The Core Warning
Recent analyses from energy think tanks like Ember and the Institute for Energy Economics and Financial Analysis (IEEFA) have raised a significant red flag. They warn that India's planned expansion of coal-fired power capacity is on a collision course
with economic reality. The core argument is that the country is planning to build far more coal capacity than future electricity demand will likely require. According to one report, any new coal capacity beyond what is already under construction would be uneconomical. This over-construction risks creating billions of dollars in 'stranded assets' – power plants that are built but cannot operate profitably because they are not needed, or because cheaper energy sources are available.
The Demand Growth Puzzle
At the heart of this issue is the forecast for India’s electricity demand. While India is rightly projected to be the world's largest source of energy demand growth, the pace of that growth is a critical variable. Historically, planners have projected high, consistent growth. However, recent years have shown more variability. For instance, 2025 was a year of lower-than-expected demand growth where new renewable energy sources met all the incremental need, causing coal generation to fall. Factors like improved energy efficiency, milder weather patterns, and structural changes in the economy can moderate demand. If demand grows slower than projected, the utilisation rates—known as Plant Load Factor (PLF)—of coal plants will fall, making them more expensive to run per unit of electricity.
The Renewable Energy Disruption
The other side of the equation is the meteoric rise of renewable energy. Solar and wind power are no longer niche alternatives; they are mainstream and increasingly the cheapest sources of new electricity. Reports indicate that solar tariffs in India are now so low they are below even the fuel costs of running many existing coal plants. India has made huge strides, becoming the world's fourth-largest clean electricity generator in 2025. As of mid-2026, India's installed clean energy capacity has, for the first time, surpassed that of fossil fuels. This rapid, cost-effective expansion means renewables are capturing a larger share of new demand, directly competing with and often outbidding coal.
What Are 'Stranded Assets'?
The term 'stranded asset' refers to an investment that has lost its value or ability to generate returns much earlier than expected. In this context, a brand-new coal plant could become a stranded asset if it sits idle because there isn't enough demand, or if its electricity is too expensive compared to solar or wind power. This isn't just a theoretical problem; India already has around 40 gigawatts of 'stressed' coal assets facing financial trouble. Building more plants that end up underutilised would add to this burden, creating a systemic risk for the banks and public-sector institutions that finance them. Ultimately, the cost of these idle plants is often passed on to electricity distribution companies (DISCOMs) and, by extension, to consumers through higher tariffs.
The Government’s Balancing Act
From the government's perspective, the challenge is a complex balancing act. On one hand, ensuring energy security for a rapidly growing economy is a top priority. Officials point to rising industrial needs and the necessity of reliable baseload power to justify coal's continued role for the next two decades. India's domestic coal production has soared to meet this anticipated demand. On the other hand, the government has also committed to ambitious climate goals, including a target of 500 GW of non-fossil fuel capacity by 2030. The push for coal expansion sits uncomfortably with these green commitments and the clear economic logic favouring renewables, creating a fundamental policy dilemma.
