Whalesbook
Energy Transition Accelerates
The shift is driven by a confluence of factors, primarily a deceleration in power demand growth and a robust expansion in renewable energy output. Crisil Ratings forecasts that thermal power's contribution will dip to approximately 72% this fiscal year before crossing the crucial 70% threshold in the next. This decline will also moderate plant load factors (PLFs) for thermal plants, expected to range between 64-66% over the next two fiscals, down from 69% in fiscal 2025.
Capital Expenditure Revival
Despite the shrinking share, the thermal power segment is experiencing a notable revival in capital expenditure. This resurgence is underpinned by an increase in long-term power purchase agreements (PPAs) and a sustained demand for baseload power. Utilities are actively securing round-the-clock supply through these agreements, ensuring revenue visibility.
Financial Health Amidst Transition
While increased capital expenditure is poised to modestly elevate leverage for thermal power producers over the next three to four years, their financial health is expected to remain stable. Steady cash flows, bolstered by PPA structures that insulate against plant load factor volatility, and controlled debt levels are key factors. Independent Power Producers (IPPs), for instance, saw their debt-to-EBITDA leverage improve significantly from 7.0 times in fiscal 2020 to 2.2 times in fiscal 2025. Projections suggest leverage might peak at 3.0 times by fiscal 2029 before normalizing as new capacities come online and generate revenue.
Renewable Energy Dominance
In contrast, renewable energy generation is on a strong growth trajectory, forecast to expand at a compound annual rate of 18-20%. Supported by substantial capacity additions, renewables are positioned to meet the majority of incremental power demand. However, thermal power's critical role in grid stability, particularly given the intermittent nature of renewables and the early stages of energy storage adoption, ensures its continued importance. Crisil notes that nearly 85% of the 60 GW operational IPP capacity is now contracted through PPAs, providing a buffer against market volatility.