India is witnessing a shift in its electricity consumption patterns, fueled by extreme weather events, rapid industrial growth, and expanding residential usage. As the nation sets renewable energy goals, particularly in solar, it also confronts a stark reality — coal remains the backbone of its power system, especially during the critical evening peak hours.
According to a recent analysis by the Institute for Energy Economics and Financial Analysis (IEEFA), coal accounts for nearly 73 percent (157.6 GW) of India’s daily electricity generation, supplying the bulk of power during non-solar hours. Despite an aggressive push in renewable capacity additions, especially solar, the mismatch between solar availability and evening peak demand continues to strain the grid and drive up electricity costs.
A Nation Powering Up
India’s electricity consumption has surged over the past few years. Peak demand rose sharply from 190 GW in January 2021 to 250 GW by May 2024. This growth is shaped by rising temperatures, a swelling middle class adopting appliances like air conditioners, and an uptick in industrial activity. In 2024 alone, air conditioner sales spiked by nearly 40–50 percent, contributing to the surge in residential electricity use.
IEEFA’s Saloni Sachdeva Michael and Kaira Rakheja are authors and Vibhuti Garg and Charith Konda are contributing authors of this report.
The sector-wise breakdown of electricity sales in FY2024 reveals a diverse and growing demand base: industrial (32 percent), residential (31 percent), agricultural (22 percent), and commercial (10 percent). Industrial usage alone increased by 30 percent between FY2021 and FY2024, while commercial consumption grew 41 percent over the same period. Residential demand, bolstered by rural electrification and appliance penetration, continues to climb steadily.
Adding to this growth is the rising, albeit still modest, electricity demand from electric vehicles (EVs). Power consumption by EVs jumped from 59 million units (MUs) in FY2021 to 569 MUs in FY2024 — a nearly ten-fold rise — indicating a shift in mobility patterns that will further influence grid dynamics.
The Solar-Coal Conundrum
India’s renewable energy focus, particularly on solar power, aligns with its climate commitments and long-term vision for energy security. However, most of the solar output is available during the daytime, while demand now peaks at two intervals: around 3 PM and again between 9 PM and 11 PM. The evening surge, nearly matching the daytime highs, creates a reliability gap that coal currently fills.
IEEFA warns that without storage solutions or flexible demand mechanisms, the reliance on coal during these high-demand hours will persist, undermining decarbonization efforts.
Storage and Hybrid Projects: A Way Forward
To tackle the growing demand-supply imbalance and reduce dependence on coal, energy storage and hybrid renewable projects have emerged as critical solutions.
Battery energy storage systems (BESS) offer the potential to store surplus solar energy during the day and release it during evening peaks. Recognizing this, the government has introduced Viability Gap Funding for 30 GWh of BESS and is revising policies to support solar-wind-hydro hybrid projects. When paired with storage, such hybrids can deliver firm, dispatchable power that reduces pressure on thermal assets.
Yet, deployment challenges remain — land aggregation, high costs of storage technologies, and transmission planning issues hamper scalability. IEEFA urges faster disbursement under India’s Production Linked Incentive (PLI) scheme and a rationalization of import duties until domestic storage manufacturing matures.
Managing Demand Smarter
In parallel, managing electricity demand more intelligently is essential. Time-of-Day (ToD) tariffs need to be more effective, offering wider price differentials between peak and off-peak hours to encourage load shifting — particularly among industrial and commercial users. Promoting energy-efficient appliances, including ACs, lighting, and industrial motors, can significantly reduce peak demand. Policies such as zero-interest financing and reduced GST on 5-star rated appliances could accelerate adoption.
Digital tools for demand forecasting, real-time grid planning, and automation are also crucial to enhancing system efficiency and integrating variable renewables seamlessly.
Building a Resilient Power Future
India’s electricity demand is becoming increasingly weather-sensitive, with cities like Delhi recording record peaks during heatwaves. This underlines the need for a grid that is not only greener but also more flexible and resilient.
IEEFA concludes that a strategic overhaul of India’s power ecosystem is essential. Prioritizing battery storage, scaling hybrid renewables, incentivizing demand-side measures, and deploying advanced digital tools can enable India to reduce its dependence on coal, lower emissions, and ensure stable, affordable electricity for its growing economy.
Investment
India is poised to attract significant investments in its electricity sector, driven by rising power demand and a strong push toward clean energy solutions. According to ICRA, electricity demand is projected to grow at a CAGR of 6–6.5 percent over the next five years — up from the 5 percent seen in the past decade — fueled by expanding electric vehicle (EV) usage, green hydrogen initiatives, and data center growth. This demand trajectory supports India’s growing economic footprint, with nominal GDP expected to reach $4.19 trillion by FY2026, potentially surpassing Japan.
To address its evening power peak challenges and reduce reliance on coal, India is targeting large-scale investments in battery energy storage systems (BESS) and hybrid renewable projects. The government has approved a ₹5,400 crore (US$627 million) Viability Gap Funding scheme for 30GWh of BESS capacity, aiming to catalyze ₹33,000 crore (US$3.8 billion) in total investment. This complements the existing 13.2GWh of projects already under development. Additionally, policy reforms include the extension of inter-state transmission system waivers for storage projects commissioned before June 2028.
Private sector participation is gaining momentum. Notably,
Energy has announced a ₹22,000 crore (US$2.5 billion) investment for a 1.8GW solar, 1GW wind, and 2GWh BESS hybrid project. This illustrates growing commercial viability and investor confidence in hybrid and storage-based power infrastructure, provided supportive policies are in place.
However, challenges persist, including high upfront storage costs, customs duties on imported components, and delayed disbursals under India’s Production Linked Incentive (PLI) scheme. Addressing these issues is essential to unlocking broader investment potential. Streamlining land and transmission access, updating power purchase agreements, and offering clarity on compensation for storage services are also recommended to ease deployment.
With strong policy support, targeted fiscal incentives, and rising private interest, India is positioning itself to become a leading destination for clean energy investments, laying the foundation for a resilient and sustainable electricity system.
Baburajan Kizhakedath