India's Power Sector Faces Risks Amid Low Demand and Rising Capacity

India's power sector is teetering on the brink of an oversupply crisis due to continued low electricity demand, according to Fitch Ratings. The agency highlights that sluggish demand growth, coupled with accelerated capacity expansions, could exacerbate the oversupply risk.

The report indicates that for the past two years, India has experienced a tepid electricity demand growth of roughly 4%, while power companies continue their rapid capacity build-up. Projections suggest a modest power demand increase of 4-5% over the medium term, mirroring the 4% growth witnessed in fiscal year 2025 (FY25).

In FY25, there was a marked slowdown in power demand, plummeting to nearly half of the near 8% growth recorded in FY22-FY24. The Power Ministry reported that India achieved a record maximum power demand of 250 GW during FY 2024-25, amidst a significant reduction in national energy shortages to just 0.1%.

Substantial capacity additions since FY 2013-14 have improved electricity reliability, boosting rural availability from 12.5 hours in 2014 to 21.9 hours, while urban areas now boast 23.4 hours of power supply. The total installed generation capacity has surged by 83.8%, escalating from 249 GW in March 2014 to 457 GW in November 2024.

Global uncertainties involving India-Pakistan relations, international trade, and US tariffs pose significant risks to India's economic outlook, affecting potential power demand. Despite expected GDP growth of 6.4% in FY26 and 6.3% in FY27, weaker growth could suppress power demand.

Fitch anticipates that capital expenditures in India's power utilities will remain robust, driven by the government's target to expand renewable capacity to 500 GW by 2030. The anticipated strong growth in renewable energy could dampen coal demand, which has already slowed to 3.4% year-on-year in 11 months of FY25.

The report suggests that continued improvements in domestic supply and sluggish demand growth might lead to a reduction in coal imports in coming years.

(With inputs from agencies.)