Mint Explainer | Why India’s winter power spike matters after a muted year for electricity demand

Mint explains why this winter surge matters, after a year in which power consumption remained weaker than expected due to a prolonged monsoon.

What caused power demand to peak in December?

Power demand typically rises during December and January as colder temperatures increase the use of heating appliances. This year, a sharp cold wave across Jammu & Kashmir, Himachal Pradesh, Haryana, Punjab, Rajasthan, Delhi and Madhya Pradesh pushed up electricity consumption, with temperatures dropping to as low as 4 degrees Celsius in some areas. Delhi recorded its coldest December day in six years on 31 December 2025.

National peak demand rose steadily through the month, from 206 GW on 1 December 2025 to 241 GW at month-end. Power consumption increased nearly 7% year-on-year to 138.39 billion units (BU) in December, compared with 129.39 BU a year ago, with most of the increase coming from households and commercial establishments.

Why does a rise in electricity demand matter, and what does it mean for consumers?

A sudden rise in electricity demand matters because it affects how power distribution companies (discoms) source electricity, and how much it costs them.

Discoms typically meet most of their demand through long-term power purchase agreements (PPAs), often running for 25 years. But when demand rises unexpectedly, they have to procure additional electricity from short-term markets such as power exchanges, where prices tend to spike during high-demand periods. These higher procurement costs strain discom finances and are often passed on to consumers through higher tariffs in subsequent tariff orders.

In simple terms, sharp demand spikes today can translate into higher electricity bills later. At the same time, a sustained increase in demand, especially from industries, can also signal stronger economic activity.

What was the trend in power demand in 2025?

Despite the December spike and a brief surge in July, electricity demand in 2025 was largely muted. Peak demand during the summer stood at 242 GW on 12 June 2025, well below the Central Electricity Authority’s (CEA) projection of 270 GW. The all-time peak demand of 250 GW was recorded in May 2024.

Lower-than-expected demand this year was largely driven by excess rainfall and a longer monsoon, which tempered summer temperatures. Unseasonal rains in October 2025 also reduced the usual post-monsoon demand increase seen in September and October. Power demand contracted by 6.0% in October and 0.8% in November 2025.

As a result, overall electricity demand growth in FY26 is estimated at just 1.5-2%, compared with a 4% growth in FY25.

How has lower demand affected power prices on exchanges?

Softer demand has pushed down power prices on exchanges, easing cost pressures for discoms. The average price on the day-ahead market (DAM) of the Indian Energy Exchange (IEX) fell to ₹3.99 per unit in 2025, down 12.9% from ₹4.59 in 2024. Prices on the real-time market (RTM) averaged ₹3.75 per unit, a decline of 14.6% from ₹4.39 per unit a year earlier.

Lower exchange prices reduce the cost of meeting incremental demand and lower the risk of sharp price spikes during short-term shortages.

Who benefits and who loses from lower demand and softer prices?

The impact of lower demand and softer exchange prices is uneven across the power sector.

Discoms generally benefit, as lower short-term prices reduce procurement costs and provide financial relief. Consumers also benefit indirectly through reduced supply stress and lower risks of shortages, even if the impact on monthly bills is not immediate.

For coal- and gas-based power producers, the impact is more limited. Of India’s installed power capacity of 509.7 GW, coal-based plants account for 56.9% (219.6 GW), while gas-based plants account for 3.9% (20.12 GW). Much of this capacity is tied up under long-term PPAs, which entitle generators to recover fixed costs linked to plant investment and maintenance, even if discoms draw less power. Variable costs, linked to fuel use, fluctuate with actual generation.

Renewable energy projects such as solar and wind are also largely insulated from short-term demand swings, as their power is typically sold under long-term contracts at fixed tariffs.

What is the outlook for India’s power demand?

After a muted FY26, demand is expected to recover in the next financial year. Ratings agency Icra Ltd estimates electricity demand growth of 5-5.5% in FY27.

“The projection of 5-5.5% growth in the next fiscal is supported by expected GDP growth, normalised weather patterns, and robust demand from sectors like electric vehicles, data centres and green hydrogen," said Ankit Jain, vice-president and co-group head for corporate ratings at Icra Ltd. He added that renewable integration, supportive policies and capacity alignment would further support demand growth.

Separately, the International Energy Agency (IEA) has forecast India’s electricity demand to grow at an average 6.3% annually during 2025–27, faster than the 2015-2024 average of 5%.

How was the supply situation in 2025?

Power supply conditions have improved significantly. After coal shortages triggered power crises in 2021 and 2022, the government stepped up domestic coal production, which has now crossed 1 billion tonnes annually.

India also added 44.5 GW of renewable energy capacity in 2025, improving supply diversity. On the Indian Energy Exchange, sell-side liquidity rose sharply, with volumes available for sale increasing 38.5% to 175.77 BU in 2025 from 126.90 BU a year earlier.

Together, subdued demand and improved supply have eased pressure on India’s power system in 2025, lowering prices, reducing the risk of shortages, and giving policymakers greater room to manage future demand swings.