Electricity demand to grow 5-5.5% in FY26; 44 GW capacity addition likely: ICRA
New Delhi: India's electricity demand is projected to grow by 5.0–5.5 per cent in FY2026, trailing the anticipated GDP growth of 6.5 per cent, according to ICRA. The lower projection is attributed to the early onset of monsoon and the expectation of an above-average rainfall, affecting cooling and agricultural demand.
The projected growth is higher than the 4.2 per cent reported in FY2025 but lower than the over 8.0 per cent growth recorded between FY2022 and FY2024. ICRA estimates the all-India thermal plant load factor (PLF) to remain flat at 70.0 per cent in FY2026, compared to 69.5 per cent in FY2025. This is despite an expected addition of 9–10 GW thermal capacity, with renewable energy sources contributing significantly to the generation mix.
"Over the next five years, ICRA expects the electricity demand to achieve a healthy compounded annual growth rate (CAGR) of 6.0–6.5 per cent, higher than the ~5.0 per cent CAGR achieved over the past decade, driven by the demand from rising adoption of electric vehicles (EVs), green hydrogen (GH) and the increase in data centre capacity," said Vikram V, Vice President & Co-Group Head – Corporate Ratings, ICRA.
EVs, green hydrogen, and data centres are expected to contribute 20–25 per cent of the incremental power demand during FY2026–FY2030. Rooftop solar and off-grid installations, supported by initiatives like the Pradhan Mantri Surya Ghar Yojana, are likely to partially offset the increase in grid-connected demand.
Total power generation capacity addition is expected to touch 44 GW in FY2026, the highest-ever addition in a single fiscal, surpassing the 34 GW added in FY2025. This would take the overall installed capacity to nearly 520 GW by March 2026. Of this, thermal capacity additions are estimated at 9–10 GW, while the remaining would come from renewable energy. The under-construction thermal capacity has increased to over 40 GW in the last 12 months.
In the spot market, average power tariffs on the Indian Energy Exchange declined to ₹4.4 per unit in FY2025 from ₹5.2 in FY2024, owing to slower demand and higher available capacity. Coal stock at thermal plants stood at around 20 days as on May 21, 2025, the highest in five years, due to improved supply and lower growth in thermal generation. Lower imported coal prices and improved availability are expected to keep short-term tariffs stable in FY2026.
Book losses for distribution companies (discoms) declined in FY2024 over FY2023, helped by tariff hikes, subsidies and state grants. However, the cost-tariff gap continues across most states. Gross debt for state-owned discoms rose to ₹7.4 lakh crore as of March 2024 from ₹6.6 lakh crore in March 2023, driven by borrowings for settling past dues and funding capex and working capital requirements.
"The tariff orders for FY2026 have been issued in 19 out of the 28 states as of May '25, reflecting a moderate progress in issuance of tariff orders. Despite the loss-making operations of the discoms, the tariff hikes approved for FY2026 remain muted across most states, similar to FY2025," Vikram V added.
ICRA projects the cash gap per unit for discoms at the all-India level to remain high at 35 paise per unit in FY2026 and maintains a "Negative" outlook for the power distribution segment. The implementation of smart metering and timely execution of fuel and power purchase cost adjustment mechanisms are identified as crucial for financial recovery of discoms.
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