India is projected to add 30 gigawatts (GW) of power generation capacity this financial year, with over 80% from renewable energy sources, according to ICRA. This increase follows the addition of 25 GW in FY24.
Surge in Renewable Energy Capacity
ICRA forecasts a substantial rise in renewable energy capacity, attributing this to a strong project pipeline and favorable solar module pricing. The agency expects renewable energy to contribute 25 GW of the total new capacity.
Government Focus on Thermal Power
While renewable energy leads the growth, the government aims to boost investments in thermal power projects. By 2032, the target is to add 80 GW of thermal capacity. In FY25, thermal capacity addition will be driven by state and central utilities with improved plant load factor (PLF).
ICRA’s outlook for the thermal power segment remains stable, supported by healthy demand growth and improved thermal PLF. The all-India thermal PLF level is projected to rise to 70% in FY25 from 69% in FY24. This increase is due to the growth in electricity demand and limited thermal capacity addition.
Thermal and Renewable Capacity Addition
“The thermal segment is expected to add 5-5.5 GW capacity in FY25, with the balance 25 GW contributed by the renewable energy segment,” said Vikram V, Vice President at ICRA. He noted that new thermal project announcements are expected due to healthy demand growth.
Addressing Power Distribution Challenges
ICRA’s outlook for the power distribution segment remains negative, citing limited tariff hikes and continued loss-making operations. Despite this, there has been progress in coal stock levels and smart meter installations under the Revamped Distribution Sector Scheme (RDSS).
Average spot power tariffs in the day-ahead market (DAM) of the Indian Energy Exchange remained high at Rs 5.2 per unit in FY24, easing from Rs 5.9 per unit in FY23. Improved coal supply from domestic sources and the use of imported coal for blending have improved the coal stock levels for domestic power plants.
Smart Meter Installations to Boost Efficiency
The government has sanctioned the replacement of 222 million meters across the country under the RDSS, with tenders for 118 million meters awarded so far. While progress in installations remains low, with only 11.6 million smart meters installed as of June 12, ICRA expects a significant increase over the next two years. This will lead to improved billing and collection efficiency for discoms.
“The tariff orders for FY2025 have been issued in 15 out of the 28 states as of June 2024, reflecting slow progress in issuance of tariff orders, partly attributable to the recently-held General Elections,” Vikram said. Despite the loss-making operations of the discoms, the approved tariff hikes for FY25 remain muted across most states.
Addressing Financial Challenges for Discoms
The delays in passing through cost variations, along with elevated AT&C losses and large dues from state governments, remain key challenges for the discoms. ICRA expects the cash gap per unit for discoms at the all-India level to remain high at 45 paisa per unit in FY25.
Future Outlook for India’s Power Sector
The projected capacity addition in India’s power sector, driven by renewable energy and supported by thermal power, reflects the country’s commitment to meeting growing electricity demand. The government’s focus on encouraging investments and addressing distribution challenges aims to create a robust and sustainable power sector.
In conclusion, India’s power sector is set for significant growth in FY25, with renewable energy leading the way. The government’s initiatives to boost thermal power capacity and improve power distribution efficiency will play a crucial role in meeting the country’s energy needs. The ongoing efforts to enhance the smart meter infrastructure and address financial challenges for discoms will further support the sector’s development. As India continues to expand its power generation capacity, the focus on renewable energy and sustainable practices will be key to achieving long-term energy security and environmental sustainability.
Expanding Renewable Energy
India’s commitment to renewable energy is evident in its plans for FY25. With favorable solar module pricing and a robust project pipeline, renewable energy capacity is expected to see substantial growth. This aligns with the global trend towards sustainable energy sources and reflects India’s dedication to reducing its carbon footprint.
Government Initiatives for Thermal Power
While renewable energy is a priority, the government also recognizes the need for thermal power. The target to add 80 GW of thermal capacity by 2032 highlights the importance of a balanced energy mix. State and central utilities will play a significant role in this expansion, ensuring a stable and reliable power supply.
Enhancing Power Distribution Efficiency
Improving the efficiency of power distribution is crucial for the overall health of the power sector. The RDSS aims to replace 222 million meters, significantly enhancing billing and collection efficiency. This initiative will help discoms manage their operations more effectively and reduce financial losses.
Addressing Financial and Operational Challenges
The power sector faces several challenges, including financial constraints and operational inefficiencies. The delays in tariff hikes and the high cash gap per unit for discoms need to be addressed to ensure the sector’s sustainability. The government’s efforts to improve coal supply and streamline regulatory processes are steps in the right direction.
Conclusion
India’s power sector is on a path of significant expansion and transformation. The projected capacity addition for FY25, driven by renewable energy and supported by thermal power, reflects the country’s commitment to meeting its growing energy needs sustainably. The focus on improving power distribution efficiency and addressing financial challenges will be key to ensuring a robust and resilient power sector. As India continues to enhance its energy infrastructure, the emphasis on renewable energy and sustainable practices will play a vital role in achieving long-term energy security and environmental sustainability.
