Growing Electricity Demand and Renewable Energy 

Context:

As the fastest-growing major economy in an increasingly warming world, India’s electricity demand is rising rapidly. 

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Since FY21, electricity consumption has surged at an annual rate of approximately 9%, compared to an average of 5% over the previous decade. 

While the Central Electricity Authority (CEA) initially projected a 6% compound annual growth rate (CAGR) in electricity demand between 2022 and 2030, recent trends indicate that actual growth could surpass these estimates. 

The key question now is whether India’s power sector can keep pace with this rising demand while simultaneously transitioning to renewable energy sources.

What’s Driving India’s Electricity Demand?

• Growth and Urbanisation: Economic growth and urbanisation are major contributors to rising electricity consumption. 
• Heat Stress: However, climate change-induced heat stress is increasingly playing a crucial role, with extreme summer temperatures driving up demand for cooling solutions. 
• Composition: Currently, industries, households, and agriculture account for 33%, 28%, and 19% of total electricity use, respectively. 
  • Household electricity consumption has grown the fastest over the past decade, with air conditioner sales surging by 40-50% year-on-year during the summer of 2024 due to record-breaking temperatures. 
  • On May 30, 2024, India’s peak electricity demand exceeded 250 GW—6.3% higher than projections. 
  • With the country experiencing its warmest February in 125 years in 2025, peak electricity demand is expected to rise by another 9-10%.

How Has India Managed Rising Demand?

• Increasing Capacity: India’s power generation capacity has quadrupled since the early 2000s, reaching 460 GW, making it the third-largest electricity producer globally. 
• Renewables: The country has also made significant strides in renewable energy (RE) adoption. 
  • Initially setting a target of 20 GW of RE by 2020, the government later revised this goal to 175 GW by 2022 and then to 500 GW of non-fossil fuel capacity by 2030.
• Other Measures: To manage peak demand in recent years, the government has taken several measures, including increasing coal allocations and ensuring uninterrupted operation of imported coal-based power plants. 
  • Additionally, states with substantial solar energy installations have leveraged surplus solar power to meet daytime peaks, though nighttime demand remains a challenge.
• Significant Milestone: The year 2024 marked a significant milestone, with India adding a record 28 GW of new RE capacity, increasing the share of renewables in the electricity mix to 13.5%. 
  • Although coal now constitutes less than 50% of total installed capacity, it still supplies 75% of the country’s electricity. 
  • India’s RE capacity has reached 165 GW, and an additional 32 GW is expected to be commissioned in 2025. 
  • To meet its 2030 target, the country must accelerate its annual RE additions to 50 GW.

Why India Needs to Raise Its Clean Energy Ambitions?

• Power Shortages: Power shortages in recent years have underscored the need for a robust strategy to meet growing energy demand reliably and cost-effectively. 
  • A study by the Council on Energy, Environment and Water (CEEW) projects that failing to achieve the 500 GW clean energy target by 2030 will lead to supply deficits and increased power costs. 
  • If India only reaches 400 GW, an estimated 0.26% of demand will go unmet, potentially affecting power supply to around one million households for 2.5 hours daily. 

• Northern states, in particular, would face acute shortages due to network constraints.

• Electricity Demand: If electricity demand grows faster than expected—at a CAGR of 6.4% instead of 5.8%—India will need even more capacity beyond the 500 GW target. 
  • The country has two options: add 6 GW of new coal capacity or install an additional 100 GW of RE beyond the stated target. 
  • While the coal option could meet demand, it would increase stress on existing power plants, leading to potential downtime and supply disruptions. 
  • The study suggests that scaling RE by an additional 100 GW would be a more cost-effective and reliable solution.

Aiming for 600 GW by 2030

• To stay ahead of demand and ensure energy security, India should target 600 GW of RE capacity by 2030. 
• Achieving this would lead to significant benefits, including lower electricity costs (saving up to ₹42,400 crore or $5 billion in 2030), the creation of 100,000 jobs, and a 23% reduction in air pollutant emissions. 
• However, this ambitious goal would require an annual RE addition of 70 GW, a significant challenge given existing hurdles such as land acquisition delays, grid integration issues, and regulatory uncertainties.

Strategies to Accelerate Renewable Energy Deployment

• Geographical Diversification of RE Projects: Currently, five states house 75% of India’s total RE capacity, leading to land constraints and grid congestion. 
  • The government should incentivise RE investments in underrepresented states like Odisha, Madhya Pradesh, Bihar, Punjab, and Kerala. 
  • Ending the inter-state transmission system (ISTS) waiver beyond June 2025 (except for storage projects) would help decentralise RE development.
• Co-location of Renewable Energy and Storage Systems: Integrating wind and energy storage with existing and new solar projects can optimise land and transmission networks while improving grid stability. 
  • According to CEEW, India will need 280 GWh of battery energy storage systems (BESS) and 100 GWh of pumped hydro storage to support 600 GW of RE. 
  • Prioritising BESS, which can be deployed in just six months and is becoming more affordable, is crucial.
• Innovative Bidding and Contract Mechanisms: Several large solar and hybrid RE tenders in FY24 failed to attract interest from state electricity boards due to unfavorable procurement terms. 
  • The central government must collaborate with states to ensure demand for RE, design suitable tenders, and address bottlenecks. 
  • Additionally, enhancing RE availability in power exchanges through mechanisms like Contract-for-Difference (CfD) pools could mitigate market risks and encourage investment.