Council on Energy, Environment and Water Integrated | International | Independent
How can India Scale Up Electricity Demand-side Management?
Insights from a Multi-State Assessment of DSM Regulations and Discom Action
01 March, 2024 | Power Markets
Dhruvak Aggarwal, Muskaan Malhotra, and Shalu Agrawal

Suggested citation: Aggarwal, Dhruvak, Muskaan Malhotra, and Shalu Agrawal. 2024. How can India Scale Up Electricity Demand-side Management? Insights from a Multi-state Assessment of DSM Regulations and Discom Action. New Delhi: Council on Energy, Environment and Water.


India’s wind and solar energy capacity is expected to increase from just over a quarter of the total installed electricity generation capacity in 2024 and to about half by 2030. Demand-side management (DSM) measures can help cost-effectively integrate such variable renewable energy (VRE) resources while maintaining supply reliability. DSM measures include energy efficiency, shifting load from peak to off-peak hours and influencing the load curve through technologies like distributed generation, energy storage and electric vehicles. However, DSM measures have not been implemented at scale in India so far.

This study provides a comprehensive overview of DSM implementation in India by analysing the DSM Regulations that govern demand-side measures in India, and their effectiveness in eight states (Assam, Bihar, Delhi, Gujarat, Karnataka, Maharashtra, Tamil Nadu, and Uttar Pradesh). Based on stakeholder consultations and global policy and regulatory innovations, the study recommends five steps to ensure that DSM caters to the power system’s evolving needs.

Key Highlights

  • The assessed states’ regulations largely follow the Model DSM Regulations, first notified in 2010. However, some additional features in state regulations include a larger set of objectives – formation of Consultative Committees in addition to DSM cells to guide programmes, and an additional public benefit charge to fund DSM.
  • While the focus on DSM has grown from FY21 to FY24, it is limited to energy efficiency and time-of-day tariffs. The study finds limited evidence of efforts to enhance demand flexibility, such as through demand response and time-of-day tariffs.
  • Gaps in the regulatory design and its enforcement, disconnect between DSM regulations and distribution companies’ (discoms) planning process, and the lack of expertise in discoms hinder DSM’s large-scale implementation.
  • Regulators must update the regulations and methodologies, enabling discoms to include DSM in resource adequacy plans. Policymakers must mandate DSM implementation supported by ways to monetise and fund innovative interventions.


"Demand-side management is about creating a pull-effect for faster and more cost-effective deployment of clean electricity generation technologies. Its large-scale implementation has been at an impasse due to technological and financial barriers and a lack of urgency. With the technology barrier now getting lowered and a greater need for flexibility, the regulators should take the lead in opening this frontier of the power market by setting progressive regulations and priming consumers for deeper participation."

Executive summary

India’s installed variable renewable energy (VRE) capacity is expected to increase by over three times between 2024 and 2030, from about 118 GW (28 per cent of the installed capacity) to 392 GW (~50 per cent) (CEA 2023c). Maintaining supply reliability while managing VRE’s intermittency is a growing priority for policymakers, system operators, and power distribution companies (discoms). In this respect, policy efforts so far have largely focused on supply-side measures, such as supporting the flexible operation of thermal power plants, enhancing the transmission infrastructure, and supporting grid-scale energy storage.

However, there is growing evidence that using electricity demand as a resource rather than a constraint can be an equally cost-effective strategy. While energy efficiency (EE) can help optimise supply-side investments by mitigating demand growth, shifting loads from nonsolar to solar hours can help increase renewable energy (RE) utilisation and make it more cost-effective (Abhyankar, Deorah, and Phadke 2021). Making loads more supply-responsive can help integrate more RE sooner, leading to lower system costs and cumulative emissions (Anjo et al. 2018). Therefore, designing a clean and cost-effective power system requires a portfolio of interventions that can influence electricity demand in diverse ways. This is collectively known as demand-side management (DSM) (McKenna et al. 2021).

In India, the DSM Regulations (henceforth, “the Regulations”) are one of the primary regulations governing demand-side measures in the power distribution sector. First notified by the state of Maharashtra in 2010, and floated by the Forum of Regulators (FoR) as Model Regulations in the same year, 30 Indian states and union territories (UTs) have notified DSM Regulations by 2024. Despite this, progress on DSM has not kept pace with the needs of the Indian power system (Chunekar, Kelkar, and Dixit 2014; Sasidharan et al. 2021; Josey et al. 2023).

Our study takes a critical look at the DSM Regulations and seeks to answer three questions:

  • How effective have the Regulations been in aligning discom operations with DSM objectives thus far?
  • What are the challenges that limit DSM implementation by discoms?
  • How can regulators and policymakers strengthen the regulatory framework to stimulate action on DSM?

Figure ES1 depicts the methodology we used to answer the research questions.

Figure ES 1 Our five-step methodology to answer the research questions

Source: Authors’ compilation

The sampled states span all five grid regions in India, show varied progress on DSM as per the State Energy Efficiency Index (SEEI) 2021–22 (BEE and Alliance for an Energy Efficient Economy 2023), and together constituted half of the all-India electricity requirement in FY22 (CEA 2022a) (Figure ES2).

Figure ES2 The sample contains eight states with varying progress on DSM

Source: Authors’ compilation

Note: SEEI categories (score range ) Aspirant (<30), Contender (30-49.5), Achiever (50-60), Front Runner (>60)

How effective have DSM regulations been?

Our review shows that the Model Regulations reflect the context they were drafted in and comprehensively define the roles of DSM, discoms, and state electricity regulatory commissions (SERCs) in assessing its technical potential, setting performance targets, implementing and monitoring programmes, and recovering costs. A comparison across the eight states shows that state regulations largely follow the Model Regulations, with some progressive modifications (Table ES1).

We conducted stakeholder interviews and keyword analysis of tariff orders and found the following:

  • Demand-side management is gaining more attention across states, with a focus on time-of-day (ToD) tariffs and EE. While ToD tariff design and applicability have been widely discussed, we did not find any reported expenses for enhancing their effectiveness. Energy Efficiency interventions primarily comprise appliance replacement or distribution, which may be driven by Government of India entities such as the Bureau of Energy Efficiency (BEE) and Energy Efficiency Services Limited (EESL). Discussions on other DSM interventions, such as load shifting and demand response (DR), are largely absent.
  • Discoms report including DSM measures in energy sales projections, but impact quantification is limited. All state orders, except those for the public discoms in Maharashtra, Tamil Nadu, and Gujarat, mention that DSM measures have been incorporated in sales projections, but there is no description of how the measures were integrated or quantification of their impacts. Barring occasional reporting by Delhi, Karnataka, and private discoms in Maharashtra, none of the state orders fulfil reporting criteria. 1 This holds for those states whose DSM Regulations were notified after the FoR drafted the Model DSM Regulations – that is, all states except Maharashtra.
  • There is a lack of transparency regarding methodologies, performance targets, programme design, and impact assessment. The DSM Regulations require discoms to design and implement programmes based on the SERC’s guidelines on load and market research, cost-effectiveness, implementation, and monitoring. However, Maharashtra is the only state in the sample to have publicly available cost-effectiveness guidelines. Programme design and monitoring details are not available for any state.
  • Funding DSM through retail tariffs is allowed, but there are bottlenecks in actual cost pass-through. For instance, Delhi’s SERC prospectively allowed tariff-based recovery of a DSM programme based on a cost–benefit analysis in 2018, but in FY21 it disallowed pass-through because there was no detailed break-up of actual implementation costs. The SERCs in Maharashtra, Karnataka, and Gujarat allocated a prospective budget for DSM, but the discoms did not claim expenses under it.

Our findings suggest that thus far, DSM Regulations have played a limited role in aligning discoms’ operations with the power system’s evolving needs. Private discoms show clearer evidence of taking DSM initiatives than public discoms, perhaps due to their governance structure, a favourable consumer mix, limitations on infrastructure expansion in their service areas, and a proactive approach to innovation.

Table ES1 Many states have added progressive measures in their DSM regulations

Source: Authors’ analysis

What is limiting discom-led DSM in India?

A combination of the following factors explains the limited effectiveness of the DSM Regulations:

  • Gaps in the regulatory framework design: While enhancing supply reliability is not considered an objective of DSM, the poor enforcement of reliability standards diminishes discoms’ incentives to implement DSM, and they use load shedding as the alternative. Additionally, DSM cost recovery is ambiguous due to the absence of impact evaluation guidelines.
  • Disconnect between the DSM Regulations and discoms’ resource planning: The cost-plus tariff regulatory framework does not sufficiently incentivise discoms to consider DSM in their planning. Discoms and SERCs treat DSM as a programmatic and subsidiary activity during the budget allocation and progress reporting processes, leading to limited resource allocation for DSM. As a result, DSM has not been institutionalised in discoms.
  • Lack of monitoring and enforcement by SERCs: There is minimal information in the public domain on how SERCs hold discoms accountable for compliance with DSM Regulations. Poor enforcement leads to a lack of trust among stakeholders such as technology service providers and financiers.
  • Lack of expertise and resources in discoms: Due to discoms’ perception of DSM as a subsidiary activity as well as poor regulatory enforcement, the staff assigned to DSM cells may lack the necessary expertise to conduct/supervise technical potential and load research studies, cost-effectiveness tests, and so on. DSM cells are often inactive and contain staff for whom DSM is an ad hoc responsibility.
Roadmap to reform DSM

Given the factors hindering systematic DSM implementation by discoms, we recommend five steps to strengthen the regulatory framework.

  • SERCs must update the DSM Regulations. DSM’s definition and objectives must be updated to reflect its potential to enhance supply reliability cost-effectively, facilitating the entry of new technologies and business models into the power system. In this regard, progressive measures seen in select state regulations can provide helpful examples for other states (Table ES1).
  • SERCs must adopt performance-based regulations and incorporate DSM in resource adequacy and integrated resource planning (IRP). SERCs must provide supply reliability–based incentives to discoms as laid out in the National Tariff Policy (MoP 2016). Gujarat’s Draft Multi-Year Tariff (MYT) Regulations, 2023, are a case in point (GERC 2023b). SERCs must limit discoms’ incentives to use load shedding as a DSM strategy by strictly enforcing standards of performance regulations. Under their guidance, discoms must adopt resource adequacy (CEA 2022b) and IRP and include DSM in both exercises.
  • The FoR and SERCs must draft standardised methodologies and reporting formats and commission studies that assist programme design. The FoR should consider drafting standardised methodologies for load research and cost-effectiveness tests based on various states’ experiences and available scientific standards. SERCs must enhance these methodologies with support through public consultations and update the MYT formats for discoms to report DSM-related data. Drawing from the experience of the California Energy Commission, regulators must independently commission studies on energy end-use.
  • Governments must create a funding pool for technological and business model innovation to help create a pipeline of projects. Such a pool can be created through centrally sponsored schemes, such as the Revamped Distribution Sector Scheme, or by expanding the remit of state-designated agency (SDA) activities, drawing from the case of Efficiency Vermont in the USA. Tax funding for DSM should be contingent on publicly reported load research and impact evaluation studies, to help accelerate learning across discoms.
  • Governments must mandate DSM and facilitate market creation for its monetisation. Market-based instruments, such as the Perform, Achieve, and Trade (PAT) mechanism, can help discoms monetise DSM measures through alternate revenue streams. California’s demand response auction mechanism (DRAM) provides a useful example, where utilities are mandated to procure DR services while allowing service providers to participate in the wholesale market.

India’s power system has evolved from a scarcity-ridden yet predictable grid to one facing swings in supply from surplus to scarce as well as growing demand uncertainty. Given the increase in VRE share in generation capacity, India must tap demand as a resource. Enhancing policy ambition and reforming regulations could empower discoms to experiment with technologies and business models, fail fast, and move quickly to large-scale deployment.


Frequently Asked Questions

  • What is variable renewable energy? How can we integrate a higher share of variable renewable energy in India?

    Weather-dependent renewable energy sources that can fluctuate over time are called variable renewable energy (VRE) sources. VRE sources include solar and wind. Along with supply-side measures such as enhancing the transmission infrastructure, and supporting grid-scale energy storage, demand-side management is a cost-effective way to integrate variable RE.

  • What is demand-side management (DSM) in the power distribution sector?

    Demand-side management includes a portfolio of interventions that can influence aggregate electricity demand and demand profile in diverse ways. These include lowering the electricity demand across hours, shifting the electricity load, changing the behaviour of electricity consumers, using demand response to help match demand with the supply and reduce peak demand, and leveraging other ‘behind-the-meter’ technologies like distributed generation, storage, and electric vehicles.

  • What are Demand Side Management (DSM) regulations in India?

    The Demand Side Management Regulations are one of the primary regulations governing demand-side measures in the power distribution sector. First notified by the state of Maharashtra in 2010, and floated by the Forum of Regulators (FoR) as Model Regulations in the same year, 30 Indian states and union territories (UTs) have notified DSM Regulations by 2024.

  • Why do we need demand-side management?

    India aims to integrate at least 500 GW of non-fossil power generation capacity by 2030, of which about 400 GW will be VRE. Evidence shows that DSM will be critical for cost-effective VRE integration. For instance, shifting load to solar hours from non-solar hours can help increase the utilisation of VRE sources. Modifying the load profile instead of treating it as a constraint can help integrate more RE sooner and with lower system costs and cumulative emissions.



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