Renewable Energy Share in India’s Power Mix Set to Rise to 26% in FY2026

India’s power sector is undergoing a structural shift, with renewable energy (RE) steadily increasing its contribution to the overall generation mix. As per a research by Infomerics Ratings, the share of renewable energy in electricity generation is projected to reach around 26 percent in FY2026, up from 22 percent in FY2025, even as overall power demand growth is expected to remain modest at about 1 to 2 percent during the year.

Between FY2021 and FY2025, electricity demand recorded a strong compound annual growth rate (CAGR) of 7 to 8 percent, broadly aligned with India’s GDP growth of approximately 8 percent during the same period.

However, demand growth slowed in the first nine months of FY2026 due to the impact of an early and prolonged monsoon. Despite this temporary moderation, demand is expected to remain robust over the medium term, driven by energy-intensive sectors such as manufacturing, electric mobility, data centres, and green hydrogen.

Capacity Additions Driven by Renewables

On the capacity front, installation activity has accelerated significantly. Around 52 GW of capacity was added in the first nine months of the current fiscal year, compared with an average annual addition of roughly 21 GW between FY2021 and FY2025. Renewable energy has been the primary driver of this expansion, accounting for more than 90 percent of new capacity additions.

Rohit Inamdar, Chief Rating Officer, Infomerics Ratings, said, "RE capacity additions touched a record ~49 GW in the 9MFY2026, keeping pace with the national target of 500 GW by FY2030. RE accounts for nearly 64% of incremental electricity generation growth during 9MFY26. Consequently, the RE share in overall electricity generation is projected to rise to ~26% in FY2026, marking a 4-percentage point increase over FY2025."

Storage Requirements

Looking ahead, renewable energy — led primarily by solar — is expected to dominate India’s installed capacity mix. By FY2032, RE is projected to account for nearly 59 percent of total installed capacity.

To meet an estimated peak demand of 458 GW by FY2032, particularly during non-solar hours, large-scale deployment of energy storage systems (ESS) will be essential. This includes battery energy storage systems (BESS) and pumped storage projects (PSPs).

Of the planned 236 GWh BESS capacity targeted by FY2032, only about 0.2 percent was operational as of June 2025, while roughly 9.6 percent (22.6 GWh) is currently under development. India presently operates around 5 GW of pumped storage capacity, with more than 12 GW under construction and nearly 69 GW in the development pipeline.

Mithun Vyas, Associate Director, Infomerics Ratings, said, “BESS typically require 18–24 months for implementation, whereas PSPs involve a far longer construction cycle of 4–6 years. Delays in signing power purchase agreements (PPAs) for BESS linked REs remains a key challenge in the run-up to FY 2032, as utilities await further cost corrections in BESS. The tariff for BESS linked RE currently remains high due to high battery cost. Therefore, the ability of Independent Power Producers (IPPs) to tie-up PPAs for BESS linked REs at remunerative tariff remains critical from credit perspective.”

At the same time, a considerable portion of renewable capacity under construction is expected to be contracted through the Renewable Purchase Obligation (RPO) framework, under which distribution companies must procure more than 43 percent of their power from renewable sources by FY2030.

Operational RE projects with tied-up agreements continue to benefit from the ‘must-run’ status, which ensures priority procurement by distribution utilities and reduces offtake risk.