India’s Electricity Demand to Grow 6-6.5% Over Five Years: ICRA

India's Electricity Demand to Grow 6-6.5% Over Five Years: ICRA

India’s electricity demand is expected to grow at a compound annual growth rate (CAGR) of 6.0–6.5% over the next five years, supported by rising consumption from electric vehicles (EVs), data centres and green hydrogen projects, ratings agency ICRA said.

For FY2026, ICRA projects demand growth at 5.0–5.5%, lower than the estimated GDP growth of 6.5%. The early and above-average monsoon is likely to curb power demand from cooling and agriculture sectors. However, demand growth is expected to improve from 4.2% in FY2025, even if it remains below the strong 8% growth seen between FY2022 and FY2024.

ICRA expects India’s thermal plant load factor (PLF) to remain steady at 70% in FY2026, compared with 69.5% in FY2025. This is despite increased renewable generation and a projected addition of 9–10 GW in thermal capacity.

“Electricity demand is set to see healthy growth over the next five years, driven by EVs, green hydrogen and rising data centre usage,” said Vikram V, Vice President and Co-Group Head – Corporate Ratings, ICRA. These three segments are expected to account for 20–25% of incremental demand between FY2026 and FY2030.

India’s generation capacity addition is projected to hit a record 44 GW in FY2026, up from 34 GW in FY2024. The country’s installed capacity is likely to reach 520 GW by March 2026, with the bulk of new capacity coming from renewables. Nonetheless, the thermal segment has seen renewed momentum, with over 40 GW currently under construction.

The EV segment is likely to see deeper market penetration, led by three-wheelers, followed by two-wheelers, e-buses and passenger cars. Green hydrogen capacity is expected to scale gradually, given its high cost compared with grey hydrogen.

Spot power prices in the Day Ahead Market (DAM) averaged ₹4.4 per unit in FY2025, down from ₹5.2 in FY2024, aided by improved coal supply and a moderation in demand. Coal stock levels stood at a five-year high in May, with around 20 days of inventory.

While distribution companies (discoms) saw a reduction in book losses in FY2024, the sector remains under financial stress. Discoms’ gross debt surged to ₹7.4 trillion by March 2024 from ₹6.6 trillion a year earlier, driven by working capital needs and past dues. The gap between cost of supply and tariff recovery persists across most states.

Tariff orders for FY2026 have been issued in 19 out of 28 states, but hikes remain modest. “Despite continued losses, tariff increases remain muted. We expect the all-India cash gap to stay elevated at 35 paise per unit in FY2026,” Vikram said. ICRA maintained a ‘Negative’ outlook on the power distribution segment, citing weak financials and limited reforms.