Thermal Share In Power Generation To Dip Over 500 Bps Next Fiscal: Crisil

Strong addition of renewable energy (RE)1 capacity will pull down the share of coal-based (thermal) plants in power generation by over 500 basis points (bps) to 67 per cent by next fiscal after rising continuously in the past five through fiscal 2024. Yet the plant load factor (PLF) of thermal plants will remain healthy because of limited capacity addition.

Healthy PLFs and moderating cost pressures due to robust domestic coal supply will support operating cash flows, which, along with reduced debt levels, will result in comfortable credit profiles for thermal players.

The share of thermal power in overall power generation had increased to 73 per cent in fiscal 2024 from 69 per cent in fiscal 2020. This was mainly because the growth in demand (at 7 per cent during fiscals 2021-2024) was being met largely by thermal generation. RE and other sources (nuclear, hydel, biomass) clocked just 3 per cent compound annual growth rate during this period.

Manish Gupta, Senior Director, CRISIL Ratings, “The trend is set to reverse with the share of thermal expected to fall over 500 bps to 67 per cent by fiscal 2026. For the first time, we would see incremental RE generation growth (at 20 per cent) will be higher than the overall power demand growth of 5-6 per cent over fiscal 2025 and 2026. This is because a strong government push has led to a significant step-up in RE capacity addition of more than 50 GW in the next two years by fiscal 2026, which, although operating at relatively lower PLFs, will outpace thermal generation growth over the period.”

The PLFs of existing thermal plants will see a marginal fall but will remain healthy at more than 65 per cent by fiscal 2026 compared with 69% last fiscal. This is because, thermal power is needed to meet almost half of the incremental annual power demand over the near to medium term. This, along with limited capacity addition, will lead to continued dependence on the existing thermal capacities. Furthermore, thermal power will remain important for meeting the base load requirements due to the intermittent nature of RE capacity and the absence of sustainable storage solutions.

Additionally, despite the marginal fall in PLF, the business risk profile of thermal players will still be comfortable, highlighting our study of ~33 GW of private coal-based capacities rated by CRISIL Ratings.