India Thermal PLF Falls to 65–66% in FY26 on Soft Demand, Renewables Growth: ICRA

The Indian power sector is projected to see a rise in power demand of 5.0-5.5% in 2026-27, compared with a tepid ~1% in 2025-26, which was compressed by weather-related disruptions, said ICRA.  This year, with El Nino almost a certainty, the de,mand outlook seems much more stronger, and at least till Sep-Oct, one will see the kind of special arrangements being revived as seen with the Mundhra Plant of Tata Power recently. 

ICRA projects further growth in power in 2026-27, likely supported by the agricultural and household sectors and weather events. Additionally, these changes are also affected by weather events such as sub-par rainfall, El Niño, along with demand from industries and from emerging sources like electric vehicles and data centres. 

Additionally, the all-India thermal plant load factor (PLF) level also 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-GW capacity addition likely in the thermal segment. Will it grow beyond that? We doubt that, considering the rapid additions in storage capacitry expected by Fy 27-28 that will allow renewables to add influence in the evening peak hours as well. 

ICRA Projects 50 GW Capacity Addition in FY27, Led by Renewables

In anticipation of a rise in thermal demand alongside solar, Ankit Jain, Vice President & Co-Group Head — Corporate Ratings, ICRA, said, “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. ICRA expects the overall addition of generation capacity to be around 50 GW in 2026-27, within which the thermal segment is likely to add around 6 GW and the balance largely to be contributed by the RE segment.”

“While RE would remain the key driver of power generation capacity addition going forward, the thermal segment has seen an increase in under-construction capacity over the past few quarters, which currently stands at over 45 GW. This is also 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 long period of limited activity. Nonetheless, timely commissioning of the thermal projects under execution also remains key, given the long gestation period associated and risk of delays from the domestic boiler, turbine and generator (BTG) equipment manufacturers with their elevated order book position.” 

Stronger supply cools prices, but DISCOM debt still high

ICRA also suggested that amidst demand growth slowdown and rising healthy supply of renewable, and with a comfortable level of coal stock level for the domestic power plants at around 19 days as on April 8, 2026, has improved local supply. The day-ahead market (DAM) average spot power tariffs of the Indian Energy Exchange have also been moderated to Rs. 3.8 per unit in 2025-26 from Rs. 4.4 per unit in 2024-25.  

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

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 Rs. 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 linkage route under Scheme for Harnessing and Allocating Koyala Transparently in India (SHAKTI) scheme. Amid increasing capacities across various power generation technologies, 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,” concludes Jain.