India's energy demand is expected to grow by 5.5% year-on-year in FY25, driven by a capacity addition of 32-35 GW, with renewable energy projects accounting for a significant share, according to India Ratings and Research (Ind-Ra). Peak power demand in May 2024 reached an all-time high of 250 GW but softened in Q2 due to favourable monsoons and slower industrial activity. Energy demand growth during the first seven months of FY25 stood at 4.75%, a decline from 7.4% in FY24 and 9.7% in FY23. Extreme weather conditions fuelled a 10.9% YoY surge in Q1FY25, while growth nearly stagnated at 0.1% in Q2.

Thermal power maintained its dominance, contributing 73% of generation during the first seven months of FY25. Thermal power plant load factors (PLFs) are expected to average 69-70% for the fiscal year. Capacity additions in thermal energy are estimated at 6-7 GW, with 29 GW under construction and 50 GW planned by 2032. Renewables, including large hydro, now represent 45% of India’s total installed capacity, which reached 453 GW by September 2024. Renewable energy’s share in generation is anticipated to rise to 23% in FY25. Solar energy leads the growth, with 11 GW installed in H1FY25 and 28-30 GW expected by the fiscal year's end.

The rising share of solar energy underscores the need for robust storage solutions to balance energy supply during non-solar hours. On May 23, 2024, peak demand revealed this challenge: while total demand hit 235 GW at 3 PM, thermal power peaked at 176 GW by 11 PM due to limited renewable availability. Ind-Ra projects India will require 8-12 GWh of storage by 2027, scaling up to 300-350 GWh by 2030, with 4-6 hours of capacity during evening peaks. Auctions for renewable projects with integrated storage reached 25 GW between April and October 2024, indicating a growing emphasis on firm and dispatchable energy solutions.

Improved coal stock levels have stabilised the merchant power market, with average day-ahead market prices dropping to Rs 4.83/unit in 7MFY25 from Rs 5.66/unit in 7MFY24. Ind-Ra expects near-term merchant prices to range between Rs 4.5 and Rs 5/unit. However, higher tariffs during evening peaks compared to solar hours highlight the urgency to address non-solar supply challenges.

India's renewable pipeline includes 80 GW under construction and 95 GW in development. Ind-Ra notes that renewable auctions and hybrid tenders will drive capacity expansion, supporting rising energy needs and reducing thermal dependency in the long term. To sustain this growth, the agency emphasises the importance of timely project execution, improved grid connectivity, and investments in storage to ensure reliable power supply during peak demand periods. (ET)