Even As Monsoon Dampens Demand & Solar CUF Falls to 16.5%, SBI Caps Predicts better CY 26 For Solar

As India closed 2025, energy sector demand rose, led by an above-average monsoon, which curtailed cooling demand in the North and broadly dampened industrial and agricultural needs.

The latest SBI Caps power sector report, “The Storm After The Calm: Will A Buzzing CY26 Follow A Placid CY25?”, highlights optimism around solar project additions. It anticipates a record addition of 40 GW of solar capacity in CY25, driven not only by utility-scale projects but also by accelerated rooftop installations under PM-SGMBY.

Weather Impact Demand as Solar CUF Falls to 16.5% in 11M CY25

India’s power demand remained subdued during the monsoon, with several solar companies reporting an increase in Capacity Utilisation Factor (CUF) and a marginal demand growth of 1% year-on-year (YoY) in CY25.

Base effects also played a role, with a three-year CAGR of 4.7%, slightly below long-term averages. The report forecasts a recovery in CY26, with rapid growth in December 2025 serving as an early indicator.

Cooling demand could rebound, as India has already experienced two consecutive years of above-LPA southwest monsoon rainfall, with a third such year being historically rare over the past two decades. Other factors like GST cuts, scaling demand from data centres, electric vehicles and potential GST cuts, are expected to increase consumer durable penetration and even boost commercial demand.

Solar CUF declined to 16.5% in 11M CY25 from a peak of 19.2% in CY22. CY25 raises concern over energy curtailment amid overcast conditions that, in turn, led to lower demand. Solving these will be critical to achieve improved solar CUF in CY26. Further lower demand could force curtailment of solar power during daytime production peaks. The report noted this trend particularly in resource-rich western region (WR) states, where lower incident irradiation during the extended monsoon period further hampered generation.

Credit to the Power Sector Remains High at 15% YoY

On the debt side, banks have taken the lead from key financial institutions (FIs). According to the report, banks lent more to the power sector than key FIs in H1FY26, nearly matching their total lending for the entire FY25.

This was supported by strong growth in outstanding non-food bank credit to the power sector, which remains near a decadal high of around 15% year-on-year. With annual solar capacity additions nearing their peak in the current cycle and conventional power additions set to rise, the power sector could emerge as a major growth engine for banks.

Meanwhile, electrical energy supply rose marginally by 1% year-on-year in CY25, following a 5% increase in CY24.

CY25 also saw a series of equity IPOs, particularly among component manufacturers. Overall lending to the power sector by banks and key FIs surged 58% year-on-year in H1FY26, in line with significant capacity additions during the period. Bank credit growth to the sector remains near decadal highs as banks regain share from key FIs.

In H1FY26, banks lent Rs 355 billion to the power sector, nearly matching their total lending in FY25. However, offtake of renewable energy credit has been weaker than initially expected by power-focused FIs, leading to a moderation in credit growth guidance going forward.

BESS: 27 GWh of Legacy ESS Deals in Pipeline, 10 GW Awaits Approval

Tendered storage capacities remain broadly aligned with requirements as a share of electricity consumption, although the pace of PSP operationalisation continues to be monitored. Discovered storage tariffs declined further in CY25, raising questions around project viability. This decline has been driven by a sharp fall in battery prices, with lithium-ion battery pack prices dropping by around 8% year-on-year.

Around 22% of storage capacity opened for tender has been cancelled, largely relating to the CY18–CY23 period. CY25 has not seen any cancellations. Around 27 GWh of awarded storage capacity is still awaiting tariff approval. The SBI Caps report estimates energy supply growth in FY26 to be lower than FY25 levels. However, CY26 is expected to see stronger growth than CY25 due to base effects. 

For pumped storage projects (PSPs), implementation challenges persist, although PSPs remain attractive for long-duration storage compared with BESS. Major storage capacities are expected to come online in CY26, which should help improve solar CUF.