India’s power sector is at a pivotal stage of transition. Rising demand, rapid renewable additions and strong policy support are reshaping the energy landscape. Transmission and distribution reforms are driving operational and financial shifts, even as discom viability, capital mobilisation and grid readiness for higher renewable integration remain key challenges. As India advances its energy transition goals, the pace of digital adoption, market reforms and storage integration will determine the road ahead. In this context, leading consultants share their views on the progress, challenges and emerging trends that will define the next phase of the sector’s evolution…
What is your assessment of the current state of the power sector? How has the sector performed over the past year?
Anujesh Dwivedi
India became the world’s fourth largest economy in 2025 and is on track to becoming the third largest, with its GDP projected to reach $7.3 trillion by 2030. The country’s power sector has witnessed fast growth, propelled by strong economic development. The electricity peak demand met reached an all-time peak of 250 GW in 2024-25. The country achieved its highest-ever annual generation capacity addition of 29.52 GW during the year, ending with a total cumulative installed capacity of 475.2 GW as of March 2025.
India made remarkable progress on the decarbonisation front. It achieved its Nationally Determined Contributions goal of 50 per cent of non-fossil fuel installed capacity five years ahead of schedule, reaching 243 GW of non-fossil capacity (including large hydro) out of the total 485 GW of installed capacity, as of June 30, 2025. This achievement has been driven largely by government policies such as solar park development, the National Wind-Solar Hybrid Policy, and the PM-KUSUM and PM Surya Ghar schemes.
On the distribution side, the Ministry of Power’s (MoP) Revamped Distribution Sector Scheme (RDSS) is reforming the distribution segment with smart meter installations at the consumer, feeder and transformer levels. Around 26.7 million meters have been installed (13.62 per cent of the target) till now. The scheme has also helped in improving financial and regulatory discipline among distribution utilities, ensuring timely filing of tariff petitions, advance release of subsidies by the state governments and preparation of financial accounts.
Another key achievement has been the implementation of public-private partnership reforms in power distribution in Chandigarh.
Sambitosh Mohapatra
The sector has made significant progress, particularly in the clean energy ramp-up, with the rapid addition of solar and wind capacities, including hybrid systems combined with storage. Many states have exceeded previous projections for non-fossil fuel capacity, marking a notable success. Additionally, the recent plateauing and slight reduction in the power sector CO2 emissions indicate that a combination of renewables, efficiency measures and favourable weather is helping India balance growth with its emissions obligations.
Mohammad Saif
India is rapidly emerging as a global front runner in the renewable energy sector, charting a decisive course towards a sustainable, low-carbon future. Continued and steady progress in 2024 has further reinforced the nation’s resolve to achieve its ambitious target of 500 GW of non-fossil fuel capacity by 2030. The continuous progress in the clean energy domain also highlights India’s pivotal role in the global energy transition agenda.
Overall, India’s power sector has experienced robust growth, driven by rising electricity demand, enhanced infrastructure and comprehensive policy support across the sectoral value chain. As of July 2025, the country’s total installed capacity stood at 490 GW, with renewable energy accounting for nearly half of this capacity. Solar power alone has surged to 119 GW and wind capacity has more than doubled in the past decade, reflecting the nation’s ambitious clean energy plans.
Beyond capacity expansions, electrification has achieved a remarkable reach with 100 per cent village and household electrification, thereby boosting rural upliftment. The RDSS, although slow in progress, is modernising state discoms with both state-of-the-art metering infrastructure as well as robust low tension and high tension infrastructure.
To summarise, the Indian power sector is at a pivotal juncture, propelled by an assertive drive towards renewable energy, and complemented by a futuristic and robust transmission and distribution network. Multiple initiatives in areas such as green hydrogen, e-mobility, and large-scale battery storage are further complementing the clean energy agenda.
What are the key challenges that remain unaddressed?
Anujesh Dwivedi
The distribution segment, the backbone of the power sector, continues to struggle with financial viability. Operational inefficiencies continue to be high in comparison to global standards, with a billing efficiency of only 86.91 per cent in 2023-24.
The discoms’ accumulated losses are still very high and stood at Rs 6.92 trillion at the end of 2023-24, up from Rs 6.59 trillion in the previous year. The tariff subsidy billed by discoms to the state governments increased from Rs 1.69 trillion in 2022-23 to Rs 2.1 trillion in 2023-24. Tariff subsidy formed 20.21 per cent of the total revenue of discoms in 2023-24. The huge subsidy dependence, coupled with delayed remittance by the state governments, continues to pose cash flow issues for discoms.
While India added an impressive 24.5 GW of renewable capacity in 2024-25, a lot of effort is still required to ramp up to the level of 50 GW of annual renewable energy capacity addition needed to achieve the 500 GW target of cumulative non-fossil-fuel-based capacity by 2030. The pace of capacity addition will need to be more than doubled in the coming years to meet the target.
Sambitosh Mohapatra
Several key challenges remain unaddressed. The intermittent nature of renewables makes it difficult to maintain grid stability, match peak demand and handle low-generation periods, particularly as storage solutions are still in their infancy. While there are plans and investments in storage, the current scale is insufficient for large-scale firming. Coal infrastructure and emissions lock-in also pose challenges, as many older coal plants operate inefficiently, and retrofitting or retiring them is costly. New coal capacity development could hinder decarbonisation efforts, if not managed carefully.
Furthermore, distribution companies in many states continue to face financial stress due to issues such as cross-subsidy, delayed payments and weak cost recovery. This impacts procurement, maintenance and reliability. Ensuring investments in grid modernisation, digitalisation and metering is crucial. Mobilising capital at scale, particularly for storage, green hydrogen and associated technologies, remains a challenge. Additionally, regulatory risks, land acquisition, environmental clearances and supply chain constraints slow the roll-out of solar and wind equipment in certain areas.
Despite energy conservation efforts, peak demand is rising sharply in many places due to factors such as cooling loads, increasing electrification and EV penetration. Ensuring grid readiness to handle capacity and flexibility is essential. Seasonal variations and weather extremes, such as heat waves and monsoon fluctuations, impose additional stress on the system, testing its resilience, including transmission and back-up generation.
Mohammad Saif
The cumulative capital requirement for the 500 GW renewable energy target has been estimated at $300 billion-$500 billion. Unless there is steady capital flow to the sector, there is a high probability that the current momentum of renewable capacity addition may slow down in the near future. Monetising existing state-owned power assets, especially in the transmission and generation segments, can help unlock a significant amount of capital. While there are multiple models being promoted, such as infrastructure investment trusts and acquire-own-maintain-transfer, the ground-level progress is limited.
Another focus area is the level of digital penetration in the sector. While there has been progress, the sector still needs to make rapid strides to keep pace with the rapidly changing digital environment, especially with the advent of generative artificial intelligence (AI).
The rapid expansion of renewable energy, while transforming the sector, presents significant challenges for the national and state grids. Intra-day fluctuations in renewables’ output put considerable pressure on the grid, which needs a multitude of real-time actions to manage every such impact. These actions range from flexibility in conventional thermal power plants to installing battery systems for compensation. This also requires strong digital infrastructure to construct a real-time response. Needless to mention, we have one of the most robust grids in the world. However, with the rising renewables penetration, especially at decentralised levels, there is a continuous need to enhance grid infrastructure, especially at the state transmission level.
What are the major trends to watch in the near to medium term?
Anujesh Dwivedi
Near term
Technology will continue to unlock potential across the power sector value chain. The MoP’s announcement of a dedicated task force to develop the India Energy Stack, a digital public infrastructure aimed at providing standardisation and interoperability across segments, is a welcome step. Additionally, AI and machine learning will aid in accurate load forecasting, theft detection and predictive maintenance.
Another near-term trend will be the deepening of electricity markets. Electricity derivatives have been officially launched, putting the long-pending jurisdiction issue of electricity derivatives to rest. The Central Electricity Authority (CEA) has also issued the Draft Guidelines for Virtual Power Purchase Agreements.
The Central Electricity Regulatory Commission has announced market coupling in the day-ahead market from January 2026. These steps can improve market discipline, enhance participation and economic efficiency, and promote renewable energy integration in the energy markets. These reforms will also help see broader participation in the electricity markets, with new entrants such as hedgers, investors and corporates.
Recently, the Supreme Court pronounced a judgment on the long-pending issue of regulatory assets and directed the state electricity regulatory commissions to liquidate existing regulatory assets of about Rs 1 trillion by March 31, 2028. This will help alleviate some of the financial distress for discoms and set the tone for non-creation of any new regulatory assets in tariff orders prospectively.
Medium term
Ensuring resource adequacy to meet peak demand is a top priority for the government. The CEA has prepared state- and discom-wise resource adequacy plans up to 2034-35, which will act as a base for the states and discoms to forecast their demand and plan their tied-up capacity.
Transmission and distribution networks need to be strengthened for integrating higher renewable power in the grid. Investments would be needed for the adoption of distribution grid automation technologies such as SCADA, DMS, FLISR, OMS and feeder and substation automation. Increased adoption of smart metering would make the shift from the time-of-day regime to the time-of-use regime possible.
As solar and wind energy penetration increases in the grid, the issue of intermittency will increase, and the effects of the same are visible in the market. The price in the real-time market is touching zero during solar hours and Rs 10 per kWh, which is the ceiling limit, during non-solar hours. It is also impacting the frequency of the grid, resulting in deviations from the standard frequency band, 49.90-50.05 Hz. For instance, on September 2, 2025, for around seven hours of the day, the frequency was out of the band. This scenario may increase as more renewable energy capacity is added to the system. One of the possible solutions is reducing the minimum technical limit of thermal power plants, which can work as balancing load. Such flexibility will help the power grid to maintain grid discipline and stability in a high-renewable-energy scenario.
Sambitosh Mohapatra
In the near to medium term, the major trends to watch include the pace of storage and grid flexibility integration, as high renewable shares will lead to increasing stress if the pace is not accelerated. Fuel supply risks, such as coal supply, transportation bottlenecks and cost escalations, remain concerns for thermal generators. Consistent regulatory and policy frameworks including incentive structures for renewables and carbon pricing are crucial to attract investment at scale. Climate risks such as storms, heat waves and flooding pose increasing threats to generation, transmission and demand balancing.
Overall, India appears well positioned to meet many of its mid-term energy and climate goals, such as non-fossil capacity targets and emissions peaking before 2030. However, this will require accelerated investments in storage, improved efficiency, better regulatory and institutional support, and careful management of legacy thermal infrastructure.
Mohammad Saif
India’s power sector is entering a period of transformative growth over the next 5-10 years, driven by rapid renewable energy expansion, widespread adoption of energy storage and evolving market dynamics. Among these developments, the expansion of storage capacity stands out as a critical area to monitor. Battery energy storage systems (BESSs) provide essential services such as peak shifting and grid balancing. Several gigawatt-scale BESS projects are expected to come online, enhancing system flexibility and enabling more effective integration of variable renewable energy sources. Long-duration storage solutions such as pumped hydro storage are expected to achieve commercial scale, further strengthening grid reliability.
Demand growth is also being shaped by sectoral electrification, particularly in areas such as cooling and data centres. The expansion of data infrastructure and the electrification of commercial and industrial services will drive concentrated demand growth in select regions, requiring strategic planning to manage peak loads and ensure system reliability. Solar mini-grids in urban areas may be evaluated to manage part or whole of local demand, thereby lowering the impact on grids.
Additionally, the Make in India drive would start bearing fruit in the future, with economies of scale. This would help minimise supply chain impacts due to geopolitics.
Overall, the sector is expected to continue with the momentum gained over the past decade. However, the availability of capital and the supply chain would be critical to achieving future targets. It would, therefore, be essential that the states focus on monetising their assets and utilising capital in strengthening sectoral infrastructure. This would not only help prepare for growth in the medium to long run but also improve sector efficiencies, which is an immediate need in most states.
