Brief Context
Context India, along with China, witnessed a historic shift in its power sector in 2025, where record growth in renewable energy led to a decline in fossil fuel-based electricity generation, marking a significant milestone in the global energy transition. Global Highlights Solar as Primary Growth Driver: Solar energy met approximately 75% of global electricity demand growth in 2025. Renewables Overtake Coal: The share of renewables in global electricity generation reached a record 33.8%, surpass
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Syllabus: GS3/Infrastructure; Energy
Context
- India, along with China, witnessed a historic shift in its power sector in 2025, where record growth in renewable energy led to a decline in fossil fuel-based electricity generation, marking a significant milestone in the global energy transition.
Global Highlights
- Solar as Primary Growth Driver: Solar energy met approximately 75% of global electricity demand growth in 2025.
- Renewables Overtake Coal: The share of renewables in global electricity generation reached a record 33.8%, surpassing coal (33.0%) for the first time in over 100 years.
- Fossil Fuel Stagnation: Fossil fuel-based power generation recorded a −0.2% change in 2025, signalling that aggregate fossil generation has effectively plateaued at the global level.
India-Specific Findings
- Fossil Generation Decline: India’s fossil fuel power generation fell by 3.3% in 2025 a significant departure from the sustained growth trend of previous years, indicating a structural shift in the electricity mix.
- Renewable Surge: Renewable electricity generation grew by 24%, with solar overtaking hydropower to become India’s largest clean energy source for the first time.
- Record Solar Capacity Addition: India installed 38 GW of solar capacity in 2025 surpassing the United States and ranking second globally behind China.
- Global Significance: Alongside China, India’s clean energy scale-up played a decisive role in halting the growth of global fossil fuel generation.
Factors Behind the Shift
- Favorable Climatic Conditions:
- Good monsoon: Higher hydropower output
- Milder summer: Reduced electricity demand (less cooling load)
- Rapid Solar Deployment: Strong policy push and falling solar costs accelerated installations.
Challenges Ahead: Outlook For 2026
- Weak Monsoon Prediction: IMD forecasts below-normal rainfall, that likely reduced hydropower generation, increased groundwater pumping led to higher electricity demand, and higher use of air conditioning due to heat.
- These could reverse gains and increase fossil fuel dependence.
- Transmission Constraints: Price parity with fossil based electricity generation (One price) possible only if grid congestion is minimal. Otherwise, area-wise price differences (market splitting) may persist.
- Institutional Resistance: Power exchanges fear loss of autonomy and revenue. Implementation complexity requires advanced algorithms, real-time coordination, and strong regulatory oversight.
Way Ahead: Market Coupling and ‘One Grid, One Price’ in India
- Currently, India has multiple power exchanges, and each exchange independently discovers electricity prices through bids. It leads to price differences for the same time slot across exchanges.
- Market coupling pools all buy and sell bids from different exchanges and determines:
- A uniform market-clearing price (MCP)
- Optimal allocation of electricity across the grid
How Market Coupling Enables ‘One Grid, One Price’?
- Unified Price Discovery: All bids (buyers and sellers) are aggregated, and a single algorithm determines one price for the entire market. It eliminates price disparities across exchanges.
- Efficient Transmission Utilisation: Power flows are optimized across regions, and reduces congestion and bottlenecks in transmission corridors.
- Improved Competition & Transparency: Sellers compete in a larger, unified pool, and prevents market fragmentation and manipulation.
- Cost Reduction for DISCOMs: Eliminates arbitrage opportunities across exchanges. DISCOMs get access to the lowest available price nationally.
- Better Renewable Integration: Renewable energy (solar/wind) is variable. A unified market helps absorb surplus renewable power, and balance deficits across regions.