Private Sector Investment ₹77,000 crore in Thermal Power by FY28

India’s thermal power sector is set to attract ₹77,000 crore in private investment from FY26 to FY28, contributing to an overall ₹2.3 lakh crore capex. The government aims to add 80 GW thermal capacity by 2032 to meet rising energy demand.

The thermal power sector in India is projected to attract ₹77,000 crore in private investment over the next three fiscal years, from FY26 to FY28​. This surge in investment is driven by a renewed focus on meeting India’s increasing energy demand and base load power requirements.

In contrast to the preceding three fiscals, where private companies contributed only 7-8% of capital investments, they are expected to account for nearly a third of the expanded investment levels over the next three fiscals. Central and state public sector undertakings will cover the remaining balance.

Overall Thermal Power Investment and Capacity Goals

Overall investments to establish thermal electricity generation capacities are anticipated to double to ₹2.3 lakh crore (₹2.3 trillion) over the three fiscals through 2028, compared to the previous three fiscals. The capital expenditure in thermal power stood at ₹1.1 lakh crore over the three fiscals through 2025.

The government aims to add at least 80 GW of thermal capacity by fiscal 2032. Currently, approximately 60 GW of capacity addition has been announced or is in various stages of implementation.

Private developers are responsible for nearly 19 GW of this planned capacity, with the majority of these private capacities becoming operational only after fiscal 2028 due to long construction periods.

Energy Demand and Supply Dynamics

Energy demand is predicted to grow at a compound annual growth rate of 5.5% to reach 2,000 billion units by fiscal 2028. While nearly 70% of this incremental demand is expected to be met by renewable sources, thermal power remains crucial for consistent base load demand due to the intermittent nature of renewable energy.

Solar energy is only available during the daytime, and wind power is concentrated from May to September. After a nearly decade-long break, distribution utilities in four states have initiated 25-year thermal power purchase agreements (PPAs) with private sector generators.

Out of the 19 GW of private projects under implementation, PPAs have been secured for 6.1 GW, indicating a clear intention from discoms to commit to long-term thermal power purchases and mitigate offtake risk.

Project Implementation and Risks

The discovered PPA tariffs for new thermal projects are around ₹5.5-5.8 per unit, structured in a two-part system where fixed tariffs average 60-65% of the total, with the remainder being a pass-through of coal costs.

This structure is expected to yield an internal rate of return of 15%, ensuring financial viability if projects are commissioned on schedule. Land availability is not a significant challenge, as 15 GW of the 19 GW of private projects are brownfield, meaning they are expansions of existing facilities and possess established evacuation infrastructure.

While fuel supply agreements are anticipated to be signed closer to their commercial operations dates, the risk in this area remains low. The Coal Ministry plans to increase production by over 100 million tonnes this fiscal from a base of 1,041 million tonnes in FY25, which is sufficient to meet the power sector’s incremental coal demand for the next three fiscals, aligning with the government’s goal to reduce import dependence.

However, the timely delivery of equipment, particularly boilers and turbines, remains a point to monitor due to limited supply capacity and a substantial build-up of orders at major manufacturers. Other risks related to offtake, fuel, and tariff adequacy are considered low.

Impact on Thermal Power Sector’s Reliance on Imports

An increase in domestic coal production is directly linked to a reduction in thermal coal imports. Countries like China and India have ramped up their domestic coal production to ensure energy security and reduce price volatility, thereby lowering their reliance on imported coal.

For instance, China’s domestic coal production reached a record high of 440.58 million tons in March, up 9.6% year-on-year, contributing to a 13.1% decrease in thermal coal imports during the first four months of 2025 compared to the same period last year. Similarly, India has a strong push to increase production to avoid coal shortages and reduce imports.

The Indian government has taken several steps to increase domestic coal production and eliminate non-essential coal imports. Historically, higher production by Coal India Limited (CIL) has helped India reduce its dependence on imports by 5.5 percentage points over a decade, reaching 20.5% in 2024.

Factors Influencing Coal Imports Despite Increased Production

Despite increased domestic production, several factors continue to drive coal imports:

Quality Requirements: India imports coal to meet specific quality requirements for certain industries, as domestic coal often has low calorific value and very high ash content, making it less suitable for some applications. Imported coal, such as that from Australia and America, can offer advantages like less coal feed, lower CO2 emissions, and reduced particulate generation in thermal power plants.

Logistical Challenges: Most of India’s coal mines are located in the eastern part of the country, necessitating long-distance transport to power stations across the nation. This can lead to supply shortages, making imports a more viable option for some power plants.

Economic Factors: Global coal prices and supply chain disruptions can influence import decisions. Lower international prices can make imports more attractive, even when domestic production is high.

Industrial Growth: Rapid industrial growth and increasing electricity demand, particularly in countries like India and Vietnam, continue to drive overall coal consumption, sometimes exceeding domestic supply capabilities and necessitating imports. Vietnam, for example, supercharged its thermal coal imports by over 30% in 2024 due to its industrial boom.

Specific Applications: While thermal coal is primarily used for electricity generation, metallurgical coal, used in steelmaking, is largely exported by countries like the U.S. and imported by others due to its specialized quality and limited global producers.

Overall, while increased domestic coal production aims to reduce import reliance, factors such as coal quality, logistical constraints, economic conditions, and specific industrial demands mean that some level of coal imports will likely continue. this post references from ET

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