Citi Industry report, 6 May 2026 | Industry distillation

THE HEADLINE STORY

India is in its first-ever multi-vector capex upcycle — thermal + renewables + transmission + grid storage, all running in parallel. This isn’t a single-theme rally. It’s broader, more durable, and policy-anchored. 

GENCO capacity additions over FY26-32E are projected at 2.3-2.5x the FY19-25 levels.

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THIS CYCLE vs LAST CYCLE (FY04-12 vs FY24-32E)

The risk has fundamentally migrated:

•⁠ ⁠Old problem: 

Aggregate energy shortage, weak fuel supply, weak grids

•⁠ ⁠New problem: 

“Not enough dispatchable energy at the right hour” — non- solar-hour adequacy

•⁠ ⁠Old demand: 

Industrial capex (steel, cement, infra)

•⁠ ⁠New demand: 

Cooling, data centers, electrification, PLI manufacturing — broader base

•⁠ ⁠Old build: 

Coal IPPs (UMPPs, sub/supercritical)

•⁠ ⁠New build: Parallel buildout — RE + thermal + storage + transmission + nuclear

•⁠ ⁠Old risk: Fuel shortages, imported coal shocks, over-leverage, DISCOM insolvency

•⁠ ⁠New risk: Execution, dispatchability, contracting quality, weather sensitivity

•⁠ ⁠Old policy: Capacity expansion focus

•⁠ ⁠New policy: CEA resource adequacy plans, long-term transmission/generation plans

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⚡ DEMAND DYNAMICS

Long-term trajectory:

•⁠ ⁠~5% CAGR over past 2 decades

•⁠ ⁠Medium-term forecast: 5-6% CAGR

•⁠ ⁠FY26 saw weather-driven softness (~1% growth) — viewed as outlier, not trend break

•⁠ ⁠El Niño tailwinds expected in 2026 (boosts agri-pump + cooling demand)

Peak Demand Story:

•⁠ ⁠2010: ~119 GW → 2025: ~250 GW

•⁠ ⁠CEA expects 265-270 GW peak in 2026

•⁠ ⁠By FY32E: ~351 GW projected

NEW LOAD VECTORS driving the next leg:

1️⃣ Data Centers — currently ~1.5 GW IT load (Mumbai, Chennai, NCR, Bengaluru). Could reach 10-15+ GW by FY32/35, accounting for ~2.5-3% of national peak by 2030/32. Recently, DCs being granted DISCOM licenses.

2️⃣ Cooling load — AC penetration rising sharply

3️⃣ Electrification of end-uses traditionally on other fuels

4️⃣ EV charging

5️⃣ Green hydrogen — long-dated industrial layer

6️⃣ PLI-linked manufacturing — sticky industrial base

7️⃣ Energy security concerns post Middle East crisis

⚠️ Key shift: More demand is now weather-sensitive AND time-of -day sensitive — evening/night peaks now stress the system more than daytime.

Sectoral mix: Residential + Agri form a sizeable proportion → more weather-sensitive system overall.

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SUPPLY MIX — WHERE THE MONEY IS GOING

Current state (FY26):

•⁠ ⁠Total installed capacity: ~533 GW (doubled since 2014)

•⁠ ⁠Non-fossil share: ~50% (~275 GW)

•⁠ ⁠Solar: 150 GW | Wind: 56 GW

•⁠ ⁠Coal: 222 GW | Gas: 20 GW | Hydro: 51 GW | Nuclear: 9 GW

CEA’s FY32 trajectory:

•⁠ ⁠Total capacity: ~821 GW (could go higher if demand surprises)

•⁠ ⁠Coal: ~272 GW | 

Solar: ~295 GW | 

Wind: ~97 GW | 

Nuclear: 15 GW

•⁠ ⁠RE share (incl hydro): rising from 27% → 35%

Capacity additions outlook:

•⁠ ⁠~44-45 GW/year over FY26E-32E

•⁠ ⁠vs ~19 GW/year over last 7 years

•⁠ ⁠That’s a ~2.3x step- up

⚫ COAL — Still very much alive:

•⁠ ⁠~97 GW additional coal capacity under construction or planned by 2032

•⁠ ⁠Coal generation rises from 1,250 BU (FY26E) → 1,536 BU (FY32E)

•⁠ ⁠Positioned as a reliability asset, not a growth asset

•⁠ ⁠Night-time peaks need dispatchable capacity

☀️ RENEWABLES — Largest incremental contributor:

•⁠ ⁠Solar nearly doubles by FY32E

•⁠ ⁠Wind grows from 56 → 97 GW

⚛️ NUCLEAR — Ambitious national plan:

•⁠ ⁠National target: 100 GW by 2047

•⁠ ⁠Capex guide: ~Rs200mn/MW

•⁠ ⁠Tariffs: Rs6-8/kWh under cost-plus RoE

•⁠ ⁠Long-duration assets (60-year life)

•⁠ ⁠Must-run status in merit order

🏔️ HYDRO + STORAGE:

•⁠ ⁠Hydro: 51 → 59 GW by FY32E

•⁠ ⁠Storage becoming the new “coal availability equivalent” of the last cycle

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🔋 STORAGE — THE BREAKOUT THEME

CEA’s energy storage roadmap (cumulative):

•⁠ ⁠2026-27: BESS 6 GW + PSP 5 GW = 11 GW

•⁠ ⁠2030-31: BESS 28 GW + PSP 32 GW = 60 GW

•⁠ ⁠2035-36: BESS 80 GW + PSP 94 GW = 174 GW

Storage required to avoid peak deficit: ~10 GW by FY27E, ~11 GW by FY29E

Why it matters: Solar curtailment events between May-Dec 2025 highlighted the operational difficulty of integrating large RE volumes — daytime demand-supply mismatch, limited coal ramping, transmission bottlenecks.

CEA flags risk of Planning Reserve Margin turning negative in non-solar hours over FY27-29 if capacity slips.

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🔌 TRANSMISSION — MASSIVE OPPORTUNITY

📋 Two major CEA plans frame the next leg:

Plan 1 — March 2026: “Transmission Plan for 900+ GW Non-Fossil by 2035-36”

•⁠ ⁠1,37,500 ckm of lines + 8,27,600 MVA substation capacity

•⁠ ⁠Cost: Rs7.93 trillion over FY27-FY36

•⁠ ⁠Focus: RE evacuation from Rajasthan, Gujarat, AP, Karnataka, Maharashtra

•⁠ ⁠Covers both ISTS and intra-state systems

Plan 2 — October 2025: “Brahmaputra Basin Hydro Evacuation Master Plan”

•⁠ ⁠65GW hydro + 11GW PSP in NE

•⁠ ⁠31,397 ckm lines + 109,935 MVA/MW capacity

•⁠ ⁠Cost: Rs6.43 trillion total

•⁠ ⁠~Rs1.9trn till 2035, Rs4.5trn beyond FY35

💰 Total transmission opportunity (industry view): ~Rs15 trillion over the long term when combining domestic + Brahmaputra + international interconnects.

Architecture shift: From incremental network additions → system architecture (765 kV, HVDC corridors, pooling stations, 1,200 kV future).

The principle: Transmission must be planned ahead of generation — line gestation is longer; delays cause curtailment, stranded assets, regional congestion.

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💵 POWER PRICING & MARKETS

Mixed structure:

•⁠ ⁠Long-term PPAs (cost-plus or lowest-bid) — bulk of supply

•⁠ ⁠Regulated tariffs

•⁠ ⁠Merchant/exchange markets — growing

📊 IEX day-ahead snapshot (Apr-May 2026):

•⁠ ⁠Spot prices range from near-zero during surplus solar hours → near-ceiling levels during evening peaks

•⁠ ⁠Massive intraday price swings reflect the variable RE integration challenge

•⁠ ⁠Headline deficits have meaningfully reduced, BUT intra-day variations persist

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DRAFT NATIONAL ELECTRICITY PLAN 2026 — KEY REFORMS

🏛️ Regulatory architecture:

•⁠ ⁠Electricity Act 2003 = foundation

•⁠ ⁠CEA = technical standards, planning

•⁠ ⁠CERC = inter-state tariffs/transmission

•⁠ ⁠SERCs = intra-state tariffs, DISCOMs

🎯 Resource Adequacy as formal planning discipline:

•⁠ ⁠CEA: long-term national demand forecasts (annual review)

•⁠ ⁠SLDCs: state-level forecasts

•⁠ ⁠Resource Adequacy Plans at national + state + DISCOM levels

Fixing DISCOMs & industrial competitiveness:

•⁠ ⁠Timely tariff orders (before FY start; true-up within FY; conclude in 120 days)

•⁠ ⁠From FY27: fully cost-reflective tariffs, no regulatory assets, index-linked auto- revision if delayed

•⁠ ⁠Monthly pass-through of power purchase costs

•⁠ ⁠Cross-subsidy reduction — no tariff below 50% of ACoS

•⁠ ⁠Free power should be avoided; subsidies paid in advance

•⁠ ⁠Target: single-digit AT&C losses

•⁠ ⁠Solarisation of agri feeders by 2030

•⁠ ⁠Pro-competition stance — relief for large users (manufacturing, railways/metro)

DISCOM risk has moved from broad insolvency → more nuanced, selective. SECI and central structures remain important buffers.

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CAPEX FUNDING — WHERE THE CAPITAL FLOWS

•⁠ ⁠Mix: corporate balance sheets + project finance debt + dedicated infra lenders

•⁠ ⁠Typical D:E for projects: 70:30 or 80:20

•⁠ ⁠Equity from internal accruals + own books

Critical RBI data point:

•⁠ ⁠Power sector’s share of total bank/FI capex tie-up funding jumped to 40% in FY25 (vs 24% in FY24, 20% in FY23)

•⁠ ⁠This happened even as overall capex tie-ups fell — meaning power is gaining clear preferential allocation

Sectoral breakdown of bank/FI capex funding (FY25):

•⁠ ⁠Power: 40%

•⁠ ⁠Roads & bridges: 9%

•⁠ ⁠Construction: 6%

•⁠ ⁠Metals: 5%

•⁠ ⁠Electrical equipment: 5%

•⁠ ⁠Others: 34% ━━━━━━━━━━━━━━━

🎯 KEY TRENDS TO WATCH

✅ Bullish drivers:

•⁠ ⁠Multi-vector capex visibility (rare in Indian power)

•⁠ ⁠Policy anchors providing long-duration support

•⁠ ⁠Data center buildout creating local grid pressure points

•⁠ ⁠Storage emerging as a major new investment theme

•⁠ ⁠Transmission entering structurally larger investment phase

•⁠ ⁠Nuclear becoming a real opportunity, not just aspiration

⚠️ Key risks for the sector:

•⁠ ⁠Execution slippages (transmission RoW, RE land/grid connectivity)

•⁠ ⁠Sustained unfavorable demand variability (weather-linked)

•⁠ ⁠Adverse regulatory developments

•⁠ ⁠PPA-less RE pipeline conversion failure

•⁠ ⁠Storage tariff design / bankability of storage contracts

•⁠ ⁠Input cost volatility (especially under TBCB transmission tariffs)

•⁠ ⁠Vendor concentration in transformers/reactors/HVDC equipment

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🧭 BOTTOM LINE

India’s power sector has shifted from a “not enough energy” problem to a “not enough flexible, dispatchable energy at the right hour” problem. 

Capital is flowing into a parallel buildout — thermal restart, RE scale-up, transmission rebound, and the first real storage wave — anchored by policy. Demand base is broader, weather- sensitive, and time-of -day sensitive. The next decade is about execution and architecture, not aggregate capacity.