India’s Power Sector To Add 40 GW Solar Capacity And Drive Growth In 2026 – SBICAPS

The Indian power sector is preparing for a significant turnaround in 2026 after a period of relative stagnation in 2025. Last year, electricity demand grew by just 1% compared to 2024, marking a notably slow pace. Experts attribute this sluggish growth to a combination of factors, including above-normal monsoon rains that reduced the need for cooling across Northern India and lowered industrial and agricultural power consumption. In addition, a slowdown in the export of power-intensive goods and changing domestic consumption patterns, as people returned to offices and pre-pandemic routines, contributed to the consolidation in electricity demand.

Despite this quiet period, signs from late 2025, especially the sharp rise in December, indicate that 2026 is likely to see much stronger growth. Analysts expect a rebound in cooling demand, noting that three consecutive years of above-normal rainfall, as seen recently, are historically uncommon. Several other factors are expected to drive growth, including recent GST cuts on consumer durables, which are likely to increase household penetration of electrical appliances. The expansion of commercial office spaces is also expected to boost electricity demand. In addition, emerging sectors such as electric vehicles, data centers, and green hydrogen are rapidly scaling up, creating new sources of power consumption and adding complexity to the national electricity requirement.

On the supply side, solar energy continues to play a central role. In 2025, India added a record 40 GW of solar capacity, supported by both utility-scale projects and rooftop installations under the PM-SGMBY initiative. However, the sector faces several challenges. The Capacity Utilization Factor (CUF) for solar plants fell from 19.2% in 2022 to around 16.5% in late 2025. Factors behind this decline include overcast conditions and curtailment of solar power during peak production hours, especially in resource-rich western states. In addition, many renewable energy projects are delayed due to issues such as land acquisition difficulties, unsigned Power Purchase Agreements, and equipment transport challenges.

Transmission infrastructure is struggling to keep pace with generation additions. By the end of 2025, transmission line expansions were less than 50% of their target. The delays are due to complex land valuation processes, shortages of essential equipment like transformers, and environmental requirements, including the mandate to lay underground lines in Great Indian Bustard habitats. These bottlenecks hinder the efficient integration of new renewable energy capacity into the national grid.

In conventional energy, thermal power capacity additions are proceeding at about 5% per year, a rate considered insufficient to meet 2030 targets. The slow addition has forced delays in retiring older thermal plants to maintain grid stability. On the other hand, the nuclear sector is gaining momentum following the SHANTI Bill, which encourages private participation. With firm power sources still limited, energy storage is expected to play a critical role in the coming years. While standalone Battery Energy Storage Systems are benefiting from falling battery costs, many projects are still awaiting final tariff approvals before becoming operational.

Financially, the power sector is witnessing robust support. Although specialized financial institutions have traditionally led investments, commercial banks are increasingly active. In the first half of the 2026 fiscal year, bank lending to the sector almost matched the total lending of the previous year, with outstanding credit growth reaching near-decadal highs. This financial momentum, combined with the easing of operational constraints, positions the Indian power sector to be a major driver of national growth in 2026.

The overall outlook suggests that after a quiet 2025, the Indian power sector is entering a phase of dynamic expansion, driven by rising demand, rapid renewable energy capacity addition, supportive policy measures, and strong financial backing.