India's Power Sector Recovery Without Demand Surge Expected by FY27

Power demand declined by around 0.7 per cent in FY26 till December, after registering strong growth of 7 per cent and 5 per cent in the previous two years. The report expects demand to recover to around 5 per cent growth in the coming year, aided by a supportive base from May onwards, although weather conditions are not expected to be particularly favourable.

On the supply side, India added a record 41 GW of power capacity in FY26 till November, and total additions for the fiscal year are expected to reach around 55 GW. This includes approximately 42 GW of renewable capacity and about 9 GW of thermal capacity.

The report says that renewable capacity additions are expected to moderate in FY27 to around 35 GW due to slower tendering, grid constraints and reduced government support. Thermal capacity additions are expected to continue at about 8 GW in FY27.

The report highlights that demand-supply dynamics over the next three years will be largely determined by the pace of battery energy storage system (BESS) additions. While shortages could ease if storage capacity comes online as planned, the report does not foresee a significant power surplus in the near term. A clearer surplus situation is expected only after FY31, when additional dispatch able capacity is likely to be commissioned.

Among key positive themes, the report flags potential progress on DISCOM reforms, including amendments to the Electricity Act and possible steps towards privatization. A DISCOM bailout package is also awaited, although on-ground implementation is expected to take time.

Nuclear power is seen as another major positive, following parliamentary approval of a new nuclear bill that allows private sector participation, reduces liability for smaller reactors and removes recourse on equipment suppliers.

Battery storage is expected to become operational in India, with over 30 GW of BESS tendering having taken place in recent years and around 6 GW expected to come online this calendar year. While this could reduce peak shortages, aggressive bidding by smaller players may create pockets of stress. Data centres are identified as a potential catalyst for the sector, with the possibility of firm power offtake agreements driving broader sector re-rating.

On the downside, the report remains cautious on renewables, citing withdrawal of incentives, DISCOM pushback on rooftop and commercial solar, continued grid constraints and moderation in capacity additions.

- ANI