Thermal PPAs return after a decade as power demand, capacity rise: ICRA
New Delhi: Long-dormant long-term
thermal power purchase agreements
(PPAs) are making a comeback, with three states awarding 4,800 MW of contracts in the past one year, reflecting a renewed focus on energy security amid rising power demand and renewable integration, ICRA said.
Maharashtra, West Bengal and Uttar Pradesh finalised 1,600 MW each under competitive bidding, with tariffs in the range of ₹5.4 to ₹5.5 per unit. This marks the first major revival of long-term coal-based PPAs in nearly a decade.
The return of baseload contracting comes as electricity demand in India is projected to grow by 5 to 5.5 per cent in FY2026, following a 7.6 per cent rise in FY2025. Total demand reached 1,826 billion units last fiscal and is expected to remain strong, supported by load from electric vehicles, data centres, and green hydrogen production.
Over 40 GW of thermal power capacity is under construction, while total capacity addition in FY2026 is projected at 44 GW—dominated by renewable and thermal segments, according to the credit rating agency.
Thermal plant load factor (PLF) is expected to remain at 70 per cent in FY2026, up marginally from 69.5 per cent in FY2025. Coal stocks at domestic plants stood at a five-year high of 19.7 days as of May 21, 2025. Imports are likely to account for 6 per cent of coal consumption in FY2026, compared to 6.9 per cent in FY2025.
Short-term power tariffs are expected to average ₹4.0–₹4.5 per unit in FY2026. In FY2025, the Indian Energy Exchange recorded average tariffs of ₹4.4 per unit in the day-ahead market and ₹4.3 per unit in the real-time market.
However, distribution continues to lag behind generation and transmission. ICRA retained a negative outlook on the discom segment. Book losses at state discoms stood at ₹572 billion in FY2024, while gross debt rose to ₹7.4 lakh crore from ₹6.6 lakh crore in FY2023.
The cash gap—difference between average cost of supply and tariff—is projected at ₹0.35 per unit in FY2026. Tariff hikes have remained muted, with a median increase of 1.5 per cent across 28 states issuing tariff orders for the year.
'Timely implementation of RDSS and FPPAS rules for tariff recovery remains key for improving discom finances,' ICRA noted.
The outlook remains stable for thermal generation, renewables and transmission. Transmission investment requirements are pegged at ₹4.5 lakh crore by FY2030, mainly to support renewable evacuation.
ICRA reported 36 rating upgrades and 10 downgrades in the power sector in FY2025, driven largely by improvements in the renewable energy segment.
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