Demand from the agricultural and household sectors and below-expected rainfall may cause power demand in India to rise by 5.0-5.5% in 2026-27, compared with a tepid 1% rise in 2025-26. A potential El Niño effect this summer, which may lead to reduced rainfall during the monsoon, along with high demand from industries and emerging sources such as electric vehicles and data centres, will drive electricity demand during the financial year, predicts rating agency ICRA.

The all-India thermal plant load factor (PLF) level fell to 65-66% in 2025-26 amid demand moderation and is likely to remain around 65% in 2026-27, given the healthy growth in generation expected from the renewable sources and 6 gigawatt (GW) capacity addition likely in the thermal segment.

''The overall addition of generation capacity is expected to be around 50 GW in 2026-27, within which the thermal segment is likely to add around 6 GW and the balance will be largely contributed by the RE segment,”said Ankit Jain, Vice President & Co-Group Head - Corporate Ratings, ICRA.  

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, he said.

The average spot power tariffs in the day-ahead market (DAM) of the Indian Energy Exchange moderated to ₹3.8 per unit in 2025-26 from ₹4.4 per unit in 2024-25, given the slowdown in demand growth and a significant increase in supply amid healthy additions in RE capacity. Further, the coal stock level for the domestic power plants has been comfortable at around 19 days as on April 8, 2026, following improved local supply.

The losses of the distribution companies at the all-India level improved in 2024-25 over 2023-24 with a moderation in the gap between the cost of supply and tariff realisation. The gross debt for state-owned distribution companies (discoms) reduced to ₹7.1 trillion as of March 2025 from ₹7.4 trillion as of March 2024. However, such high debt levels are unsustainable for discoms, given their current revenues and profitability, said ICRA.

The tariff orders for 2026-27 have been issued in 17 out of 28 states as of April 2026. Despite the loss-making operations of discoms, tariff hikes approved for 2026-27 remain muted across most states. ICRA expects the cash gap per unit for the discoms at the all-India level could remain high at 30-33 paise per unit in 2026-27 in case of limited tariff hikes and increased power purchase costs amid the addition of relatively higher tariff-based capacities.

ICRA’s outlook for the power distribution segment remains negative amid limited tariff hikes and continued loss-making operations. The progress in the smart metering programme, along with the improvement in operating efficiency parameters and continued implementation of the fuel and power purchase cost adjustment framework, would play an important role in enhancing the discom finances, going forward.

“Over the last 12-15-months, the long-term bid discovered for the thermal projects stood in the range of ₹5.0-6.5 per unit. As a result, the project viability remains sensitive to factors such as capital outlay and cost of debt, given the fact that coal availability is ensured through a linkage route under the 'Scheme for Harnessing and Allocating Koyala Transparently in India (SHAKTI)' scheme. Amid increasing capacities across various power generation technologies, the ability of the thermal power plants to operate flexibly above the technical minimum as well as adopt new models like thermal generation coupled with storage systems to keep PLFs healthy and support the growing power demand, will be closely monitored,” said Jain.