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 ₹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 Ltd recently acquired a 100 per cent stake in the 1,320 MW coal-based Jhajjar Power Ltd from Apraava Energy; Megha Engineering & 

Infrastructures Ltd (MEIL), via its subsidiary MEIL Energy Pvt Ltd, acquired 100 per cent of TAQA Neyveli Power Company Private Ltd, a 250 MW lignite-based thermal power plant in Tamil Nadu, from Abu Dhabi National Energy Company (TAQA), among other deals. 

Renewed investor interest in thermal power transactions is being driven by several structural and market-driven factors that are making such deals attractive, said Kuljit Singh, partner, investment banking – strategy and transactions, EY India. The accounting and consulting firm 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. 

Continuing role of coal 

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, several 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, another 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,” said Singh.  

PLF measures the actual energy produced by a plant relative to its capacity. 

Coal availability, too, has improved. Raw coal dispatch has increased at a compound annual growth rate of around 10.4 per cent between FY21 and FY25. 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 Ebitda (earnings before interest, taxes, depreciation, and amortisation) and lower downside risk,” he said. 

Experts added 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 with 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 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.” 

Pragmatic and efficient route 

According to Jitesh Khatrani, partner (investment banking – strategy and 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.” 

India’s power sector is entering a phase where consolidation is becoming a natural outcome of demand growth and the need is for stronger, execution-led operating platforms. With installed capacity projected to expand from 514 GW in FY26 to 874 GW by FY32, the opportunity lies not only in adding new capacity, but also in unlocking performance from existing infrastructure. Large companies are capitalising on this trend.   

“As renewable capacity accelerates, thermal power will continue to provide the baseload stability that anchors the system, making operational efficiency and fuel security central to long-term resilience,” said a spokesperson from Vedanta Power, an arm of the metals and mining giant Vedanta Ltd.   

“In this context, strategic M&A is emerging as a pragmatic and efficient route to realise stranded value, offering faster capacity addition. India’s thermal power sector has historically seen a significant pool of stressed assets, with over 40 GW of capacity under stress around 2018 driven by fuel linkage constraints, subdued demand, delayed Discom payments and more. Today, a large part of this capacity has been acquired and turned around, reflecting a broader shift towards consolidation and improved asset utilisation," the spokesperson added. 

The power and energy sector accounted for around $8.5 billion in deal value in the first half of 2025, reflecting growing conviction that consolidation can restore productivity and strengthen asset quality, the spokesperson said, adding that M&A is increasingly becoming a lever for scalable and reliable capacity creation aligned with long-term demand growth. 

Vedanta Power has scaled its operational capacity from 2,580 MW to 4,180 MW through targeted acquisitions in the past few years, including Meenakshi Energy Ltd in Andhra Pradesh and the Vedanta Ltd Chhattisgarh Thermal Power Plant, both of which were earlier identified as stressed thermal assets. 

“The turnaround of these assets reflects not only the strength of our operational discipline, fuel security, and execution-led integration, but also the importance of experienced management capabilities in revitalising complex assets. Together, these enable the revival of stressed capacity and its seamless reintegration into the grid, helping realise latent potential in existing systems, while contributing meaningfully to India’s long-term energy security,” the company spokesperson said. 

What’s fuelling the M&A revival

• Renewed investor interest in coal and lignite-based assets
• Electricity demand grown by 7.5 per cent annually over FY21–FY25
• Long-term thermal PPAs revived by many states, reducing merchant risk for investors
• Improved operating metrics, supporting stronger cash flows
• Policy clarity and financing support aiding deal-making