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

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.