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Karnataka Introduces Framework for Demand Flexibility and Demand-Side Management

DISCOMs required to set up dedicated units and meet phased targets to improve grid efficiency. The Karnataka Electricity Regulatory Commission (KERC) has notified a comprehensive framework aimed at enhancing energy efficiency, managing peak demand, and strengthening grid reliability through demand flexibility and demand-side management (DSM) measures.

Under the new KERC Demand Flexibility and DSM Regulations 2026, distribution companies (DISCOMs) are required to integrate demand-side strategies into their daily operations. This includes continuous planning, design, and execution of programs that help balance electricity supply and demand while reducing overall system costs and infrastructure requirements.

The framework defines demand flexibility as the ability of consumers to adjust electricity usage in response to signals such as pricing, grid conditions, and reliability needs. These measures are expected to support renewable energy integration, lower peak demand, and improve grid operations.

A key requirement of the regulation is that every DISCOM must establish a dedicated demand flexibility and DSM cell. These units will be responsible for implementing, monitoring, and reporting program outcomes.

Targets and Incentive Mechanism

The regulations introduce mandatory demand flexibility portfolio obligations, requiring DISCOMs to maintain a certain level of flexible demand relative to the previous year’s peak demand. The targets are set to gradually increase—from 0.5% in FY 2026–27 to 2% by FY 2029–30.

To ensure compliance, a performance-linked system has been introduced. DISCOMs exceeding their targets will receive incentives of Rs 2 million per MW, while those falling short will face equivalent financial penalties.

Program Planning and Transparency

DISCOMs must design a portfolio of DSM and demand flexibility initiatives based on detailed load research and submit these plans along with their multi-year tariff filings. They are also required to provide annual progress reports and publicly disclose key documents such as load studies, program plans, and evaluation reports on their websites.

Scope of Programs

The framework outlines several potential areas for implementation, including time-based operation of water pumps, smart EV charging, behind-the-meter battery storage, thermal storage systems, and the replacement of inefficient appliances. Behavioural initiatives aimed at encouraging energy conservation are also part of the scope.

Programs can be executed either directly by DISCOMs or through registered aggregators, with strict separation between implementation agencies and independent verification bodies.

Cost Recovery and Consumer Safeguards

DISCOMs will be allowed to recover costs incurred for DSM and demand flexibility initiatives through tariff filings, subject to regulatory approval and cost-effectiveness checks. The framework emphasises that all programs must remain cost-effective, protect consumer interests, and ultimately contribute to lower tariffs.

For the current tariff control period (FY 2025–26 to FY 2027–28), these initiatives will be funded through reallocation of approved capital expenditure and included in annual performance reviews.

Evaluation and Verification Framework

The regulations establish a structured methodology to assess the economic viability of programs. The primary criterion is the total resource cost test, ensuring that overall benefits exceed costs. Additional metrics, such as the ratepayer impact measure, participant cost test, and societal cost test, will also be evaluated.

DISCOMs must appoint independent verification agencies comprising certified energy professionals to assess program performance. The evaluation process is required to be transparent and, where possible, supported by real-time monitoring tools.

The move aligns with broader efforts across India to modernise power systems and integrate demand-side resources more effectively. Similar regulatory initiatives are also being explored by the Rajasthan Electricity Regulatory Commission, indicating a growing focus on demand-side solutions in the country’s evolving energy landscape.