Rising Temperatures and Fuel Constraints May Boost Thermal Power Producers in FY27: Morgan Stanley
Power Demand Expected to Rebound After Mild FY26
Rising temperatures across India and tighter fuel supplies could tilt the balance in favor of thermal power producers in fiscal year 2027, according to a report by investment firm Morgan Stanley.The report noted that power demand remained relatively subdued in fiscal year 2026 due to a mild summer and an unusually strong winter. These conditions reduced electricity consumption during peak periods, leading to softer demand during the year.
However, early indicators for fiscal year 2027 suggest a shift in the trend. Temperatures have already begun rising across several parts of the country, with multiple regions experiencing heatwave conditions. This development points to the likelihood of a surge in electricity demand during the coming months.
Supply-Side Risks Emerging for Gas and Hydro Power
Alongside the expected rise in demand, Morgan Stanley highlighted emerging supply-side challenges that could affect power generation in the first half of fiscal year 2027.Persistent geopolitical tensions in the Middle East could tighten global gas supplies, potentially affecting the availability of liquefied natural gas for India. This could limit gas-based power generation during the period.
In addition, reports suggest that the Himalayan region may witness one of its driest spring seasons on record. Such conditions could negatively impact hydroelectric output in the months ahead.
During fiscal year 2026, gas-based power contributed about 2 percent to India's total power generation, while hydro power accounted for roughly 9 percent.
Thermal Power Likely to Meet Incremental Demand
With potential constraints in gas and hydro generation, Morgan Stanley expects coal-based thermal power plants to play a larger role in meeting incremental electricity demand.The report also indicated that this shift could lead to higher curtailment of solar power in certain regions, allowing thermal plants to ramp up output more efficiently when demand rises.
Power Stocks That Could Benefit
Morgan Stanley believes stronger merchant power prices could support improved earnings for companies such as Adani Power and JSW Energy.The report also highlighted Tata Power as a potential beneficiary if there is a settlement related to the Mundra project or if Section 11 of the Electricity Act is imposed.
Meanwhile, Torrent Power could gain from merchant gas sales where access to physical cargoes exists.
The firm added that NTPC could also see a re rating in its price to book multiple if peak power deficits intensify.
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