India’s electricity demand is rising rapidly — not just during summer but year-round. This growth is driven by urbanisation, industrial activity, and emerging technologies like AI. While clean energy adoption is increasing, thermal power remains the primary source of electricity. Coal-based power plants continue to play a crucial role in keeping the nation powered and supporting its growing economy.
On the occasion of National Thermal Engineering Day (July 24), let’s explore India’s thermal power sector in depth and examine whether it still holds strong potential in the midst of a green energy transition.
Current State of India’s Thermal Energy
India is the third-largest producer and consumer of electricity globally. As of June 2025, the country’s total installed power capacity stood at 484.82 GW. Of this, 242.04 GW, or nearly 49.92%, still comes from thermal sources.
Coal remains the dominant fuel for power generation, contributing around 70.34% of total electricity output. In fact, coal-based generation has steadily increased — from 896.30 billion units in FY16 to 1,331.87 billion units in FY25.
Even though over 50% of India’s installed power capacity now comes from green energy sources, the country still relies heavily on coal for actual electricity generation.
While non-fossil fuel sources — solar, wind, hydro, and nuclear — have grown and now account for more than half of the installed capacity, thermal power continues to lead in actual energy production. Power access has also improved significantly: over 2.8 crore households have been electrified, and per capita electricity consumption has increased by nearly 46%. Meanwhile, power shortages have declined from 4.2% in 2013–14 to just 0.1% in 2024–25.
Why Thermal Power Still Matters
Even as India pushes forward with solar and wind energy adoption, thermal power remains the backbone of the electricity grid. Renewable sources cannot provide uninterrupted supply yet. Power cuts in cities like Delhi, Hyderabad, and Mumbai during peak summer highlight the importance of thermal energy.
To strengthen the grid, the government has proposed adding 80 GW of new thermal capacity by 2032, with tenders worth over Rs 2.75 lakh crore. However, in FY25, only 4.53 GW was added — far below the 15.4 GW target. Out of 22 planned units, only six became operational.
India isn’t alone in this challenge. Countries like Germany, Japan, and the US are facing similar issues. Following the Russian gas crisis, Germany restarted coal plants to stabilise its grid. Japan continues to build thermal and gas-based capacity for energy security.
Green Energy Overtakes Thermal
As of June 30, India achieved a major milestone: 50.08% of its installed electricity capacity now comes from non-fossil fuel sources, including solar, wind, hydro, and nuclear energy. This accomplishment marks the early achievement of a key climate goal, five years ahead of schedule.
To know more, read our detailed coverage: ‘India Hits 50% Clean Energy Capacity – 5 Years Early.’
Key Challenges in India’s Thermal Sector
Despite its importance, the thermal power sector faces several challenges:
Grid Instability: The rapid expansion of solar and wind — without adequate storage — has made the grid unstable during peak demand or when renewable supply dips. Thermal plants often step in, increasing operational strain.
Environmental Compliance Costs: Regulations like flue gas desulfurisation (FGD) have raised operational costs. While some rules have been relaxed, long-term environmental concerns remain.
Rising Demand vs Capacity Gaps: Power demand is surging due to urbanisation, EV adoption, and industrial growth. Many states are entering long-term agreements for reliable thermal power, but much of the new capacity is still under construction.
Coal Supply and Price Volatility: Even with improved domestic coal production, plants face quality issues and often rely on costly imports during shortages. Supply uncertainty remains a concern, especially during weather disruptions.
Financial Distress: Power distribution companies (discoms) continue to struggle with debt and operational losses. Their weak financial health impacts payments to thermal producers, threatening sector stability.
Aging Infrastructure: Many thermal plants are outdated and operate at low efficiency, leading to frequent breakdowns and higher emissions, although performance has improved slightly in recent years.
Government Initiatives
100% FDI in the Power Sector: The government allows full foreign investment via the automatic route, including in thermal power, to attract global capital.
Push for Supercritical Technologies: Ultra-supercritical technologies are being adopted for better efficiency and lower emissions. Companies like Coal India are building such plants close to coal mines to reduce logistics costs.
Biomass Co-Firing Policy: All thermal power plants are mandated to co-fire 5% to 7% biomass with coal, reducing pollution and utilising agricultural waste.
Replacement of Old Plants: Obsolete and inefficient thermal units are being decommissioned and replaced with modern facilities to improve energy output and reduce emissions.
Relaxation on FGD Installation: In 2025, most plants were exempted from installing FGD systems due to the relatively low sulphur content in Indian coal.
Coal Stock Maintenance: The government is ensuring adequate coal reserves at power plants during high demand seasons to avoid electricity shortages.
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Future Prospect
India is poised to double its thermal power investments to Rs 2.3 lakh crore by 2028. The government aims to add 80 GW of new thermal capacity by 2032. Currently, 60 GW is in the pipeline, with 19 GW coming from private players.
Private sector participation in thermal power is expected to increase from 7–8% to nearly one-third over the next three years. However, most of these projects will become operational post-2028, given the long construction timelines.
Even as renewables gain ground, thermal power remains crucial for base load supply. Several states have resumed signing 25-year power purchase agreements after a long gap. Additionally, the tariff for new thermal projects stands around Rs 5.5 to Rs 5.8 per unit, offering potential returns of about 15% if executed on schedule.
*The companies mentioned in the article are for information purposes only. This is not investment advice.
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