CRISIL Ratings Senior Director Manish Gupta said in a statement that incremental renewable energy generation will outpace overall power demand growth for the first time in FY 2025 and FY 2026, expanding by 20% compared to 5-6%.

“This is because a strong government push has led to a significant step-up in RE capacity addition of more than 50 GW [gigawatts] in the next two years by fiscal 2026, which, although operating at relatively lower PLFs [plant load factor], will outpace thermal generation growth over the period,” Gupta added.

Despite this, PLF of existing thermal plants will remain healthy, growing 65% by FY 2026 from 69% in the previous FY.

“Thermal power is needed to meet almost half of the incremental annual power demand over near to medium term. This, along with limited capacity addition, will lead to continued dependence on the existing thermal capacities,” CRISIL Ratings said.

“Furthermore, thermal power will remain important for meeting the base load requirements due to the intermittent nature of RE [renewable energy] capacity and absence of sustainable storage solutions,” it added.

In its analysis, CRISIL also concluded that the business risk profile of thermal players will still be comfortable.

CRISIL Ratings Director Ankit Hakhu said that thermal players “have positioned themselves well by materially reducing debt — down 25% over fiscals 2021 to 2024 — and have healthy cash flows and support from government-driven schemes for the power sector such as LPS and Aatmanirbhar.”

“Debt levels are expected to remain in check with limited capex requirements for these plants, supporting the credit profiles of the players,” Hakhu added.