Whalesbook
Power Sector's Growth Tempo Broke in 2025, Will It Revive in 2026?
Electricity demand in India experienced a significant slowdown during 2025, a trend that has confounded industry stakeholders and market observers. Both electricity demand and conventional energy generation saw a decline in the period from April to November 2025 when compared to the same period last year. This deceleration in demand occurred despite a generally healthy growth trajectory in India’s economy.
The noticeable slowdown in electricity demand has directly weighed on the earnings of electricity producers across the country. Utilisation levels for thermal power producers, which form the backbone of India’s electricity supply, dropped considerably in the current fiscal year up to November 2025.
The Core Issue
Several factors contributed to the demand slowdown. Excess rainfall and an unusually prolonged monsoon season in 2025 dampened electricity consumption. This led to tariffs in the spot electricity market dropping to exceptionally low levels during daylight hours. The sharp fall in prices was largely attributed to high power generation from solar energy sources. Despite these specific market dynamics, a broader slowdown in overall electricity demand is evident.
The impact of the prolonged monsoon was multi-faceted. Firstly, lower temperatures reduced the need for air conditioning usage throughout 2025, adversely affecting sales of room air conditioners, a significant driver of electricity demand. Secondly, persistent rains impacted electricity demand from the agricultural sector, particularly for pump-sets. A third major factor was the moderation in industrial production.
Energy-intensive industries, including iron and steel, aluminium, cement, and fertiliser, account for a substantial portion of India’s electricity demand. Production in these sectors was subdued during the first half of FY26. Analysts at JM Financial Institutional Securities noted that production of cement and metals saw modest growth or remained stagnant, while iron and steel products grew at a modest six percent year-on-year, adding to the demand weakness originating from household and agricultural sectors.
Financial Implications
Electricity generation at NTPC Limited, India’s largest electricity producer, declined by approximately six percent in the first half of FY26. The utilisation of its coal power plants also decreased. Given that NTPC primarily sells power through long-term power sale agreements, this reduction in sales directly indicates a sluggish demand environment and lower offtake from its customers.
Future Outlook
As 2025 concludes, hopes are increasingly being pinned on the New Year for a revival. Barring unforeseen events such as a sharp economic downturn, unseasonably mild summers, or continued prolonged monsoons, analysts expect electricity demand to rebound in 2026. Analysts at Jefferies India stated in a note that assuming normal weather conditions, demand should recover to around six percent growth from FY27 onwards.
Investors are advised to closely monitor monthly electricity usage and production data, which are critical indicators of demand trends. Early signs of demand improvement are anticipated from March-April onwards. A prolonged slowdown in electricity demand could potentially weigh on the near-term growth expectations for power utilities, presenting a key risk factor for investors to watch.
Impact
This slowdown in electricity demand poses a significant risk to the financial performance and valuation of companies within the power generation and distribution sector. Reduced demand can lead to lower revenue, decreased plant utilization, and subsequently impact profitability. For investors, this necessitates a cautious approach, focusing on companies with strong fundamentals and contractual obligations that offer some insulation from demand volatility. The overall sentiment towards the energy sector could be affected if the slowdown persists beyond early 2026. The impact rating for this news on the Indian stock market is 7 out of 10.
Difficult Terms Explained
- Utilisation levels: This refers to the percentage of a power plant's maximum potential output that is actually being used. Low utilization indicates lower demand or supply issues.
- Spot electricity market: A trading platform where electricity is bought and sold for immediate or very short-term delivery, often with volatile pricing.
- Power sale agreements: Long-term contracts between power generators and electricity distributors or large consumers that guarantee the purchase of electricity at a predetermined price and volume.
- Energy-intensive industries: Sectors such as metals, cement, and chemicals that require very large amounts of energy to operate their manufacturing processes.
- NTPC Limited: India's largest state-owned power generation company, primarily producing electricity from coal, gas, and renewable sources.
- JM Financial Institutional Securities: A financial services firm that provides research and analysis on various companies and sectors for institutional investors.
- Jefferies India: A global investment bank and financial services company that also offers equity research and analysis.