected to contribute up to 25% of incremental power demand between FY2026 and FY2030
The thermal plant load factor (PLF) is projected to remain steady at 70% in FY2026, aided by a modest rise in thermal generation capacity and significant renewables expansion. Generation capacity is expected to peak at 44 GW in FY2026—up from 34 GW in FY2024—pushing total installed capacity to nearly 520 GW by March 2026.
ICRA’s outlook for thermal power remains stable, with over 40 GW of thermal projects under construction. The government’s push to maintain a buffer in installed capacity has reignited interest in long-dormant thermal projects by both public and private players.
However, the distribution segment continues to be a concern. Average spot prices in the day-ahead market have declined to ₹4.4/unit in FY2025 due to improved coal stocks and subdued demand growth. Discoms’ financial health remains fragile, with book losses falling slightly but debt surging to ₹7.4 trillion as of March 2024.
“The tariff orders for FY2026 have been issued in 19 out of the 28 states… Despite the loss-making operations of the discoms, the tariff hikes approved for FY2026 remain muted,” said Vikram V. ICRA maintains a “Negative” outlook on the distribution sector, citing persistent cash gaps and limited tariff reforms
Looking ahead, initiatives like the Pradhan Mantri Surya Ghar Yojana and advances in smart metering are seen as potential stabilizers for the sector’s financials. But meaningful turnaround will depend on deeper structural reforms.
