Thermal power Will Remain Crucial for Base Load Management Amid RE Capacity Growth: Ind-Ra

Coal-based power will remain critical for base load management in the medium term, though renewable capacity additions remain strong, India Ratings and Research (Ind-Ra) said on Wednesday.

Furthermore, thermal capacity additions are expected to pick up pace in FY26, considering the capacity under construction and demand expectation by FY32, Ind-Ra experts said in a webinar.

"We expect thermal power to remain critical for base load management in the medium term, though renewable capacity additions remain strong. Land acquisition, connectivity and adequate evacuation/transmission infrastructure remain key monitorables for the sector. The consistent functioning of the Late Payment Surcharge Rules 2022 supports the counterparty risk, even among entities selling directly selling to discoms," Vishal Kotecha, Director & Head - Infrastructure & Project Finance, Ind-Ra said.

Base load is the minimum demand observed over a day. This load is generally lowest during the night when solar isn't generating. Hence, non-solar capacity, especially thermal, is required to manage the base load, he explained.

Ind-Ra also maintains stable rating outlook for thermal power projects for the rest of FY26 based on healthy PLF, dependency on thermal, high revenue visibility through PPAs and adequate internal liquidity.

During FY25 and April-July FY26, PPAs for over 17GW of new capacity were in various stages of approvals from state electricity regulatory commission, such as tender and power purchase signing, indicating a strong demand for thermal power purchase. Of the 17 GW, power purchase agreement has been signed for 2 GW, he said.

Kotecha said thermal capacities contributed 71.5% to the total power generated in 1QFY26 with a share of 49.9% of the installed capacity. Ind-Ra expects thermal PLF to be healthy at 69-70% for FY26 and FY27, also supported by sufficient coal stock.

Merchant prices during non-solar hours have fallen since May 2025 due to monsoons and are likely to pick up post monsoon from September-October 2025. Coal-based capacity addition in 1QFY26 was 2.3 GW (FY25: 4.53 GW).

Divya Charen C, Associate Director, said Ind-Ra expects strong renewable capacity additions in FY26, supported by a healthy pipeline of projects. In 1QFY26, 12.2GW solar and wind capacity was added. In FY25, it was 28 GW.

Ind-Ra mainstains stable outlook for solar and wind power projects on robust historical generation profile, regular payments from counterparties, and comfortable internal liquidity, she said.

"We expect strong capacity additions in FY26, supported by a large under-construction pipeline. Ind-Ra expects sustained traction in renewable tenders, with hybrid/storage/round-the-clock tenders garnering share. Also, Ind-Ra observes that developers are offering hybrid capacity for industrial and commercial consumers rather than just solar capacity earlier," she said.

This shift, Charen said is due to the trend of discoms likely charging lower tariff during solar hours and higher during non-solar hours. Hence, hybrid capacity can provide better savings to consumers rather than only solar capacity.