India’s Grid Dilemma: record renewables, surging coal and problematic gas

India’s record renewable power generation in July pushed clean energy to 20% of the country’s electricity mix, a 30% jump year-on-year to 36.25 billion kWh, and compressed coal’s market share to a one-year low of 65.7%, down from 69% in June, according to government data reported by Reuters.

The surge was anchored by combined solar and wind capacity exceeding 100 gigawatts (GW) for the first time, accounting for a record 42.8% of daily supply by mid-July. However, the drop in coal’s proportional share masks a sharp rise in volume: absolute coal-fired generation actually surged 12.8% year-on-year to 119.4 billion kWh. Driven by El Nino heatwaves boosting night time air conditioning demand and a sharp decline in hydroelectric output, grid operators were forced to burn more coal to absorb the demand growth.

A Centre for Research on Energy and Clean Air (CREA) report said that this year’s El Nino will hit India’s energy system harder than any other country. “India has just endured a deadly heatwave and one of its hottest summers on record, pushing power demand to an all-time high of 270 GW,” CREA Director Nandikesh Sivalingam said.

The CREA calls for more solar generation and battery storage, while also phasing out coal power. However, it entirely ignores the role that natural gas could still play in providing flexible, fast-ramping capacity to stabilise India’s grid while more renewable capacity is put in place.

Vibhuti Garg, Director, South Asia, IEEFA, told Gas Outlook that India can meet peak power demand in the daytime using solar, but the challenge remains in the evening when solar output falls. She added that “gas-fired power could potentially provide the flexibility needed to manage this transition, but its use remains limited because of the economics.”

Cost prohibitive LNG

LNG prices this year have seen marked increases. Spot LNG delivered to Northeast Asia in February (JKM benchmark) was trading in the $9.45-$9.80 per million British thermal unit (MMBtu) price range before Middle East tensions and the partial closure of the Strait of Hormuz.

Even at pre-war price levels, imported LNG was far more expensive than Indian domestic coal production by at least a 3:1 ratio. From a raw fuel perspective, average LNG import prices are about nine times higher than the cost of domestically extracted Indian coal.

Factoring in war related price spikes, Asian spot LNG has increased by roughly $11.30-$11.60/MMBtu, a 115% to 123% price jump since the start of the year, according to S&P Global. Prices for the super-cooled fuel in early August also peaked, hitting above the US$22/MMBtu price point.

Garg added that while India has been looking to diversify its LNG supplies, including sourcing more US volume, availability doesn’t equal affordability.

“At prevailing LNG prices, gas-fired generation is simply too expensive to compete with coal for most hours,” she said.

Purva Jain, Lead Energy Specialist (Gas, South Asia) at IEEFA, told Gas Outlook that the government retired about 5 GW of stranded gas-fired power capacity in 2025 due to inoperability, with no plans to build new capacity in the near future.

“From a cost-economic perspective, fuel prices would likely have to fall to $5-5.75/MMBtu for gas-fired power plants to compete with coal and renewables in India, so their role in regular power supply is quite limited,” she said.

However, India had been curtailing gas usage for its power sector even before recent price hikes, in clear contradiction of Indian Prime Minister Narendra Modi’s 2016 pledge that the country would become a gas-based economy, with a 15% gas benchmark for its energy mix.

Modi has also emphasised that efforts are needed to increase domestic gas production. Yet, production has generally been declining over the last several years due to ageing fields, lack of new major discoveries, high capital costs, technical challenges in deepwater blocks and a slow regulatory process. The International Energy Agency (IEA) projected that India’s gas demand will rise around 60% by 2030; with domestic production growing only modestly to around 38 bcm.

Politically challenging coal

Coal, however, is still the favoured fuel of choice among most Indian policymakers – for both structural and political reasons. The country holds the world’s fifth largest coal reserves, with total estimated geological coal resources around 400.715 billion tonnes as of April 1, 2025, according to India’s coal ministry.

Coal India Ltd. also remains politically influential, making any hard coal pivot difficult. The state-owned mining behemoth employs hundreds of thousands of workers and supports entire state economies, with full state level governmental backing.

Many state-owned distribution companies (already burdened by severe financial debts) are bound by long-term power purchase agreements with regional coal plants, leaving zero fiscal room to absorb high cost spot gas.

Moreover, India’s escalating power demands (driven by extreme weather and economic expansion) continue to lock the country into high coal consumption, undercutting broader national renewable and gas usage goals.

As such, the way forward seems difficult. Yet, a new Ember report found that India’s best chance to stop using coal relies on massively scaling up grid-scale battery storage and non-solar nighttime renewables. These measures would handle peak evening power demand, it said, halting new coal plant construction beyond the active pipeline, and financing a $900 billion just transition framework for affected workers.