India's electricity prices are experiencing a cooling trend, primarily driven by the vigorous monsoon rains that have boosted hydropower generation and increased solar power capacity. This surge in renewable energy production, coupled with a relatively subdued demand, has created a surplus in the power market, leading to a decline in electricity prices.
The impact of the monsoon is evident in the increased hydropower generation, which is expected to rise by approximately 10% in FY26, building on a similar gain in FY25. The abundant rainfall has filled reservoirs, allowing for enhanced electricity generation from hydroelectric plants. This surge in hydropower not only contributes to a greener energy mix but also enhances grid stability. However, the heavy silt brought by the torrential rains poses operational challenges for turbines.
On the demand side, various factors have contributed to a decrease in electricity consumption. In May 2025, India's power demand fell by 4.3% year-on-year, amounting to 149 billion units, down from 155 billion units in May 2024. This decline was attributed to unseasonal rainfall and a slowdown in industrial activity. The early arrival of the southwest monsoon and lower average temperatures reduced the need for cooling appliances, further dampening demand. The northern region experienced an 8% fall in power demand, a stark contrast to the 30% increase seen in the same month the previous year.
Data from the Central Electricity Authority (CEA) indicates that overall power demand was weaker in the months leading up to July compared to the previous year. However, there has been a rebound in August. Peak power demand this summer reached 241 GW, significantly lower than the projected 270 GW for the year. The record peak level for India remains at 250 GW, recorded in May 2024.
The Indian Energy Exchange (IEX) reported a substantial decline in spot electricity prices in May 2025, driven by reduced demand due to the early monsoon and unseasonal rains. The Market Clearing Price in the Day Ahead Market (DAM) fell by 22% year-on-year to ₹4.12/unit, while the Market Clearing Price in the Real Time Market (RTM) dropped by 28% year-on-year to ₹3.43/unit. These lower prices have presented opportunities for Discoms and Commercial & Industrial consumers to procure power at competitive rates and replace costlier sources.
The rise in renewable energy generation has also played a crucial role in balancing the supply-demand equation. In May 2025, generation from nuclear and hydro sources increased by 14.7% and 14.8%, respectively, while renewable energy generation grew by 10.4%. Consequently, the share of coal in the total generation mix fell to 69% from 72% in May 2024, while the share of renewable energy rose to 15.5%.
Looking ahead, the monsoon's impact on electricity prices is expected to continue in the short term. According to Vikram V., vice-president at ICRA Ltd, power demand during April–July fell by 0.5% year-on-year, although July saw some recovery and August has shown positive growth. With a favourable base, demand growth could improve through October, unlike last year when it dipped during August–October. As of August 24, 2025, the country has received 632.7 mm of rainfall during the southwest monsoon season, which is 2% above the normal level of 619.8 mm for the same period.
