The Karnataka Electricity Regulatory Commission (KERC) has introduced a framework to enhance energy efficiency, manage peak demand, and improve grid reliability through demand-side interventions and demand flexibility measures.

The framework mandates distribution companies (DISCOMs) to adopt energy-saving strategies, optimize consumption patterns, and integrate demand response into resource planning to reduce system costs and infrastructure needs.

The Commission has approved these provisions under the KERC (Framework for Demand Flexibility/Demand Side Management) Regulations, 2026.

The regulations require DISCOMs to adopt demand flexibility and demand-side management measures as part of their day-to-day operations, including the sustained assessment, planning, design, and implementation of programs. These measures are intended to support grid operations, balance supply and demand, and contribute to resource adequacy planning.

Demand flexibility is defined as the consumers’ ability to adjust electricity consumption in response to system signals such as prices, grid conditions, and reliability requirements, including enabling renewable energy integration, reducing peak demand, and supporting system operations.

Each DISCOM must establish a dedicated demand flexibility and demand-side management cell responsible for implementing, monitoring, and reporting on these programs.

Mandatory Targets and Compliance Mechanism

The regulations introduce demand flexibility portfolio obligations, requiring DISCOMs to ensure a specified percentage of flexible demand relative to the previous year’s peak demand.

The trajectory begins at 0.5% in financial year (FY) 2026–27, 1% in FY 2027-28, 1.5% in FY 2028-29, and 2% in FY 2029-30.

A performance-linked mechanism has been specified, under which DISCOMs will receive an incentive of ₹2 million (~$21,270)/MW for exceeding demand flexibility portfolio obligations targets and will be subject to a disincentive of the same amount for any shortfall.

Program Design, Planning, and Reporting Requirements

DISCOMs must develop a portfolio of demand flexibility and demand-side management programs based on detailed load research and submit it along with their multi-year tariff filings, including an implementation action plan. Annual status reports on implementation must be submitted with annual performance review filings.

The regulations also mandate that licensees publicly disclose key documents, including load research reports; appliance use and saturation studies; demand flexibility and demand-side management program portfolios and action plans; implementation status reports; and evaluation and verification reports, on licensees’ websites.

Scope of Demand Flexibility and DSM Programs

The framework provides an indicative list of program areas that may be included in the demand flexibility and demand-side management portfolio. These include time-based operation of water pumping systems, smart charging of electric vehicles, behind-the-meter battery energy storage, thermal energy storage, efficient refrigeration systems, replacement of inefficient appliances, and behavioural interventions for energy conservation.

Programs may be implemented directly by DISCOMs or through aggregators registered with the licensees. The regulations require that aggregators and independent verification agencies remain separate entities.

Cost Recovery, Consumer Safeguards and Transitional Provisions

DISCOMs are permitted to recover prudently incurred costs associated with demand flexibility and demand-side management activities, including planning, implementation, monitoring, and evaluation through tariff filings, subject to regulatory scrutiny and cost-effectiveness assessment.

All demand flexibility and demand-side management programs must be cost-effective, protect consumer interests, be implemented equitably, and result in overall tariff reductions.

For the multi-year tariff control period FY 2025-26 to FY 2027-28, the regulations specify that demand flexibility and demand-side management programs must be undertaken through reappropriation of approved capital expenditure and included in annual performance review proposals.

Cost-Effectiveness Framework and Key Parameters

The regulations prescribe a structured approach for evaluating the economic viability of demand flexibility and demand-side management programs. The total resource cost test serves as the primary screening criterion, requiring that the net present value (NPV) of program benefits exceeds costs. This is followed by the ratepayer impact measure test to ensure that program implementation does not adversely affect tariffs.

DISCOMs are also required to submit results of the participant cost test and societal cost test, although these are not used for decision-making. The Participant Cost Test measures the quantifiable benefits and costs to a consumer of participating in a demand flexibility and demand-side management program, and the Societal Cost Test measures the quantifiable benefits and costs of the program to society as a whole.

The regulations specify default values for key inputs, including the avoided cost of power purchase and discount rates. For the ratepayer impact measure and participant cost test, the avoided cost will be based on the weighted average of the highest marginal power purchase cost across the top 10% of the energy-use stack. Meanwhile, the societal cost test is set at ₹10 (~$0.11)/kWh, based on the CERC day-ahead market ceiling rate.

Benefits will be calculated with a 5% year-over-year escalation, and discounting will be based on the weighted average cost of capital.

Measurement, Verification, and Institutional Requirements

The regulations establish a detailed framework for evaluation, measurement, and verification covering impact, process, and market effects evaluations. Savings will be estimated by comparing baseline consumption with post-implementation usage, with appropriate adjustments.

DISCOMs must empanel independent verification agencies that include certified energy auditors, energy managers, or certified measurement and verification professionals, and possess relevant experience in program evaluation and data analysis.

The evaluation, measurement, and verification process must be transparent and, where feasible, supported by online and real-time assessment tools.

Earlier, the Rajasthan Electricity Regulatory Commission issued the draft Rajasthan Electricity Regulatory Commission (Demand Flexibility/Demand-side Management) Regulations, 2026, proposing a comprehensive regulatory framework to integrate demand-side resources into the state’s power system.

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