India is expected to experience a year of recovery in the power sector in FY27, without a significant rebound in demand, according to the India Power Outlook 2026 report by Bernstein.

India's power demand declined by approximately 0.7% in the current fiscal year to December, compared to strong growth of 7% and 5% in the previous two years, respectively.

Electricity demand is projected to return to around a 5% growth rate in the coming year, supported by a favorable base from May onwards. However, weather conditions may not be particularly favorable.

In FY26 to November, India added a historical record 41 GW of new power capacity, bringing the total expected for the entire fiscal year to around 55 GW. This includes about 42 GW of renewable capacity and approximately 9 GW of thermal power capacity.

The report projects that the installed renewable capacity will moderate to about 35 GW in FY27 due to slow bidding, power grid constraints, and reduced government support. Installed thermal power capacity is expected to remain at approximately 8 GW in FY27.

India's power demand-supply dynamics will largely depend on the development of battery energy storage systems (BESS) over the next three years. While power shortages may ease if storage capacity is deployed as planned, the report does not foresee a significant power surplus in the near term. A clearer power surplus is expected only after FY31, when additional dispatchable capacity comes online.

Among key factors, Distribution Company (DISCOM) reforms are expected to make progress, including amendments to the Electricity Act and potential moves toward privatization.

Nuclear power is also viewed positively, following parliamentary approval of a new nuclear bill that allows private sector participation, reduces liability for smaller reactors, and removes recourse on equipment suppliers.

India's battery storage capacity is expected to expand, with over 30 GW of BESS tenders issued in recent years and about 6 GW expected to connect to grids this year. While this could alleviate power shortages during peak hours, competition among small operators may intensify regional power tightness.

Data centers are seen as potential catalysts for the sector, as power procurement contracts signed with power enterprises may lead to a broader re-rating.

The report takes a cautious stance on renewable energy, citing the cancellation of incentive policies, DISCOM's resistance to rooftop and commercial solar, ongoing grid constraints, and a slowdown in new capacity installations.