Rising Heat, Rising Demand: Demand Response Makes a Case For India

Climate change has caused the global temperatures to soar to new heights with the world now witnessing significant heatwaves, and with that the rise of global cooling needs. In the new era of power consumption dominated by renewable energy (RE), Demand Response (DR) may play a crucial role in optimal use of power, especially in countries facing extreme heat conditions like India.

The rise in annual mean temperatures on the Indian subcontinent compared to 1901 is less than 0.7°C, roughly half the global average. This doesn’t change the fact that the Indian climate is harsh, especially summers, and any rise in temperatures only make it harsher. Plus, the 0.7°C change masks much sharper spikes locally, especially in its cities. The changing climatic conditions seems to have resulted in shifting of peak power demand times to evening hours mostly for the cooling needs.

Demand response may become a key in balancing the grids as per the changing trends of energy usage.

What is Demand Response and How Can it Help?

Demand response is a critical reliability resource essential to helping the electric grid maintain the balance between electricity supply and consumer energy demand. 

Simply put, DR is a strategy where consumers adjust their electricity usage—either by reducing it or shifting it to off-peak times—in response to grid conditions, often incentivized by price signals or financial rewards. This balance is necessary to prevent blackouts.

DR programs are being used by electric system planners and operators as resource options for balancing supply and demand worldwide, lower the cost of electricity in wholesale markets, and in turn, lead to lower retail rates. The uncertainty in the energy landscape in recent times have prompted the policymakers to put in more effort to support demand-side flexibility worldwide.

As per International Energy Agency (IEA), demand response is based on two main mechanisms: price-based programmes (or implicit demand response), which use price signals and tariffs to incentivise consumers to shift consumption, and incentive-based programmes (or explicit demand response), which make direct payments to consumers who shift demand as part of a demand-side response programme.

For India, with its rapidly growing electricity demand and increasing reliance on renewable energy, DR offers a promising way to manage grids more effectively. 

Can DR Help in Managing Indian Grids Better?

India’s electricity sector is undergoing rapid transformation, driven by economic growth, urbanization, and ambitious renewable energy targets. Since 2021, India’s electricity consumption has risen at about 9 percent per annum, compared to an average of 5 percent annually in the preceding decade. 

 

The country’s peak demand is projected to reach over 273 GW in 2025, as per Short-Term National Resource Adequacy Plan (ST-NRAP) released by the National Load Despatch Centre (NLDC). This puts significant pressure on the grid, especially during evening hours when air conditioning and industrial loads surge. DR can help by encouraging consumers to cut usage during these peaks, preventing overloads and reducing the need for costly peaker plants.  

With variable renewable energy (VRE) like solar and wind expected to meet roughly 400 GW of power demand by 2030, DR can come handy for the Indian energy surge. A well-executed demand response (DR) programme can help DISCOMs in meeting the peak demand, reducing short term power procurement, and optimizing the investment required for upgrading existing infrastructure

Reducing Peak Demand

India’s electricity demand exhibits a high peak-to-average ratio, exacerbated by seasonal factors like heatwaves and the growing use of air conditioning, necessitating expensive power purchase contracts with peaker plants. 

DR addresses this by incentivizing consumers to reduce usage during peak hours. One Rocky Mountain Institute (RMI) report estimates that Delhi could reduce 250–1,350 MW of peak demand through air conditioning DR programs alone. 

Encouraging consumers to shift loads, like appliance use, to off-peak periods may help reduce grid strain, minimize the need for costly generation capacity, and lower the risk of blackouts. 

Cost Savings for Utilities and Consumers

Building new generation or transmission infrastructure is capital-intensive, especially given India’s strained distribution utilities. DR offers a cost-effective alternative by leveraging existing consumer loads. It reduces the need for peaker plants. These plants are often fossil fuel-based and expensive to operate. In addition, DR also lowers transmission and distribution losses by optimizing existing capacity.

In FY2022-23, aggregate technical & commercial (AT&C) losses of Indian discoms were about 15.37 percent, a national average, with some states still above 20 percent. The gap between average cost of supply and average revenue (ACS-ARR) was around INR 0.45 per kWh, reflecting persistent under-recovery. These high losses and revenue gaps put severe financial strain on distribution companies. Utilities have accumulated massive losses  to the tune of INR 6.48 trillion by FY2023 and heavy debt. The situation undermines their ability to pay power producers or even invest in network upgrades.

By curbing or shifting peak demand, DR may help discoms in avoiding expensive short-term power purchases and reduce stress on the grid. .

Improving Grid Stability

DR can be a major contributor toward maintaining grid stability in India during the golden period of renewable surge in the country. 

The integration of VRE introduces variability, with solar generation peaking midday and dropping at night, while demand often peaks in the evening. DR enhances grid stability by aligning consumption with supply. This is very relevant to the Indian scenario for which solar forms the majority of its renewable power capacity (over 105 GW, or roughly 60 percent). 

For instance, during high renewable generation, like midday solar, DR can encourage increased consumption (e.g., charging electric vehicles), while during low generation, like evening hours, it can reduce demand (e.g., industrial load shedding).

DR for Indian Power Grids

Demand response (DR) is still in its nascent stages in India. Over the last ten years, some pilot DR initiatives have taken place, primarily focusing on large commercial and industrial customers. At present, however, there is no explicit incentive framework to promote demand response across all consumers in the country.

To ensure large scale adoption of DR in India, there is a need to develop a model regulatory framework and associated guidelines such as cost effectiveness assessment and evaluation, measurement and verification of DR programmes.