EVs, green hydrogen, data centres to catalyse India's electricity demand in next 5 years: ICRA
A trifecta of accelerating electric vehicle (EV) adoption, green hydrogen (GH), and an increase in data centre capacity is expected to significantly catalyse electricity demand between FY26 and FY30, according to ICRA.
The electricity demand in India over the next five years will achieve a healthy compound annual growth rate (CAGR) of 6-6.5 per cent, higher than the nearly 5 per cent CAGR achieved in the last 10 years, driven by the abovementioned three sectors, the ratings agency said in a research note, which
ETAuto
has reviewed.
'These three segments are expected to contribute to 20-25 per cent of the incremental demand over the next five-year period from FY26 to FY30. The growth in demand for grid capacity is expected to be offset to some extent, by the rising adoption of rooftop solar and off-grid projects, driven by schemes such as the Pradhan Mantri Surya Ghar Yojana,' said Vikram V, vice president & co-group head (corporate ratings), ICRA.
For the EV, in particular, ICRA said the sector is expected to witness an increase in penetration across the segments, primarily led by the adoption of three-wheelers, followed by two-wheelers, e-buses, and passenger vehicles.
Regarding GH, ICRA said it considered a gradual scale-up in capacity, given the relatively higher cost of GH against grey hydrogen currently.
'While a major portion of the incremental demand is expected to be met through increase in the renewable energy (RE) capacity, the Central and state governments are encouraging new thermal power projects to ensure sufficient buffer in the installed capacity to meet the growing demand,' ICRA said.
The ratings agency has projected a modest 5–5.5per cent growth in electricity demand in FY26, lower than the country's expected GDP growth of 6.5per cent, attributing it to an early monsoon that is likely to affect demand for cooling and for agricultural activities.
Though this marks an improvement over the 4.2 per cent growth seen in FY25, it falls short of the 8 per cent growth between FY22 and FY24.
Despite renewable energy driving most of the upcoming 44 GW power capacity addition in FY26, coal-based capacity is also expected to grow by 9–10 GW as a buffer. This dual strategy reflects government efforts to ensure grid reliability while managing clean energy transitions, said ICRA.
Discom finances remain a concern amid EV-driven load increase
Distribution companies (discoms), which are key to delivering reliable charging infrastructure, continue to face financial strain. Discom debt rose to ₹7.4 trillion by March 2024, and tariff hikes remain subdued. ICRA projects the all-India cash gap at 35 paise per unit for FY2026 and maintains a negative outlook on the distribution segment.
'ICRA's outlook for the power distribution segment remains Negative amid limited tariff hikes and continued lossmaking operations. The progress in the smart metering programme along with the timely implementation of fuel & power purchase cost adjustment framework would play an important role in improving the discom finances, going forward,' said Vikram V.
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