Power Sector

Power sector is critical for economic development, infrastructural development, job creation, and energy security.It is critical in supplying dependable and economical electricity to industry, organizations, and households.

The sector’s emphasis on renewable energy transition and rural electrification raises living standards while promoting long-term development. Attracting investments and diversifying the energy mix also contribute to economic growth and lessen reliance on foreign energy sources.

Power generation sources range from traditional coal, lignite, natural gas, oil, hydro and nuclear power to feasible non-conventional sources such as wind, solar, agricultural and domestic waste.

Power Sector: Potential

Third-largest producer and consumer globally

  • With an installed power capacity of 411.64 GW as of January 31, 2023, India is the world’s third-largest producer and user of energy.
  • As of 2021, India ranked fourth in wind power capacity, fourth in solar power capacity, and fourth in renewable energy installed capacity. India is also assisting developing countries in transitioning to a low-carbon economy through International Solar Alliance.
  • India is the only country in the G20 that is on track to meet the Paris Agreement’s targets.

Electrification achievements

  • India has been on a path to reach the Saubhagya scheme’s goal of 100% household electrification. More than 2.82 crore houses had been electrified under the Saubhagya scheme as of March 2021.
  • As of October 31, 2022, the country had installed 172.72 GW of capacity from non-fossil fuel sources.

Robust growth in renewables

  • India’s installed renewable energy capacity (including hydro) was at 165.94 GW as of October 31, 2022, accounting for 40.6% of total installed power capacity.
  • Solar energy is expected to produce 63.3 GW, followed by wind power (41.9 GW), biomass (10.2 GW), small hydropower (4.92 GW), waste to energy (0.52 GW), and hydropower (46.85 GW).
  • Non-hydro renewable energy capacity addition in FY22 was 15.5 GW, up from 7.7 GW in FY21.

Favourable policy environment

  • Under the automatic route, 100% FDI is permitted in the power sector and renewable energy.
  • The government declared the issuing of sovereign green bonds in the Union Budget 2022-23, as well as the designation of energy storage technologies, including grid-scale battery systems, as infrastructure.
  • With such policy incentive government is trying to sustainably boost the power sector.

Growing demand

  • Increased industrial activity will increase the electricity demand.
  • Growing population, increased electrification, and per-capita demand will give additional impetus. In December 2022, India’s power consumption increased by 11% to 121.19 billion units, compared to the previous year.
  • India ranks sixth on the list of countries that made major investments in sustainable energy between 2010 and the second half of 2019.

Higher investment

  • Between FY19 and FY23, India’s electricity sector is expected to attract US$ 128.24-135.37 billion (Rs. 9-9.5 trillion).
  • Between April 2000 and December 2022, total FDI inflows into the power sector totalled US$ 16.57 billion.
  • In 2023, India has the potential to attract more than $20 billion in renewables investment.
  • Energy sector projects accounted for the largest share (24%) of the overall planned capital expenditure of US$ 1.4 trillion (Rs. 111 lakh crore) according to the National Infrastructure Pipeline 2019-25.


  • The government committed US$ 885 million (Rs. 7,327 crores) for solar power projects in the Union Budget 2023-24, including grid, off-grid, and PM-KUSUM projects.
  • The Ministry of Power has chosen 81 thermal units that will replace coal with renewable energy generation by 2026 to satisfy India’s 500 GW renewable energy objective and address the annual issue of coal demand-supply mismatch.

Power sector: Challenges

Low access to modern energy:

  • With a predominantly rural population and little access to contemporary energy services, there is a heavy reliance on traditional fuels: non-commercial biomass remains a substantial energy source, accounting for more than 30% of the country’s fuel mix.
  • Over 350 million people still do not have access to power. In rural locations, limited access to modern energy sources reduces productivity, particularly for agricultural labourers seeking non-farm jobs.
  • However, demand for modern commercial fuels is fast increasing, driven by rising income and steadily improving availability.

Heavy dependence on fossil fuel with significant untapped renewable energy potential:

  • India’s electricity sector continues to rely significantly on fossil fuels (coal). While it has a huge hydropower potential (150,000 MW), it is tiny in comparison to the country’s energy needs and relatively untapped (only 25% potential has been harvested so far).
  • More than 60% of businesses and a considerable proportion of households rely on captive or backup generation – The reported peak power shortfall is 10.3%, and the energy deficit is 8.5%, but actual electrical shortages on the ground are significantly larger.
  • The reliability, fuel efficiency, and environmental performance of approximately 27,000 MW of existing coal-fired generating capacity must be upgraded.

Weak sector institutions and utility governance are compromising the sector’s financial performance:

  • Restructured businesses in the electricity sector lack accountability, operational efficiency, and customer service focus.
  • Around 28% of electricity supplied to state transmission systems is lost for technical and non-technical reasons.
  • Tariff-based cost recovery stands at only 80%, leading to a precarious financial situation. This reliance on budgets and debt hampers commercialization and infrastructure development. Consequently, frequent blackouts occur, causing dissatisfaction among consumers.
  • The sector is highly politicized, and regulatory processes generally lack independence, competence, and accountability, with only a few exceptions.

Sustainability and climate change considerations are increasing in importance:

  • India’s development strategy relies more on coal for energy needs, contributing to being the world’s sixth largest greenhouse gas emitter at 4% of global emissions.
  • Coal-fired power stations make up 65% of total capacity and 50% of CO2 emissions. However, implementing recommended policies from the Integrated Energy Policy Report (2006) could reduce emissions by 30% by 2030.
  • These policies prioritize energy efficiency, increasing natural gas and hydropower use, and reducing transportation sector energy intensity.

Power Sector: Way Ahead

  • Due to its low calorific value and high ash content, a significant portion of India’s coal reserve is unsuitable for burning. Indian power plants consuming domestic coal require larger quantities compared to imported coal. To mitigate environmental impact, the Ministry of Forests and Environment mandates power plants in urban, ecologically sensitive, and polluted areas to use coal with an ash content of 34% or less.
  • According to the National Infrastructure Pipeline 2019-25, energy sector projects accounted for nearly 24% of the total planned capital expenditure of Rs.111 lakh crore.
  • The Indian government has designated the power sector as a critical area for promoting long-term industrial growth. The following are some government initiatives to help the Indian power sector:
  • In 2022, the Government introduced the National Bioenergy Programme. The implementation of the program is divided into two phases. The first phase, which has a budget of US$ 103 million (Rs. 858 crore), has been approved. The program comprises various subschemes, including the Waste to Energy Programme, Biomass Programme, and Biogas Programme.
  • The government earmarked Rs 19,500 crore in the Union Budget 2022-23 for a PLI scheme to stimulate the manufacturing of high-efficiency solar modules.
  • Electrification in the country is rising, thanks to programmes such as the Deen Dayal Upadhyay Gramme Jyoti Yojana (DDUGJY), the Ujwal DISCOM Assurance Yojana (UDAY), and the Integrated Power Development Scheme (IPDS).
  • The Ministry of Power has identified 81 thermal units that will replace coal with renewable energy output by 2026 to satisfy India’s 500 GW renewable energy objective and address the annual issue of coal demand-supply mismatch.
  • To make India an exporting nation, the government announced plans to raise funding under the PLI scheme for domestic solar cell and module manufacture to Rs 24,000 crore from Rs 4,500 crore.
  • The government of India started the Pradhan Mantri Sahaj Bijli Har Ghar Yojana, or “Saubhagya,” to achieve universal household electrification.
  • By 2030, India aims to manufacture five million tonnes of renewable hydrogen. A total of 125 GW of renewable energy capacity will be used to support this. In India, 57 solar parks with a total capacity of 39.28 GW have been approved.

India’s electrical sector is set to undergo significant changes in the next decade (2020-2029), driven by the goals of ensuring widespread access to electricity and transitioning to cleaner, renewable energy sources. The government plans to generate 40 GW of solar power from rooftop projects through a ‘rent a roof’ scheme.  Additionally, the construction of 21 new nuclear power reactors with a total capacity of 15,700 MW is planned by 2031.

According to the Central Electricity Authority, India’s electricity demand is projected to reach 817 GW by 2030, with renewable energy generation expected to increase from 18% to 44%, and thermal energy generation to decrease from 78% to 52% by 2029-30. The government has set a target of establishing 500 GW of renewable energy capacity by 2030, signalling a commitment to a greener energy future.

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