(When clean-energy growth exceeds total demand growth, generation from fossil fuels declines.)
Columns: Six-monthly growth in clean-energy generation, by source, TWh. Dashed line: Average growth in electricity demand, 2021-2024, TWh. Source: CREA analysis of figures from the NITI data portal, with added capacity converted to expected annual generation based on average capacity factors calculated from monthly capacity and generation data.
India is expected to add another 16-17GW of solar and wind in the second half of 2025. Beyond this year, strong continued clean-energy growth is expected, towards India’s target for 500GW of non-fossil fuel capacity by 2030 (see below).
Slowing oil demand growth
The first half of 2025 also saw a significant slowdown in India’s oil demand growth. After rising by 6 per cent a year in the three years to 2023, it slowed to 4 per cent in 2024 and zero in the first half of 2025.
The slowdown in oil consumption overall was predominantly due to slower growth in demand for diesel and “other oil products”, which includes bitumen.
In the first quarter of 2025, diesel demand actually fell, due to a decline in industrial activity, limited weather-related mobility and – reportedly – higher uptake of vehicles that run on compressed natural gas (CNG), as well as electricity (EVs).
Diesel demand growth increased in March to May, but again declined in June because of early and unusually severe monsoon rains in India, leading to a slowdown in industrial and mining activities, disrupted supply-chains and transport of raw material, goods and services.
The severe rains also slowed down road construction activity, which in turn curtailed demand for transportation, construction equipment and bitumen.
Weaker diesel demand growth in 2024 had reflected slower growth in economic activity, as growth rates in the industrial and agricultural sectors contracted compared to previous years.
Another important trend is that EVs are also cutting into diesel demand in the commercial vehicles segment, although this is not yet a significant factor in the overall picture.
EV adoption is particularly notable in major metropolitan cities and other rapidly emerging urban centres and in the logistics sector, where they are being preferred for short haul rides over diesel vans or light commercial vehicles.
EVs accounted for only 7.6 per cent of total vehicle sales in the financial year 2024-25, up 22.5 per cent year-on-year, but still far from the target of 30 per cent by 2030.
However, any significant drop in diesel demand will be a function of adoption of EV for long-haul trucks, which account for 32 per cent of the total CO2 emissions from the transport sector. Only 280 electric trucks were sold in 2024, reported NITI Aayog.
Trucks remain the largest diesel consumers. Moreover, truck sales grew 9.2 per cent year-on-year in the second quarter of 2025, driven in part by India’s target of 75 per cent farm mechanisation by 2047. This sales growth may outweigh the reduction in diesel demand due to EVs. Subsidies for electric tractors have seen some pilots, but demand is yet to take off.
Apart from diesel, petrol demand growth continued in the first half of 2025 at the same rate as in earlier years. Modest year-on-year growth of 1.3 per cent in passenger vehicle sales could temper future increases in petrol demand, however. This is a sharp decline from 7.5 per cent and 10 per cent growth rates in sales in the same period in 2024 and 2023.
Furthermore, EVs are proving to be cheaper to run than petrol for two- and three-wheelers, which may reduce the sale of petrol vehicles in cities that show policy support for EV adoption.
Steel and cement emissions continue to grow
As already noted, steel and cement were the only major sectors of India’s economy to see an increase in emissions growth in the first half of 2025.
While they were only responsible for around 12 per cent of India’s total CO2 emissions from fossil fuels and cement in 2024, they have been growing quickly, averaging 6 per cent a year for the past five years.
The growth in emissions accelerated in the first half of 2025, as cement output rose 10 per cent and steel output 7 per cent, far in excess of the growth in economic output overall.
Steel and cement growth accelerated further in July. A key demand driver is government infrastructure spending, which tripled from 2019 to 2024.
In the second quarter of 2025, the government’s capital expenditure increased 52 per cent year-on-year. albeit from a low base during last year’s elections. This signals strong growth in infrastructure.
The government is targeting domestic steel manufacturing capacity of 300m tonnes (Mt) per year by 2030, from 200Mt currently, under the National Steel Policy 2017, supported by financial incentives for firms that meet production targets for high quality steel.
The government also imposed tariffs on steel imports in April and stricter quality standards for imports in June, in order to boost domestic production.
Government policies such as Pradhan Mantri Awas Yojna – a “housing for all” initiative under which 30m houses are to be built by FY30 – is further expected to lift demand for steel and cement.
The automotive sector in India is expected to grow at a fast pace, with sales expected to reach 7.5m units for passenger vehicle and commercial vehicle segments from 5.1m units in 2023, in addition to rapid growth in electric vehicles. This can be expected to be another key driver for growth of the steel sector, as 900 kg of steel is used per vehicle.
Without stringent energy efficiency measures and the adoption of cleaner fuel, the expected growth in steel and cement production could drive significant emissions growth from the sector.
Power-sector emissions could peak before 2030
Looking beyond this year, the analysis shows that CO2 from India’s power sector could peak before 2030, having previously been the main driver of emissions growth.
To date, India’s clean-energy additions have been lagging behind the growth in total electricity demand, meaning fossil-fuel demand and emissions from the sector have continued to rise.
However, this dynamic looks likely to change. In 2021, India set a target of having 500GW of non-fossil power generation capacity in place by 2030. Progress was slow at first, so meeting the target implies a substantial acceleration in clean-energy additions.
The country has been laying the groundwork for such an acceleration.
There was 234GW of renewable capacity in the pipeline as of April 2025, according to the Ministry of New and Renewable Energy. This includes 169GW already awarded contracts, of which 145GW is under construction, and an additional 65GW put out to tender. There is also 5.2GW of new nuclear capacity under construction.
If all of this is commissioned by 2030, then total non-fossil capacity would increase to 482GW, from 243GW at the end of June 2025, leaving a gap of just 18GW to be filled with new projects.
When the non-fossil capacity target was set in 2021, CREA assessed that the target would suffice to peak demand for coal in power generation before 2030. This assessment remains valid and is reinforced by the latest Central Electricity Authority (CEA) projection for the country’s “optimal power mix” in 2030, shown in the figure below.
