MERC New Regulation Sets 7% Flexible Demand Target For Next Five Years

Given the evolving context of generation profiles from various types of generation plants, including those behind the meters (within consumer premises), and the significant emphasis on solarizing agricultural feeders and households, it is now imperative to view demand-side management as an opportunity. This opportunity includes a combination of demand flexibility, demand response, energy efficiency, and energy conservation. To accommodate new, flexible energy generation profiles, the Maharashtra Electricity Regulatory Commission (MERC) has released its latest regulation.

MERC Draft Regulation on Demand Flexibility and Demand-Side Management, 2024

The Maharashtra Electricity Regulatory Commission (MERC) recently released a draft regulation aimed at creating opportunities to integrate newer renewable energy capacities in key sectors.

To encourage a shift toward flexible renewable energy, the regulation proposes that, after five years, distribution licensees should achieve 7% flexible demand available to the grid compared to the previous year’s reported peak demand, or any variation proposed by the Commission.

The new regulation also seeks to align existing regulations to enhance efficiency at the end-use level across all consumer categories. It includes electric vehicles as one of the key technologies for demand flexibility, which can be utilized by distribution licensees. MERC’s proposed regulation also addresses the changing loads and the addition of new loads, such as electric vehicles.

To incorporate 500 GW of renewable energy into the Indian power system—approximately 10% of the current peak demand—MERC has introduced the Demand Flexibility and Demand-Side Management – Implementation Framework, Cost-effectiveness Assessment, and Evaluation, Measurement, and Verification Regulations, 2024. The notification suggests that flexible demand could offer resources at costs significantly lower than the lowest renewable energy bids.

This means that the total connected load of distribution licensees is approximately 67,000 MW. Of this, 3% of the previous year’s peak demand of 22,000 MW (around 660 MW) could be considered a demand flexibility prospect. Such flexible demand can be addressed through various end-uses, including water pumping, HVAC systems in commercial and industrial (C&I) settings, and other bulk loads.

Eligibility

To benefit from becoming a distribution licensee under the new regulation, the eligibility criteria stipulate an incentive of Rs. 0.20 Crores for every MW achieved over the DFPO. Conversely, distribution licensees will face a disincentive of Rs. 0.20 Crores for every MW of underachievement against the DFPO. The proposed regulations also suggest establishing a DF/DSM consultation committee. This committee, comprised of experts working under the Commission’s direction, will review, suggest, and address objections to the DF/DSM program portfolios submitted by distribution licensees, and provide recommendations based on its findings to the Commission for approval.

The revised regulations also propose technologies such as thermal energy storage and heat pumps for various sectors, including residential, public, hospital, hotel, and commercial sectors.

The avoided cost of power purchase for the social cost test is set at Rs. 12/kWh, which is the current ceiling rate for the Day Ahead market established by CERC. Evaluations can be conducted using an independent verification agency appointed by distribution licensees, with expertise in program design and evaluation. This process should align with the Bureau of Energy Efficiency’s professional training and certification requirements, including certified energy auditors and managers, as well as measurement and verification professionals from international certification agencies.

MERC’s latest draft mentions, “Based on recent experiments related to water pumping systems, the regulations suggest including newer flexible loads, such as water pumping systems for urban local bodies, municipal corporations, and Nagar parishads, as well as bulk loads such as lift irrigation schemes operated by the Water Resources Department and Command Area Development structures in the agricultural sector.”

The regulation sets specific targets for distribution licensees to develop portfolios of demand flexibility and demand response as key aspects of the new regulations. Distribution licensees have previously implemented several demand-side management programs and submitted evaluation reports to the Commission through the Demand Side Management Consulting Committee. To integrate reporting of demand flexibility and demand-side management projects into the new regulations, three types of evaluations are proposed: Process Evaluation, Impact Evaluation, and Market Effectiveness Evaluation.