Heavy coal use, RE growth to insulate India from spike in power tariffs

India's reliance on domestic coal and rapid renewable energy expansion could shield it from global power tariff shocks, even as fuel prices surge amid the West Asia conflict

The ongoing conflict in West Asia has disrupted more than a dozen top power markets globally. Asian spot LNG prices have surged 94 per cent, while coal prices have increased 30 per cent since February 28, when the conflict started, pushing up local retail electricity prices to record levels.

 

However, there is a silver lining for India in the power crisis. If de-escalation enables fuel price moderation after 2-3 months among the 13 global markets, India will see the lowest increase in average cost of generation at a minuscule $0.1 per Megawatt Hour (MWh). Italy, Japan, and South Korea will likely experience the highest absolute impact with $4.3 per MWh in cost escalation, or almost an 80 per cent jump, according to an analysis by Wood Mackenzie, the energy and natural resources focused research firm.

 

The reason: Coal. Typically denigrated as a dirty fuel, it has acted as a saviour for India, which will benefit from its predominantly domestic coal supply, with only 5-6 per cent of power generation exposed to imported fuel disruptions (mainly gas). An additional helper is the rapid buildup in renewable energy (RE) in recent years.

 

Other key power markets which will remain insulated include China, for reasons similar to India; the US, for its high domestic production of both coal and natural gas which insulates its power sector from external price volatility; and Brazil, which has developed near 80 percent penetration of RE, predominantly hydro, which reduces its fossil fuel dependence.

 

"The impact (of the West Asia conflict) on global electricity markets is splitting dramatically between winners and losers," Wood Mackenzie said in its analysis of how the 13 representative power markets are being impacted by the ongoing crisis, with exposure determined primarily by generation mix and fuel import dependency.

 

"While some markets face significant cost escalation and potential supply constraints, others remain largely insulated from international fuel market volatility due to their reliance on strong domestic thermal supplies or a large network of renewable energy," said Peter Obaldstone, research director (Europe Power) for Wood Mackenzie.

 

Under the firm's base case, which assumes fuel price moderation in the latter half of 2026, the average cost of generation increases by $2.3 per MWh across the 13 markets. Should the current elevated price levels persist through 2026, average generation costs would increase 26 per cent on average or about $8.3 per MWh, with the most exposed markets facing substantial cost escalation.

 

"Repeated geopolitical supply shocks are fundamentally reshaping how countries approach energy planning. Markets with diverse generation mixes and strong domestic resources are proving far more resilient than those dependent on imported fuels, reinforcing the strategic value of energy independence alongside decarbonization goals," said Xizhou Zhou, executive vice president and global head (Power and Renewables) for Wood Mackenzie.

 

While most of the other power markets are reeling under the impact of high prices of imported gas or coal, India's case is different. The share of gas-based power plants in India's total installed power generation capacity has come down gradually but significantly over the past few years. The country's total installed power generation capacity base currently stands at 524,009 MW, of which gas-based plants account for only 20,122 MW, or 3.8 percent. Ten years ago, in March 2016, gas-based projects accounted for 24,508 MW, or 8.2 per cent, of the total 298,059 MW of installed power generation capacity. The drop is attributed to a host of factors including the strategic shift away from fossil fuels, high gas price volatility, and limited domestic production.

 

On the coal front, the story is different. While coal's dominance in the country's electricity basket has continued over the past few years, imports have reduced drastically. With the fifth-largest coal reserves and as the world's second-largest consumer, coal remains crucial for India, contributing 55 per cent to its energy mix and fuelling over 74 per cent of total power generation. India's coal demand stood at 1,267 million tonnes (MT) in financial year 2024-25. Domestic companies - including Coal India, Singareni Collieries, and captive miners - produced 1,047 MT, or over 80 per cent of the demand.

 

In FY15, domestic coal supply stood at 607 MT, around 74 per cent of the demand at 819 MT. With increased domestic production, imports have fallen from 217 MT in FY15 to 203 MT in FY26, a reduction of roughly 13.83 MT.

 

On the renewables front, the jump in India's power generation capacity based on solar, wind, and hydro power plants in the past decade is well documented. For example, its solar power capacity has increased more than 40-fold from roughly 3 gigawatt (GW) in 2014 to over 150 GW at present. According to the International Renewable Energy Agency (IRENA), the strategic deployment of renewables has provided enhanced resilience in the face of the current energy crisis by a number of countries.

 

"India’s share of renewables in electricity generation increased to 20.2 percent in 2025 from 14.2 per cent in 2016. Electric cooking has become a contingency measure for households facing liquefied petroleum gas (LPG) supply disruptions and restrictions. Solar-powered canteens have kept operating during liquefied natural gas (LNG) shortages; whereas in those workplaces with canteens powered by gas, workers have been forced to bring their own food," the agency said in a policy advisory on Monday.

 

It added that globally, renewables are already reducing dependence on fossil fuel imports across countries, from Spain and Portugal in Europe, to China, India and Pakistan in Asia. Globally, renewable power capacity continues to grow at record speed, with 692 GW added in 2025. Furthermore, falling costs have transformed the economics of power generation. More than 85 per cent of new renewables are now cheaper than fossil fuel alternatives. Since 2010, the cost of solar has fallen by 87 per cent, onshore wind by 55 per cent and battery storage by 93 per cent.

 

“The current crisis clearly demonstrates the strategic case for renewables as a national security imperative,” said IRENA Director-General Francesco La Camera. “There is an opportunity to prioritise actions that enhance long-term energy stability. Governments must urgently consider targeted interventions to steer investment and emergency responses towards accelerating the deployment of renewable power and the electrification of energy-consuming processes and sectors,” he added.