India’s demand for electricity, having grown at about 5% every year in the past decade(i), is still unsaturated. Demand is projected to grow 6-7% annually(ii) to become nearly 1.5 times of its current level by FY32.(iii) On the supply side, renewable energy (RE, excluding hydro) met over a quarter of the incremental demand in FY14-24 to reach about 14% of total electricity consumption, up from 8%.(iv) The share is targeted to reach 43% by FY32, indicating over four times faster integration of RE compared with the previous decade.(v) While a significant chunk of investment to support this quickened pace will be towards large-scale battery energy storage systems (BESS),(vi) a smarter grid could utilise the growing demand as one of the cheapest resources of the future. 

A few barriers hindered the development of DF approaches in the past. Our analysis of eight large states’ Demand-Side Management (DSM) and related regulations showed that the carrots and sticks for discoms to implement flexibility solutions are lacking. Compliance-based rather than performance-based regulations, poor enforcement of compliances by regulators, and discoms’ lack of technical and financial capacity are the biggest reasons for the limited focus on DF. The inter-twined electricity retail and supply businesses also hinder discoms from utilising DF from the relatively high-paying consumers who may be able to technically provide such a service.  

Thankfully, we are now at an inflection point where four critical trends are converging to make conditions conducive for DF. 

1. Lowering technological barriers: Over 11 million consumers now have smart meters, enabling discoms to monitor and unpack power consumption patterns more closely and test novel, cost-effective ways of consumer engagement at scale.
2. Growing distributed energy resource penetration: Rooftop and off-grid solar capacities now stand at 12 GW and 3 GW, respectively. The penetration is likely to grow rapidly in the next few years due to higher incentives for rooftop solar units and batteries under the PM Surya Ghar Scheme. Policies are also driving the adoption of electric vehicles, with 1.3 million EVs already on India’s roads and expected to cross 100 million by 2030.  
3. Thriving technology innovation ecosystem: Market players are unlocking value using the communications infrastructure across the system by innovating new use cases and business models. Some examples include using artificial intelligence to curb energy theft, using open networks to enable DER aggregation and prosumer-consumer trading of electricity, behavioural and automated demand response programmes, etc. 
4. High public support for climate action: Over 80-85% of Indians favour the national goal of reaching net-zero emissions by 2070 and feel that transitioning to clean energy will have positive environmental impacts. Over 90% say they are either already doing something to protect the environment or are willing to take action. 

India’s policy framework must reinforce and bank on these trends to set the groundwork for using demand not only as a constraint but as a resource. What changes do we need?  

First, three mental shifts: 

1. Recognise that demand flexibility is important: Demand response already comprised 3-4% of resource adequacy in California in July-August 2021. In 2022, Japan saw demand response bids worth 2.3 GW in its capacity market to manage once-in-10-year demand spurt events, nearly 60% of total winning capacity. In the United Kingdom, 1.6 million consumers flexed their demand to save 3,300 MWh at critical times, supported by 31 electricity suppliers and aggregators and facilitated by the smart meter network. In India, despite numerous pilots in the last decade, regulator-approved programmes and market mechanisms for DF remain absent. Regulators and discoms must lend this resource greater consideration.  
2. Correct the bias for size: Our consultations with other sector experts indicate a bias towards large consumers, such as commercial and industrial consumers, when thinking about DF due to a perceived high impact vs. effort ratio. While this may be true in early market development stages, smaller consumers are increasingly getting the opportunity to participate. South Australia has mandated air conditioners up to a cooling capacity of 19 kW to be demand response-ready. Korea allows households up to 200 kW of connected load to provide DF services. India has the opportunity to leapfrog and create a level playing field.
3. Have an intent to understand demand better: Accuracy of CEA’s Electric Power Surveys, the starting point for most system planning work, tends to reduce further away from the base year. While year-ahead energy demand projections for revenue planning may be quite accurate, they conceal wide variations in consumer segment-wise demand. Specific segments’ contributions to peak load, essential for targeted DF programmes, are also poorly understood. Filling the knowledge gap on demand patterns needs greater attention. 

These mental shifts must then translate into the following tangible outcomes: 

1. Regular and transparent load research studies: While DSM regulations mandate discoms to conduct load research studies at the start of each Multi-Year Tariff Control Period (4-5 years), our analysis indicates a lack of information on the frequency of these studies and an absence of regulator-notified methodologies. Load research studies are essential to develop a robust understanding of consumer segments’ load patterns and a baseline for measuring the impact of demand-side interventions. Regulators must consider formulating scientific standards for these studies, enforce compliances on their regular and transparent completion, and provide discoms with the necessary technical and financial resources.  
2. Robust evidence on systemic benefits of DF: Similar to load research studies, standards for monitoring and evaluating pilots are absent. Due to sparse evidence on the impacts of pilots, learnings on successful approaches and areas of improvement are not institutionalised. Pilots fall short of becoming regulator-approved, tariff-funded programmes. Discoms, regulators, the industry and civil society must cooperate to ensure that a body of evidence on innovative use cases is built in the interest of accelerating DF implementation. 
3. Policies to stimulate DF across consumer segments at scale: DF demonstrates public good characteristics by benefiting consumers beyond just the adopters through enhanced system reliability, avoided system upgrades and enhanced RE-integration. In early stages, its effort-to-impact ratio may also be high. Banking on popular willingness for environmental action, governments must consider taxpayer-funded support for DF programmes. Such support may target uptake of DF-ready equipment or regulatory sandboxes to test innovative regulations and business models.  

While DF may not be a silver bullet for system reliability or RE-integration, it will be a critical approach in the suite of interventions needed to create the power market of the future. India can and should actively chart its own path in its design and implementation.  

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