India’s ‘green’ power capacity overtakes thermal: Why it matters, the challenges posed, and what’s next

As of June, India’s total installed capacity stood at 485 gigawatts (GW). Of this, renewables — including solar, wind, small hydro, and biogas — accounted for 185 GW, according to a press release by the Ministry of New and Renewable Energy (MNRE). Large hydro capacities contributed 49 GW, and nuclear energy added 9 GW, taking the total non-fossil fuel capacity just over the halfway mark. Thermal power, mostly coal- and gas-based, made up the remaining 242 GW, or 49.9 per cent. In 2015, thermal’s share was 70 per cent.

While clean capacity is up, thermal continues to dominate

The rise in contribution of renewables to India’s energy mix marks a significant shift, driven by the rapid addition of solar and wind power in recent years. In 2024, India ranked fourth globally in renewable installed capacity, including large hydro, behind only China, the US, and Brazil.

To be sure, installed thermal capacity falling below the halfway mark doesn’t mean India’s reliance on thermal power has dipped below 50 per cent. On the contrary, since renewable sources such as solar and wind are intermittent and cannot generate power around the clock, thermal plants still produce over 70 per cent of the country’s electricity.

Bringing down thermal’s share in power generation — and hitting India’s 500 GW non-fossil fuel target by 2030 — will require much more, starting with the stabilisation and strengthening of the grid.

Lack of power storage capacity making grid unstable

Between April 2020 and June 2025, India added 95 GW of solar and wind capacity, which now makes up 35 per cent (168 GW) of the country’s total installed electricity capacity. However, this rapid growth in intermittent sources — without a corresponding thrust on building storage capacity like battery systems and pumped hydro – has strained grid stability, especially during periods of fluctuating demand.

On May 30, 2024, for instance, when the year’s peak demand hit 250 GW, grid managers struggled to meet it due to low renewable generation and insufficient baseload support from thermal. In May this year, erratic rains weakened demand, causing real-time solar prices to crash to zero, especially on Sunday afternoons. These instances underscore the growing risk of grid instability and renewables curtailment in the absence of adequate storage — and dampen investor interest in adding new capacity.

Storage allows electricity from solar and wind plants to be absorbed when generation is high, and released when it’s low or when demand peaks. As of 2024-end, India’s storage capacity was less than 5 GW — 4.75 GW of pumped storage and 110 megawatts (MW) of battery storage.

Storage key focus for govt, yet project execution slow

The government has begun moving proactively on the policy front in recent months. In February, the Central Electricity Authority (CEA) issued an advisory to co-locate energy storage systems with solar projects in future tenders to ensure grid stability.

The Ministry of Power has also expanded its viability gap funding (VGF) scheme for battery storage, adding 30 gigawatt-hours (GWh) to the 13 GWh already under implementation, with a total outlay of Rs 5,400 crore. On the pumped hydro front, 51 GW is expected to come online by 2032. The inter-state transmission system (ISTS) waiver for storage projects, to spur their development, has also been extended until June 2028.

However, while bid prices have dropped significantly for standalone and bundled battery projects, barely any projects have been commissioned so far, with the prices yet to be validated. Additionally, China’s dominance over the global battery supply chain poses a strategic risk — especially in light of its recent export restrictions on rare earths and fertilisers.

According to a July 15 note by the Institute for Energy Economics and Financial Analysis (IEEFA), battery storage execution has been “slower than expected” due to high upfront costs, import duties, and non-compliance with domestic content requirements – while approvals for pumped hydro remain slow.

Transmission waiver expiry and focus on rooftop solar installation

The expiry of the ISTS waiver for solar and wind projects on June 30, combined with MNRE’s push for rooftop solar, could help ease transmission congestion and improve grid stability.

The ISTS waiver had enabled developers to build projects in high-irradiation states like Gujarat and Rajasthan and transmit electricity across the country — often to demand centres like Odisha or Bihar — without bearing transmission charges. While this helped scale up capacity quickly, it also caused project concentration in a few states, and led to grid congestion during high demand hours. Now, with transmission charges reinstated, developers are likely to build closer to demand centres, reducing long-distance transmission and easing grid congestion.

Meanwhile, the ‘PM Surya Ghar: Muft Bijli Yojana’ for residential rooftop solar aims to decentralise generation, which can further help to stabilise the grid. As of March, the scheme added 3 GW rooftop solar capacity, and plans to add another 27 GW by March 2027. Currently, India has a grid-connected rooftop solar capacity of 19 GW.

Key constraints: Pending power purchase agreements, transformer supplies

Another encouraging sign for grid stability is a shift in the bidding market, where plain-vanilla tenders have fallen out of favour. In their place, hybrid tenders — combining solar, wind, and/or storage to offer a broader generation profile — are gaining traction.

At the same time, around 30 GW of older projects remain without power purchase agreements (PPAs), as renewable energy implementing agencies (REIAs) struggle to find takers among state utilities. The government is working with states to get the PPAs signed. In the meantime, projects nearing commissioning could face short-term cash flow pressures.

A final key trend to watch out for is the growing strain on the supply of high-voltage direct current (HVDC) transformers — critical for transporting renewable power over long distances. With few global and domestic manufacturers, and surging global demand, supply remains tight combined with longer lead times.

Developers are already facing grid access issues in some states, in part due to underinvestment in transmission infrastructure over the past few years. If ongoing transmission projects are delayed due to transformer shortages, these access constraints could worsen, and slow down the addition of new capacity.

*Solar, wind, small hydro, biomass.

(Source: Ministry of New and Renewable Energy, CEA)