MERC Issues Draft Regulations on Demand Flexibility and Demand Side Management: Implementation Framework, Cost-Effectiveness, and Evaluation Guidelines for 2024

Introduction

The Maharashtra Electricity Regulatory Commission (MERC) has issued the draft MERC (Demand Flexibility and Demand Side Management – Implementation Framework, Cost-Effectiveness Assessment; and Evaluation, Measurement, and Verification) Regulations, 2024.[1] This comprehensive regulation aims to revamp the state’s approach to managing electricity demand in light of new challenges brought on by the rise of renewable energy and changes in consumption patterns. The draft seeks to integrate demand flexibility with demand-side management (DSM) to improve the efficiency of energy use, foster load management, and support the growing integration of renewable energy into the grid. Public feedback is invited as part of the regulatory consultation process.

Explanation

1. Background and Evolution of DSM Regulations
MERC was a pioneer in India, introducing the first generation of DSM regulations in 2010. The focus was on energy conservation and efficiency through a framework that encouraged distribution licensees to implement DSM programs. These initiatives led to measurable energy savings, approximately 50 MW, across several categories, including lighting, air conditioning, and load management.

However, the energy landscape has evolved, necessitating a shift in the regulatory approach. Maharashtra’s focus on renewable energy, driven by national schemes such as the Panchamrit initiative (which targets 500 GW of renewable energy by 2030), requires alignment between DSM and demand flexibility. The growing solarization of agricultural feeders, the proliferation of behind-the-meter generation, and the expansion of renewable energy capacities mean that load must now follow generation patterns, making demand flexibility essential for grid stability.

2. The Shift to Demand Flexibility
The proposed regulations introduce the concept of demand flexibility, defined as the ability to adjust load based on the availability of generation, particularly renewable sources. This marks a shift from the earlier approach where generation was adjusted to meet demand. Demand flexibility will ensure that Maharashtra’s power grid can handle the fluctuations associated with renewable energy, such as solar and wind.

The draft regulations provide a comprehensive framework for integrating demand flexibility into the state’s energy management strategy. It includes three key components:

• Implementation Framework: Provides guidelines for designing and executing demand flexibility and DSM programs.
• Cost-Effectiveness Assessment: Introduces tests to evaluate the financial feasibility and benefits of such programs.
• Evaluation, Measurement, and Verification (EMV): Sets standards for evaluating the performance and impact of demand flexibility initiatives.

3. Demand Flexibility Portfolio Obligation (DFPO)
One of the standout features of the draft regulations is the introduction of the DFPO. This mandates distribution licensees to meet a specified percentage of their peak demand through demand flexibility programs. The target begins at 3% in the first year and increases by 1% annually, reaching 7% by the fifth year. Licensees are incentivized for exceeding these targets and penalized for underachievement, with a reward/penalty of INR 0.20 crores per MW.

4. Technological Interventions
The draft regulations emphasize the role of emerging technologies in facilitating demand flexibility. Key technologies include electric vehicles (EVs), thermal energy storage, and heat pumps. Given the rapid growth of the EV market, especially in Maharashtra’s urban centers, EV charging infrastructure presents a significant opportunity for demand flexibility. Additionally, other potential areas include water pumping systems, HVAC (heating, ventilation, and air conditioning) systems, and irrigation schemes.

5. Cost-Effectiveness and Ancillary Services
The cost-effectiveness assessment is critical to ensuring that demand flexibility initiatives are financially viable. The draft regulations retain the cost-effectiveness tests from the 2010 framework but introduce a new dimension—ancillary services. These include primary, secondary, and tertiary resources that distribution licensees can tap into for additional revenue. The integration of demand flexibility into the ancillary services market provides a new revenue stream, enhancing the overall feasibility of these programs.

6. Evaluation, Measurement, and Verification (EMV)
Accurate evaluation of demand flexibility programs is crucial for ensuring their success. The draft regulations outline three types of evaluations: process, impact, and market effectiveness. These evaluations will be carried out by independent agencies using internationally recognized standards, ensuring transparency and accountability. The introduction of EMV marks a critical shift for improving the long-term monitoring of DSM and demand flexibility programs.

Conclusion

MERC’s draft regulations for 2024 signal a forward-looking approach to energy management in Maharashtra, integrating demand flexibility with traditional DSM to create a resilient, renewable-friendly power grid. The implementation framework, cost-effectiveness assessment, and robust evaluation guidelines ensure that these initiatives are not only sustainable but also economically viable. As Maharashtra moves toward higher renewable energy penetration, these regulations will play a crucial role in achieving the state’s ambitious energy goals. The Commission is now seeking stakeholder input to refine these draft regulations and ensure they meet the evolving needs of the energy sector.

[1] https://merc.gov.in/wp-content/uploads/2024/08/Draft-Demand-Flexibility-DSM-Regulations-2024-2.pdf