Coal and renewables: Powering India's growth

India’s power story is often framed as a binary: coal versus renewables. In reality, what is unfolding is a far more complex structural recalibration of the power mix, where growth in electricity demand is large enough to accommodate both.

India has already crossed the milestone of having 50% of installed capacity from non-fossil sources in 2025, ahead of its 2030 target. But installed capacity versus generation tells a very different story. Coal continues to account for roughly 75% of actual generation, underscoring a central reality: in a fast-growing system, dispatchability still commands a premium.

“India is adding solar capacity at a record pace, but grid infrastructure has not kept up,” said Raj Prabhu, CEO of Mercom Capital Group, a US-based clean energy consulting firm with presence in India. “Transmission corridor delays, shortages of key equipment such as transformers, and growing connection queues are creating integration challenges.”

India’s total installed capacity as of January 31 was at 520.51 GW, with renewable energy sources accounting for 263.19 GW and coal- and lignite-based capacity accounting for 227.83 GW, according to India’s Central Electricity Authority. But utilization factors diverge sharply. Coal plants typically operate at significantly higher load factors than solar or wind plants, thereby anchoring grid stability, particularly during peak evening demand and seasonal surges.

The demand trajectory is the key variable. The International Energy Agency expects India’s electricity demand to grow 6.9% in 2026 and average 6.4% annually through 2030. In absolute terms, that expansion is equivalent to adding the annual consumption of a mid-sized industrialized economy every few years. In such an environment, renewables do not displace coal; they temper the rate at which coal demand must grow.

“The future coal tariffs would be higher because of the greater operational risk priced into the tariffs,” said Duttatreya Das, Asia energy analyst from London-based thinktank Ember. “With more demand moving into daytime, growing solar can handle some of the increasing load. However, evening peaks are also expected to grow, and coal would meet that gap.”

Coal seen on an uptrend

Coal-fired generation is forecast to grow at an annual average of 2.3% through 2030, the IEA said, with its share easing toward 60% rather than collapsing.

That is not energy transition in the true sense; it is an energy addition cycle with gradual diversification.

From a coal market perspective, this has three implications.

First, domestic coal production remains central. India has consistently pushed for record output from state miner Coal India and captive blocks to reduce import dependency. Production growth over the past five years has been steady at about 8%-10%, and the policy thrust remains clear: self-sufficiency in lower calorific-value grades, with imports largely confined to coastal plants and higher-grade blending requirements.

Second, import dynamics are increasingly price sensitive. Platts seaborne 4,200 kcal/kg GAR and 5,000 kcal/kg GAR thermal coal prices have been volatile recently, driven by the Middle East war that is impacting competitive energy complexes like oil and LNG, supply constraints from Indonesia and changing demand dynamics in China and Southeast Asia. Indian buyers seize opportunities when prices drop, but revert to domestic linkages as prices increase. This price elasticity acts as a stabilizer in the regional coal market.

Third, the structural floor for coal demand is firm. Even under aggressive renewable addition scenarios, absolute coal burn continues to rise for much of this decade because incremental demand outpaces renewable displacement.   That said, renewables are no longer peripheral. The scale of what is under construction is substantial: nearly 158 GW of renewable capacity is currently being built, including large solar and hybrid portfolios.

Another 48.72 GW is in advanced planning, according to the country’s power ministry.

Record solar additions

India had a record year in 2025, adding 36.6 GW of new solar capacity and the highest-ever annual installations, according to Mercom. The country’s rooftop solar installations more than doubled during the year, reaching 7.1 GW and accounting for more than 19% of the total solar installations, with residential consumers leading the segment.

Solar module prices, while having corrected from pandemic-era highs, remain a critical variable influencing project economics and tariff bids. In response to the significant rise in solar-based power, Platts launched domestic India TOPCon and PERC photovoltaic solar module price assessment series, effective February 26, 2026, on an ex-works Gujarat basis. The latest assessments complement Platts’ other solar module price assessments covering exports from India on an FOB basis.

However, the real constraint is not capital or module supply. It is transmission and storage.

The federal government plans to add 191,474 circuit km of transmission lines through fiscal 2031-32 under the National Electricity Plan. This expansion is essential. Renewable-rich states often face curtailment risks because evacuation infrastructure lags commissioning schedules. Without synchronized grid expansion, renewable penetration will plateau regardless of installed capacity milestones.

“Grid capacity is expected to lag, considering the renewable energy queue,” Das said. “As a result, some projects have to be either called off or developers have to move out from the queue to other intrastate locations.”

Storage in focus

Energy storage is emerging as the next frontier. Pumped storage projects totaling over 11.6 GW are under construction, alongside significant battery energy storage system capacity in development and tendering stages, according to the federal ministry. Storage is critical not merely for smoothing intermittency, but for reshaping the merit order, enabling solar generation to compete in peak evening hours currently dominated by coal.

Nuclear remains modest in near-term system impact. Installed capacity is under 9 GW as of January 31, with another 6.6 GW under construction. Long-term ambitions extend toward 2047 of having 100 GW of nuclear capacity. But over the next decade, nuclear’s contribution will be incremental rather than transformative.

Similarly, hydro additions will enhance flexibility but face gestation and environmental complexities.

The deeper question is system economics. Coal plants, particularly pithead units, continue to provide a predictable baseload power at tariffs that remain competitive when factoring in grid integration costs.

Renewable tariffs may be lower on a headline basis, but once balancing, transmission and storage costs are incorporated, the effective system cost narrows.

This does not diminish India’s renewable ambition. The 500 GW renewable target by 2030 remains a powerful signal to investors and developers. But ambition must be interpreted within operational realities. A power system growing at over 6% annually cannot risk supply insecurity.

“Several Indian states are continuing to sign long-term coal power-purchase agreements even though renewable and hybrid power is often available at lower prices,” Prabhu said. “This reflects a legacy mindset many distribution companies still operate under, where coal is viewed as the default option for reliability. That thinking needs to change.”

“Coal is not the future of India’s power sector,” Prabhu added. “Renewables, supported by storage and stronger grid infrastructure, will increasingly provide the reliability and cost advantages that utilities need.”

Storage will play a critical role in addressing key challenges, said Prabhu. Policymakers are mandating storage in solar tenders and supporting projects through viability gap funding programs, he said.

Battery storage tariffs have fallen sharply, but the sector is still developing, and domestic battery manufacturing capacity remains limited, he added.

The likely outcome, therefore, is coexistence rather than substitution. Coal capacity is projected to rise toward 307 GW by fiscal 2034-35, with plans to add at least 97 GW of new thermal capacity, according to the federal ministry. This expansion is not a reversal of transition policy; it is a hedge against demand volatility and renewable intermittency.

India’s power transition is thus best understood not as a linear decarbonization pathway, but as a calibrated balancing act between reliability, affordability and sustainability. Coal remains the system’s shock absorber. Renewables represent its growth engine. Transmission and storage will determine how quickly the balance can tilt.

“The biggest challenges for clean energy adoption in India are not the availability of renewable resources but uneven policy implementation across states, delays in transmission expansion, land acquisition and right-of-way challenges, and distribution-company hesitancy to procure renewable power, all of which continue to slow deployment,” said Prabhu.

Costly domestic prices

The domestic modules are 10% more expensive than imported material if basic customs duty is included and those modules having domestic cells are 15%-25% more costly, Das said.

The Indian government has also taken several measures to reduce reliance on imports from China, introducing basic customs duty on imported solar PV cells and modules, effective from April 1, 2022, and also mandating the procurement of solar modules from manufacturers featured in its Approved List of Models and Manufacturers from April 2024.

“However, one thing that needs to be understood is despite domestic modules/cells being deployed tariffs have remained the same or have grown very insignificantly,” Das said. “The solar manufacturers might be taking a hit on their margins and sharing some burden with consumers – to not affect project economics or creating developer pushback.”

However, since the competition is strong in both modules and cell, it is highly unlikely that manufacturers can profit, Das said.

For markets, this means coal demand growth will moderate but not disappear, renewable investment will accelerate but require grid reform, and pricing signals, both for fuels and power, will increasingly reflect integration costs rather than standalone generation metrics.

In that sense, India is not choosing between coal and renewables. It is scaling both, in parallel, to match one of the fastest-growing electricity demand curves in the world.

This article first appeared in the April 2026 issue of Insights Magazine.