India’s Power Sector Decouples from Fossil Dependence as Renewable Generation Share Climbs to 26% by FY2026

India’s renewable energy (RE) share in total electricity generation is projected to rise to around 26% by the end of FY2026, marking a structural shift in the country’s power mix despite muted demand growth in the current fiscal, according to Infomerics Ratings.

The Indian power sector is undergoing a significant decoupling in its generation composition, with renewable sources steadily gaining ground over conventional power. While electricity demand registered a robust compound annual growth rate (CAGR) of 7–8% between FY2021 and FY2025—aligned with India’s average GDP expansion of around 8%—growth moderated in the first nine months of FY2026. The slowdown was largely attributed to an early and extended monsoon.

However, demand is expected to remain resilient over the medium term, supported by structural growth drivers such as manufacturing expansion, accelerating electric vehicle (EV) adoption, growth in data centers, and green hydrogen development.

Record Renewable Capacity Additions

Capacity addition momentum strengthened considerably in FY2026. Installed capacity reached approximately 522 GW during the first nine months of the fiscal, compared with average annual additions of about 21 GW between FY2021 and FY2025. More than 90% of the incremental capacity came from renewable energy sources.

Rohit Inamdar, Chief Rating Officer at Infomerics Ratings, said renewable capacity additions touched a record ~49 GW in 9MFY2026, keeping pace with the national target of achieving 500 GW of non-fossil fuel capacity by FY2030.

“Renewable energy accounts for nearly 64% of incremental electricity generation growth during 9MFY2026. Consequently, the RE share in overall electricity generation is projected to rise to approximately 26% in FY2026, reflecting a four-percentage point increase over FY2025,” he noted.

Storage Deployment Critical for FY2032 Demand

By FY2032, renewable energy—primarily led by solar—is projected to account for nearly 59% of India’s total installed capacity. With peak demand estimated to reach 458 GW by that year, particularly during non-solar hours, large-scale deployment of energy storage systems (ESS) will be crucial.

Energy storage deployment includes battery energy storage systems (BESS) and pumped storage projects (PSPs). Of the planned 236 GWh of BESS capacity by FY2032, only 0.2% is operational as of June 2025, while 9.6% (22.6 GWh) is under various stages of development. India currently operates 5 GW of PSP capacity, with over 12 GW under construction and around 69 GW under development.

Mithun Vyas, Associate Director at Infomerics Ratings, stated that BESS projects typically require 18–24 months for implementation, whereas PSPs involve longer construction cycles of four to six years. He highlighted that delays in signing power purchase agreements (PPAs) for BESS-linked renewable projects remain a key challenge, as utilities await further cost corrections in battery pricing.

“The tariff for BESS-linked renewable projects remains elevated due to high battery costs. Therefore, the ability of independent power producers (IPPs) to secure PPAs at remunerative tariffs remains critical from a credit perspective,” he said.

RPO Framework to Mitigate Offtake Risks

A significant portion of renewable capacity under construction is expected to be contracted under the Renewable Purchase Obligation (RPO) framework. Distribution utilities are mandated to source more than 43% of their total power procurement from renewable sources by FY2030.

Operational renewable projects already connected to the grid and backed by tied-up agreements remain largely insulated from offtake risks due to the ‘must-run’ status granted to RE projects, under which utilities prioritize procurement from IPPs.

Infomerics Ratings maintains a stable outlook on the renewable energy sector over the medium term, supported by strong policy backing, healthy plant load factors (PLFs), and comfortable debt coverage metrics. While payment cycles from distribution utilities have improved materially in recent quarters, they remain a key monitorable.

For upcoming capacity additions, timely execution, adequate deployment of energy storage systems, and seamless grid integration will be critical to sustaining the sector’s growth trajectory.