Clean Energy Surge and Fossil Fuel Decline: Global Electricity Review

Syllabus: GS3/Infrastructure; Energy

Context

• India, along with China, witnessed a historic shift in its power sector in 2025, where record growth in renewable energy led to a decline in fossil fuel-based electricity generation, marking a significant milestone in the global energy transition.

Global Highlights

• Solar as Primary Growth Driver: Solar energy met approximately 75% of global electricity demand growth in 2025.
• Renewables Overtake Coal: The share of renewables in global electricity generation reached a record 33.8%, surpassing coal (33.0%) for the first time in over 100 years.
• Fossil Fuel Stagnation: Fossil fuel-based power generation recorded a −0.2% change in 2025, signalling that aggregate fossil generation has effectively plateaued at the global level.

India-Specific Findings

• Fossil Generation Decline: India’s fossil fuel power generation fell by 3.3% in 2025 a significant departure from the sustained growth trend of previous years, indicating a structural shift in the electricity mix.
• Renewable Surge: Renewable electricity generation grew by 24%, with solar overtaking hydropower to become India’s largest clean energy source for the first time.
• Record Solar Capacity Addition: India installed 38 GW of solar capacity in 2025  surpassing the United States and ranking second globally behind China.
• Global Significance: Alongside China, India’s clean energy scale-up played a decisive role in halting the growth of global fossil fuel generation.

Factors Behind the Shift

• Favorable Climatic Conditions:
  • Good monsoon: Higher hydropower output
  • Milder summer: Reduced electricity demand (less cooling load)
• Rapid Solar Deployment: Strong policy push and falling solar costs accelerated installations.

Challenges Ahead: Outlook For 2026

• Weak Monsoon Prediction: IMD forecasts below-normal rainfall, that likely reduced hydropower generation, increased groundwater pumping led to higher electricity demand, and higher use of air conditioning due to heat.
  • These could reverse gains and increase fossil fuel dependence.
• Transmission Constraints: Price parity with fossil based electricity generation (One price) possible only if grid congestion is minimal. Otherwise, area-wise price differences (market splitting) may persist.
• Institutional Resistance: Power exchanges fear loss of autonomy and revenue. Implementation complexity requires advanced algorithms, real-time coordination, and strong regulatory oversight.

Way Ahead: Market Coupling and ‘One Grid, One Price’ in India

• Currently, India has multiple power exchanges, and each exchange independently discovers electricity prices through bids. It leads to price differences for the same time slot across exchanges.
• Market coupling pools all buy and sell bids from different exchanges and determines:
  • A uniform market-clearing price (MCP)
  • Optimal allocation of electricity across the grid

How Market Coupling Enables ‘One Grid, One Price’?

• Unified Price Discovery: All bids (buyers and sellers) are aggregated, and a single algorithm determines one price for the entire market. It eliminates price disparities across exchanges.
• Efficient Transmission Utilisation: Power flows are optimized across regions, and reduces congestion and bottlenecks in transmission corridors.
• Improved Competition & Transparency: Sellers compete in a larger, unified pool, and prevents market fragmentation and manipulation.
• Cost Reduction for DISCOMs: Eliminates arbitrage opportunities across exchanges. DISCOMs get access to the lowest available price nationally.
• Better Renewable Integration: Renewable energy (solar/wind) is variable. A unified market helps absorb surplus renewable power, and balance deficits across regions.

Source: IE