Council on Energy, Environment and Water Integrated | International | Independent
Suggested Citation: Sikdar, Mirambika, Amber Woodward, Dhruvak Aggarwal, and Yixin Sun. 2026. How can India Create a Demand Flexibility Market? A Five-pillar Road Map. Council on Energy, Environment and Water
As India rapidly electrifies its economy and scales up renewable energy, the grid faces increasingly complex real-time operational challenges. Demand is growing with rising cooling loads, industrial electrification, and electric vehicle adoption. Relying solely on conventional, supply-side solutions to manage this transition risks driving up costs. There is an urgent need to explore new ways to source, value, and integrate grid flexibility.
A demand flexibility (DF) market offers a more cost-effective path. By coordinating rooftop solar units, EVs, smart appliances, and home storage systems with real-time grid conditions through clear price signals, a DF market can ease network congestion, integrate more renewables, and reduce the need for costly grid upgrades. While India's regulations already allow demand flexibility to serve peak demand and provide ancillary services, a well-functioning DF market — with multiple buyers and sellers, standardised contracts, open APIs, and shared data — does not yet exist.
This report, a collaboration between CEEW and the Centre for Net Zero (CNZ), presents a five-pillar road map for creating a demand flexibility market in India. Drawing on case studies from Great Britain and Australia, a survey of 14 Indian distribution companies, the study maps the regulatory, technical, and institutional steps India must take to scale demand flexibility from pilots to market operations.
As the share of renewable energy in India’s rapidly growing power system rises, the grid faces complex real-time operational challenges. In parallel, India is seeing growing power demand with rising cooling demand, industrial electrification, and electric vehicle (EV) adoption, similar to power grids globally. Relying solely on conventional supply-side solutions to establish a flexible grid could increase costs, prompting a need to explore new ways to source, value, and integrate grid flexibility.
In this context, a growing decentralised system with distributed energy resources (DERs) such as rooftop solar units, EVs, smart appliances, and behind-themeter storage offers a more cost-effective way to support crucial grid functions, if supported by regulations and a smart metering infrastructure (Figure ES1). Although time-of-day (ToD) tariffs can encourage load to shift from peak to off-peak hours, they are too coarse and inflexible to address real-time, location-specific grid constraints (Rawson 2026a, 2026b). As India rapidly electrifies the economy and scales up renewable energy capacity, new demandside mechanisms to manage demand in real time will be essential to reduce pressure on the grid.
A demand flexibility (DF) market can help address these challenges by aggregating and coordinating DERs and aligning their use with real-time grid conditions through clear price signals. Clear pricing rules and standardised contracts between utilities and aggregators can transform these resources from unpredictable loads into dependable assets that can help resolve local network congestion, support RE aggregation, and defer the need for costly infrastructure upgrades (Electron 2024; Lovell 2025).
Currently, regulations in India allow DF to serve peak demand and provide ancillary services (Figure ES1). However, a well-functioning DF market – that is, one with multiple buyers and sellers trading services using standard contracts, open APIs, and shared data – does not yet exist. Transitioning to this market-led approach to DF will lower barriers to aggregator participation, make flexible services scalable, and help utilities meet their DF obligations within a lower-cost, loweremissions power system (Electron 2024).
Figure ES1. Demand flexibility can serve critical functions in India’s grid
Source: Authors’ analysis.
Note: BEIS = Department for Business, Energy & Industrial Strategy (UK); CEA = Central Electricity Authority (India); CERC = Central Electricity Regulatory Commission (India); DAM = day-ahead market; discom = (power) distribution company; IES = India Energy Stack; IEX = Indian Energy Exchange; MERC = Maharashtra Electricity Regulatory Commission; MoP = Ministry of Power (India); Ofgem = Office of Gas and Electricity Markets (UK); RTM = real-time market.
We surveyed the key revenue streams that are accessible to DF across mature power markets. We identified two global case studies and analysed the critical regulatory, technical, and institutional enablers that led to the integration of DF in wholesale power markets in Great Britain (GB) and Australia. We discuss the selection of markets below.
We also conducted an online survey of representatives from 14 Indian power distribution companies (discoms) and five semi-structured interviews to gain their perspective on DF opportunities, potential revenue streams, procurement preferences, and readiness to implement DF in India. Annexure 1 provides the details of the survey sample and the list of institutions we interviewed.
The GB and Australia cases show that scaling DR/DF requires a coordinated stack of building blocks (Figure ES2).
Figure ES2. Key building blocks (five pillars) for scaling demand flexibility
Our online survey of discom officials indicates that while discoms recognise DF as a potential resource, their ability to integrate it with regular operations remains limited due to the lack of granular data on DF’s potential benefits and uncertain consumer participation.
Respondents viewed residential cooling loads as the most promising source of flexibility. They favoured discom-led or tender-based procurement models that prioritise peak cost reduction and delay or avoid network expansion. However, gaps in data on DF’s real-time capability to reduce load during peak hours and the lack of regulatory clarity on business models, continue to inhibit confidence in scaling DF programmes (Figure ES3).
While our survey sample was limited, the results offer interesting insights into how the DF market may evolve in India and the biggest challenges that need to be addressed while integrating it.
Figure ES3. India’s demand flexibility market would require a diversity of consumer segments and business models
India’s existing regulatory and institutional enablers (Figure ES4) span all five pillars of DF creation, as outlined in Figure ES2. Notably, the Maharashtra Electricity Commission’s (MERC) 2024 regulations mark a meaningful shift in how Indian discoms approach grid flexibility, embedding DF and demandside management as core operational obligations for discoms rather than optional measures. Discoms must meet escalating DF portfolio obligations, from 1.5 per cent of peak demand in FY 2026 to 3.5 per cent by FY 2030. There are also defined financial penalties of INR 2 million/MW (INR 0.20 crore/MW) for non-compliance and an equivalent incentive for achievement beyond the obligation. The demand-side management programmes are subject to cost-effectiveness screening to protect consumers from adverse tariff impacts, and independent third-party verification ensures measurable grid benefits (MERC 2024).
Figure ES4. Current enablers for facilitating demand flexibility implementation
Source: Authors’ analysis based on MoP (2024, 2026); Rural Electrification Corporation (REC), Power Finance Corporation (PFC), and MoP (2021); Kallakuri et al. (2025); CERC (2022); MERC (2024); Rajasthan Electricity Regulatory Commission (RERC) (2026); Karnataka Electricity Regulatory Commission (KERC) (2025); Assam Electricity Regulatory Commission (AERC) (2024); Vasudha Foundation and BEE (2024); Malhotra et al. (2024); and Patankar et al. (2025).
The GB and Australia case studies demonstrate that while early utility-led pilots played a foundational role in support DF, scale is only achieved when flexibility is standardised, monetised across multiple value streams, and integrated into core market operations. Drawing on the combined evidence from the global case studies and consultations with Indian discoms, we identified next steps for India to establish a market for DF services in the long term (Table ES2).
Table ES2. Next steps to expedite the creation of a demand flexibility market in India
Source: Authors’ analysis based on AERC (2024); Vasudha Foundation and BEE (2024); Malhotra et al. (2024), and Patankar et al. (2025).
This CEEW–CNZ report examines how India can build a demand flexibility (DF) market where distributed energy resources such as EVs, smart ACs, rooftop solar, and storage can be coordinated to serve grid needs in real time. Targeted at policymakers, regulators, discoms, and aggregators, the report presents a five-pillar road map drawing on global case studies and a discom survey, with actionable near-term (0-3 years) and medium-term (3-7 years) steps to move India from isolated pilots to a structured, scalable DF market.
Demand-side management (DSM) programmes in India have historically focused on efficiency improvements and broad load reduction, often through utility-driven initiatives. A demand flexibility market goes further — it enables distributed energy resources to actively participate in electricity markets, access multiple revenue streams (energy, capacity, ancillary services), and operate under standardised contracts and open data platforms. While DSM is utility-led and programme-based, a DF market is a structural, competitive mechanism where multiple buyers and sellers, including third-party aggregators, trade flexibility services at scale.
The report identifies five foundational building blocks based on global experience and India-specific analysis. The first is advanced metering infrastructure and data exchange architecture — standardised smart meter data schemas, consumer consent frameworks, and API-based third-party access. The second is device-level visibility and flexibility readiness — nationally recognised communication standards for grid-edge devices like smart ACs, EV chargers, and grid-connected batteries. The third is retail pricing signals for consumers — updated time-of-day tariff designs evaluated using smart meter interval data. The fourth is market access and revenue stacking for aggregators — extending demand flexibility portfolio obligations, establishing aggregator registries, and mandating open APIs for procurement. The fifth is evidence-based regulatory design and institutional collaboration — a competitive national demonstration fund, harmonised baseline and bidding methodologies, and channelling pilot findings into state and central regulatory reviews.
Great Britain's experience shows that clear market rules, standardised contracts, digital infrastructure (such as the Half-Hourly Settlement reform), and a regulatory framework enabling revenue stacking across capacity, balancing, and distribution markets were decisive. GB's local flexibility market grew from no formal procurement in 2019 to approximately 9 GW by 2025. Australia's context, characterised by the world's highest per-capita rooftop solar penetration, highlights the importance of interoperability standards for distributed energy resources, regulatory sandboxes to test mechanisms before scaling, and improving utility visibility of DERs. As of May 2025, about 70 MW of DERs participate in Australia's Wholesale Demand Response Mechanism, with regulatory reforms now aiming at full integration into the wholesale market.
The study's survey of 14 discom representatives found that while discoms recognise demand flexibility as a potential resource, their operational integration of it remains limited. Most track demand only at the state or discom level and conduct limited feeder-level analytics. Discom respondents prefer discom-led or tender-based procurement models that prioritise peak cost reduction over open market mechanisms. Their foremost concerns are insufficient granular data on DF's real-time load-reduction potential, unpredictable consumer enrolment, and the absence of regulatory clarity on cost recovery for DF programmes.
The India Energy Stack (IES) aims to create a standardised digital public infrastructure for India's power sector, assigning unique digital identifiers — analogous to Aadhaar for individuals — to every consumer connection, meter, and grid asset. This would enable data to be interoperable across systems and allow transactions to be accurately tracked and attributed. For demand flexibility, the IES is critical because it can break down utility data silos, enable API-based third-party access for aggregators, and create the consent architecture needed for consumers to share their smart meter data with flexibility service providers.
The report recommends several near-term actions. Under metering and data, these include standardising meter data schemas under RDSS and enabling API-based third-party access via the IES. For device standards, the report recommends introducing a DR-readiness category within BEE's Standards and Labelling programme and establishing nationally recognised communication standards for grid-edge devices. On market access, it calls for extending the Demand Flexibility Portfolio Obligation framework to more states with proportionate penalties, establishing central aggregator registries, and mandating discoms to publish location-specific network congestion data. On evidence generation, the report recommends a competitive, grant-based national demonstration fund for multi-state DF programmes and a harmonised baseline methodology across states.
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