EVs, green hydrogen and data centres to drive electricity demand for the next five years

Electric vehicles (EVs), green hydrogen (GH) and data centres will drive 20-25% of the incremental demand of electricity in the country for the next five years from FY2026 to FY2030.

Rating agency ICRA says electricity demand is expected to grow by 6- 6.5% over the next five years. The electricity demand growth in FY2026 at 5.0-5.5%, lower than its expectation for the GDP growth for this fiscal (6.5%). This is due to the early onset of the monsoon and expectations of an above-average monsoon, which dampens demand for cooling as well as demand from the agricultural segment. While the demand growth in FY2026 is expected to be higher than the 4.2% reported in FY2025, it is expected to trail the over 8% growth seen during FY2022- 2024.

The rating agency forecasts the all-India thermal plant load factor (PLF) level to remain flat at 70.0% in FY2026, compared to 69.5% in FY2025, given the healthy growth in generation expected from renewable sources and a 9-10 GW capacity addition in the thermal segment in FY2026.

“The growth in demand for grid capacity is expected to be offset to some extent by the rising adoption of rooftop solar and off-grid projects, driven by schemes such as the Pradhan Mantri Surya Ghar Yojana,” said Vikram V, Vice President & Co-Group Head - Corporate Ratings, ICRA.

The EV segment is expected to witness an increase in penetration across the segments, with three-wheelers leading the adoption, followed by two-wheelers, e-buses and passenger vehicles. Concerning GH, ICRA considered a gradual scale-up in capacity, given the relatively higher cost of GH against grey hydrogen currently. While a major portion of the incremental demand is expected to be met through an increase in the renewable energy (RE) capacity, the Central and state governments are encouraging new thermal power projects to ensure a sufficient buffer in the installed capacity to meet the growing demand. This is 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 decade of dormancy.

ICRA expects the generation capacity addition to reach an all-time high of 44 GW in FY2026, a sharp step up from the previous high of 34 GW in FY2025, with the overall installed power generation capacity reaching close to 520 GW by March 2026. The thermal segment is expected to add 9-10 GW capacity in FY2026, with the balance largely contributed by the RE segment. While RE would remain the key driver of the generation capacity addition, going forward, the thermal segment has seen an increase in under-construction capacity over the past 12 months and currently stands at over 40 GW.