India sees 1.5% drop in Q1 power supply, first decline in nearly a decade
SBICAPS Power Sector report
for July 2025.
The fall was attributed to higher-than-normal rainfall during 60 per cent of the days in Q1, which moderated temperatures and led to lower demand for cooling, the report said. In June 2025, despite isolated days of low rainfall when demand spiked, the overall energy consumption remained subdued. Peak demand touched 241 GW during these days.
The report highlighted that cooling demand is becoming the dominant driver of peak electricity load in India and is expected to introduce increasing volatility due to its sensitivity to weather patterns. 'Room ACs could contribute to nearly 25-30 per cent of the total peak demand by 2035,' it said, noting that the AC ownership trajectory in India is following the pattern previously observed in China.
Real-Time Market (RTM) price data showed that the peak demand hours between 8 PM and midnight, which coincide with the reduction in solar generation, had the highest pricing. In May 2025, the demand-supply gap in these hours was about 10 per cent on average and went up to 90 per cent on extreme days.
Conversely, during solar generation hours (7 AM to 5 PM), power supply was 2.8 times higher than demand, pointing to excess generation without matching grid absorption. The report said this underscored the viability of storage solutions, stating, 'The differential in pricing is now on-par with BESS tariffs (without VGF) indicating that storage has become viable and necessary.'
Across regions, the northern part of the country recorded the highest decline in energy supplied, largely due to excessive rainfall. Most other regions also showed a year-on-year decline in supply, except the North-East, which remained stable.
Annual capacity additions are currently at around 30 GW, dominated by solar installations. However, the share of solar in new tenders dropped below 50 per cent in FY25, with greater focus on round-the-clock (RTC) and load-following bids. Despite a five-year doubling of solar generation's share, renewable electricity production continues to lag behind installed capacity.
The report said the market is seeing rising interest in pumped hydro and standalone
Battery Energy Storage Systems
(BESS). The government's Viability Gap Funding (VGF) 2.0 scheme has allocated ₹5,400 crore to support 30 GWh of BESS capacity, offering ₹1.8 crore per MWh. The overall investment from this tranche is estimated at ₹33,000 crore.
Transmission constraints are emerging as a key barrier to renewable energy integration. Some solar and wind projects remain stranded due to the absence of transmission infrastructure, and developers are now exploring microgrid and storage-linked designs to bypass grid limitations.
The report also noted that credit growth for power financiers such as PFC and REC may slow down with reduced borrowing needs from distribution companies (DISCOMs), as large reform schemes like RDSS and LPS approach completion. Lending to the renewable energy sector continues but disbursements are yet to pick up to projected levels.
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