RPO framework expected to mitigate offtake risks; energy storage deployment critical for FY2032 peak demand
India’s power sector is undergoing a structural shift, with renewable energy (RE) steadily expanding its footprint in the national generation mix.
According to a recent assessment by Infomerics Ratings, the share of renewable energy in total electricity generation is projected to rise to around 26% by the end of FY2026, despite relatively softer power demand in the current fiscal year.
Electricity demand recorded a robust compound annual growth rate (CAGR) of 7–8% between FY2021 and FY2025, broadly tracking India’s average GDP growth of about 8% during the same period.
While demand growth moderated in the first nine months of FY2026 due to an early and prolonged monsoon, medium-term prospects remain strong. Growth drivers such as manufacturing expansion, electric vehicle adoption, rising data centre capacity, and green hydrogen production are expected to sustain power-intensive demand.
On the supply side, capacity additions have accelerated significantly. Installed capacity reached nearly 522 GW in the first nine months of the current fiscal year, compared with an average annual addition of around 21 GW between FY2021 and FY2025. More than 90% of these incremental additions have come from renewable sources.
Rohit Inamdar, Chief Rating Officer at Infomerics Ratings, said renewable capacity additions touched a record 49 GW during 9MFY2026, aligning with India’s national target of achieving 500 GW of non-fossil capacity by FY2030. He noted that renewables accounted for nearly 64% of incremental electricity generation growth during the period, leading to a projected four-percentage-point rise in RE’s generation share over FY2025 levels.
Looking ahead, renewables—led primarily by solar—are expected to account for nearly 59% of total installed capacity by FY2032. However, meeting the estimated 458 GW of peak demand, particularly during non-solar hours, will require large-scale deployment of energy storage systems (ESS).
India’s energy storage roadmap includes both battery energy storage systems (BESS) and pumped storage projects (PSPs). Of the planned 236 GWh of BESS capacity targeted by FY2032, only 0.2% was operational as of June 2025, while about 9.6% (22.6 GWh) is under development. In comparison, India currently operates 5 GW of PSP capacity, with over 12 GW under construction and nearly 69 GW in the development pipeline.
Mithun Vyas, Associate Director at Infomerics Ratings, highlighted implementation challenges, noting that BESS projects typically require 18–24 months to commission, while PSPs involve a longer construction cycle of four to six years. He pointed out that delays in signing power purchase agreements (PPAs) for BESS-linked renewable projects remain a concern, as distribution utilities are awaiting further cost reductions in battery systems. High battery costs continue to keep tariffs for BESS-linked renewables elevated, making timely PPA tie-ups at viable tariffs critical for independent power producers from a credit perspective.
Despite these challenges, a significant portion of renewable capacity currently under construction is expected to be contracted under India’s Renewable Purchase Obligation (RPO) framework. Under the mandate, distribution utilities are required to source over 43% of their total power procurement from renewable sources by FY2030. Operational renewable projects benefit from “must-run” status, ensuring priority offtake and reducing market risk for projects with tied-up agreements.
Infomerics Ratings maintains a stable outlook on India’s renewable energy sector over the medium term, supported by strong policy backing, healthy plant load factors, and comfortable debt coverage metrics. While payment cycles from distribution utilities have improved in recent quarters, they remain a key monitorable. For future capacity additions, timely execution, adequate storage deployment, and seamless grid integration will be critical to sustaining growth momentum.