M&A activity in power sector gathers pace as PPAs drive up valuations

Accelerating power demand, revival of long-term PPAs, stronger plant load factors and attractive valuations are triggering a fresh wave of M&A activity across thermal and renewable assets

Infrastructure major L&T last week announced that its wholly owned subsidiary, L&T Power Development, has agreed to sell a 100 per cent stake in Nabha Power Ltd (NPL) to Torrent Power in a deal worth over Rs 6,000 crore. NPL owns and operates the 1,400 megawatt (MW) Nabha power plant in Punjab. The mega transaction is the latest marker of an uptick in mergers and acquisitions (M&A) activity in the Indian power sector, after years of a lull.

 

The Torrent acquisition was the latest in a series of high-value transactions in the sector. Jindal Power Limited (JPL) recently acquired a 100 per cent stake in the 1,320 MW coal-based Jhajjar Power Ltd plant from Apraava Energy; Megha Engineering & Infrastructures Limited (MEIL), via its subsidiary MEIL Energy Pvt Ltd, acquired 100 per cent of TAQA Neyveli Power Company Pvt Ltd, a 250 MW lignite-based thermal power plant in Tamil Nadu, from Abu Dhabi National Energy Company (TAQA), among others.

 

Renewed investor interest in thermal power transactions is being driven by several structural and market-driven factors that are making such deals attractive, says Kuljit Singh, partner (Investment Banking – Strategy & Transactions), EY India. The accounting and consulting firm, which is part of the Big Four, advised L&T on the sale of NPL.

 

"First, India’s electricity demand growth has structurally accelerated. Energy requirement has grown at approximately 7.5 per cent over the past four years — from FY21 to FY25 — after remaining flat between 2019 and 2021 and is expected to remain robust, driven by industrial expansion, data centres, electric mobility, and rising cooling loads," Singh said. "While renewable capacity addition has been impressive, it has also increased grid intermittency. Thermal power plants, particularly coal-based assets, continue to provide dependable baseload and peaking support, reinforcing their strategic relevance in the power system," he added.

 

Another key factor driving the M&A trend is the return of long-term thermal power purchase agreements (PPAs), materially improving investor sentiment. After a decade-long pause, multiple states such as Madhya Pradesh (1,600 MW), Bihar (2,400 MW), West Bengal (1,600 MW), Uttar Pradesh (1,500 MW), Assam (500 MW), and Maharashtra (1,600 MW) have awarded long-term coal-based PPAs or projects through competitive bidding. These contracts reduce merchant exposure, enhance revenue visibility, and support leverage, making thermal assets significantly more transaction-friendly than earlier.

 

The revival in thermal power M&As is also getting a push from a similar increase in M&A activity in the renewable energy (RE) sector, which is in a stage of consolidation, driven by strong interest from global investors and significant growth potential. According to equity research firm CareEdge, most of the M&A deals in the RE space have been concluded with attractive valuation multiples, dependent on factors such as the remaining life of the asset, PPA tariffs, counterparty involvement, and the asset’s operating performance.

 

For thermal power M&As, the third major factor supporting valuations is assets’ improving operating metrics. "Thermal plant load factors (PLFs) have stabilised at healthy levels of approximately 70 per cent in FY25 from around 55 per cent in FY21, with plants such as Nabha Power operating at higher than 80 per cent PLF, aided by limited new capacity addition over the last decade and sustained demand growth," notes Singh.

 

He points out that coal availability has improved. Raw coal dispatch has increased at a compound annual growth rate (CAGR) of around 10.4 per cent between FY21 and FY25, and higher domestic production and better inventory management have cut fuel supply risk and lowered dependence on imported coal. "For investors, this translates into more stable earnings before interest, taxes, depreciation, and amortisation (Ebitda) and lower downside risk," he said.

 

Experts add that a major reason for the M&A revival in the energy sector is the availability of thermal assets at attractive entry valuations. Legacy stress, environmental, social and governance (ESG) overhang, and prior insolvency cycles have kept valuations modest, resulting in relatively higher returns in thermal power transactions as compared to renewable power transactions.

 

Plants in prime locations — either near a coal source or at a location with high electricity demand but limited power capacity addition — with assured coal linkage, transmission access, and PPA visibility offer compelling yield-based returns, especially for investors seeking predictable cash flows coupled with upside linked to capacity expansion and PPA extensions. Further, a recent proposal by the Reserve Bank of India (RBI) to allow banks to provide acquisition financing further enhances investor returns in projects that are already generating cash from long-term PPAs.

 

"Finally, recent government targets have laid down a vision for growth in the thermal power sector," Singh said. "The government has articulated that thermal power will remain an integral part of India’s energy mix through the next decade. The thermal, including coal and lignite, capacity requirement by March 2035 is estimated at 307 gigawatt (GW) as against the 222 GW of installed capacity as of March 31, 2025. This acknowledgement has offered investors the necessary clarity on the requirement to commit capital to the sector."

 

According to Jitesh Khatrani, partner (Investment Banking – Strategy & Transactions) at EY India, "Thermal power transactions in India are attractive again not because the energy transition has slowed, but because it has highlighted the indispensable role of reliable thermal capacity. For discerning investors, operating thermal assets now represent a rare combination of strategic relevance, improving cash flow visibility, and attractive risk-adjusted returns."