Weak Demand and Rains Hit Merchant Power, While Renewables and Utilities Stay Steady

Soft Demand and Prolonged Rains Weigh on Indian Power Sector Q2 Performance

The Indian Power Sector Q2 Performance reflected a mixed and uneven quarter, as early and prolonged monsoon rains sharply reduced peak power demand and disrupted the usual seasonal uptick that merchant power players count on. While merchant-based utilities struggled with weak realizations and reduced volumes, renewable energy companies and regulated utilities managed to deliver a relatively steady and stable quarter.

Peak demand in the September quarter slipped to nearly 200 GW, significantly lower than last year’s 220 GW. The drop came just as industrial activity also softened, creating a dual impact that weighed heavily on merchant players operating in the short-term market.

Merchant Power Players Hit Hard as Peak Demand Falls Below Expectations

According to analysts, the quarter was notably weak for India’s merchant power companies. With industrial consumption slowing and heavy rains reducing cooling and agricultural load, merchant volumes declined significantly.

“Merchant volumes were low, and realizations were down around 20 percent, leading to a negative impact,” said Rupesh Sankhe, Senior Analyst – Power Utilities & Capital Goods at Elara Capital. He added that incentive income for utilities dropped modestly as generation slipped in line with overall subdued demand.

Brokerage reports echoed similar concerns. Nuvama Institutional Equities noted that electricity demand grew by only around 3 percent year-on-year, pushing down plant load factors (PLFs) across major thermal utilities. The brokerage stated that the Indian Power Sector Q2 Performance was hampered by weaker merchant pricing and curtailments for some renewable producers.

Even GST changes added to the quarter’s disruption. Sankhe noted that the rate revision triggered inventory clearing and delayed purchases in EPC and module segments, although order books remained fundamentally strong.

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Regulated Utilities and Hydropower Companies Deliver Stable Performance

Against the challenging backdrop, regulated utilities and state-owned power producers emerged largely unscathed. Companies such as NTPC, NHPC, and Power Grid were shielded by the regulated equity model that ensures predefined returns regardless of short-term generation fluctuations.

Hydropower producers benefited significantly from improved hydrology during the extended monsoon, supporting steady output levels. Transmission utilities, despite dealing with right-of-way and labour constraints, continued to show stable performance.

Ankit Soni, AVP – Fundamental Research at Mirae Asset ShareKhan, said thermal segments performed broadly as expected.
“NTPC was slower on the renewable side but delivered strong thermal numbers that helped offset weaker performance elsewhere. Coal India faced issues around drought-like conditions and water shortages near their mines, which affected output,” Soni explained.

He added that lower overall demand also pressured power prices. “IEX saw strong volumes but weak realizations, which directly impacted merchant power companies.”

Renewable Energy Companies Outperform Despite Slower Execution

Renewable energy firms were a notable bright spot in the Indian Power Sector Q2 Performance. Companies such as Suzlon, Waaree Energies, and Adani Green Energy reported stronger generation, better margins, and improved plant availability.

“Renewable energy companies performed better. Generation was stronger, margins improved, and companies like Tata Power delivered good numbers,” Sankhe said.

However, execution remained sluggish for some players. Soni pointed out that Tata Power executed only 208 MW this quarter—the lowest in nearly 18 months. Wind execution has also been slower, with some EPC projects seeing delays due to declining power prices. Still, analysts remain confident that these issues are temporary and will correct with improved market conditions.

Power Financiers See Muted Growth but Maintain Strong Asset Quality

Power financiers such as PFC and REC posted relatively muted loan growth this quarter. Elevated repayments kept net disbursements subdued, though asset quality remained stable. With utilities preparing for increased renewable and hybrid expansion in FY26 and beyond, financing activity is expected to pick up in upcoming quarters.

Valuations Show Divergence Between Merchant, Regulated, and Renewable Segments

Valuation trends across the industry continue to reflect the operational contrast captured in the Indian Power Sector Q2 Performance.

Regulated utilities like NTPC (1.73x P/B) and Power Grid (2.76x P/B) remain reasonably valued due to steady earnings visibility. Merchant players such as Adani Power (5.48x P/B) and Tata Power (3.48x P/B) trade at moderate multiples that hinge on meaningful demand recovery to re-rate further.

Among renewables, premium valuations continue. Suzlon (12.78x P/B), Waaree Energies (10.06x P/B), and Adani Green Energy (14.24x P/B) trade at elevated multiples backed by strong growth expectations.

Sankhe noted that while regulated players offer strong visibility due to steady capacity addition plans, private merchant utilities need demand to rise meaningfully to justify their higher valuations.

Industry Optimistic About Stronger H2 Despite a Weak Q2

Despite the subdued quarter, analysts remain optimistic about the second half of the fiscal year. Renewable energy, storage systems, and hybrid projects are expected to see accelerated execution. NTPC is also exploring nuclear capacity expansion as part of its long-term energy strategy.

“Tata Power plans to add around 1.3 GW in FY26, and Power Grid expects Rs 20,000 crore worth of project capitalization,” Soni said. He added that while merchant players like Adani Power face pressure due to lower global coal prices, the impact should not be significantly negative, and H2 should show improvement.

As the Indian Power Sector Q2 Performance stabilizes after the monsoon-led disruptions, industry players expect stronger growth driven by rising capacity addition, improved execution, and sustained demand recovery.

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