Draft Karnataka Electricity Regulatory Commission [Framework for Demand Flexibility / Demand Side Management] Regulations, 2025 – EQ

Summary:

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### **2. Key Definitions**

The regulation introduces crucial terms such as:

* **Aggregator:** An entity registered with the distribution licensee to manage demand response, distributed generation, or storage.
* **Demand Flexibility (DF):** The ability to vary electricity consumption patterns dynamically to balance supply and demand.
* **DF Portfolio Obligation (DFPO):** Annual targets for flexible demand a licensee must maintain.
* **DF/DSM Cell:** A dedicated unit within each distribution licensee for implementing DF/DSM activities.
* **Independent Verification Agency (IVA):** Accredited third-party bodies for program evaluation and verification.

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### **3. Applicability and Implementation**

* Applicable to all **Distribution Licensees** in Karnataka.
* Licensees must establish a **DF/DSM Cell** and integrate DF/DSM in daily operations for efficient grid management and energy savings.
* Cost recovery for DF/DSM activities can be included under the **Capital Investment Plan** in Multi-Year Tariff (MYT) filings.

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### **4. Distribution Licensee’s Responsibilities**

Licensees are required to:

* Develop comprehensive DF/DSM portfolios based on **load research** and **market analysis**.
* Submit annual reports detailing progress, cost-benefit outcomes, and verification results.
* Design programs that are **cost-effective**, protect consumer interests, and ultimately reduce tariffs.
* Implement programs through **aggregators** while ensuring **independent evaluation**.

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### **5. DFPO Targets and Incentives**

Each distribution licensee must achieve specific **DF Portfolio Obligations (DFPO)**:

| Financial Year | DFPO as % of previous year’s peak demand |
| ————– | —————————————- |
| 2026–27 | 0.5% |
| 2027–28 | 1.0% |
| 2028–29 | 1.5% |
| 2029–30 | 2.0% |

* **Incentive:** ₹0.20 crore per MW achieved above target.
* **Penalty:** ₹0.20 crore per MW shortfall.

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### **6. Types of DF/DSM Programs**

Programs include:

* Smart and time-based irrigation pumping and municipal water systems.
* Smart EV charging across multiple vehicle types.
* Behind-the-meter **battery storage**.
* **Heat pumps**, **thermal storage**, and **energy-efficient appliances**.
* **Behavioural initiatives** promoting consumer awareness and conservation.
These can be directly implemented or through aggregators.

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### **7. Funding Mechanisms**

Funding for DF/DSM initiatives will be integrated into MYT filings, subject to **cost-effectiveness checks**. The Commission may later establish a **DF-DSM fund** through tariff-based collections if found necessary.

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### **8. Cost-Effectiveness Assessment**

To ensure programs are financially prudent, four analytical tests are mandated:

1. **Total Resource Cost (TRC)** – Main test evaluating if benefits (NPV of savings) exceed costs.
2. **Ratepayer Impact Measure (RIM)** – Checks if consumer tariffs remain unaffected.
3. **Participant Cost Test (PCT)** – Evaluates consumer-level benefits and costs.
4. **Societal Cost Test (SCT)** – Measures overall societal benefit, including environmental gains.
Key assumptions:

* Avoided power cost = weighted average of top 10% marginal costs.
* Annual benefit escalation = 5%.
* Discount rate = Weighted Average Cost of Capital (WACC).

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### **9. Evaluation, Measurement, and Verification (EMV)**

The EMV framework ensures accountability via:

* **Impact Evaluation:** Quantifies savings in energy and demand.
* **Process Evaluation:** Reviews implementation efficiency.
* **Market Effect Evaluation:** Measures broader market influence of DF/DSM.

Three approaches for measurement:

1. **IPMVP methods (A–D)** based on international protocols.
2. **Deemed savings** for standard, repetitive programs.
3. **Large-scale data analysis** for homogenous consumer groups.

All evaluations must be verified by empaneled **Independent Verification Agencies (IVAs)** with certified auditors or M&V professionals.

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### **10. Reporting and Documentation**

Licensees must publicly disclose:

* Load and appliance usage studies.
* DF/DSM portfolio plans and progress reports.
* EMV results and cost-effectiveness reports on their websites.

Detailed **Annexures** provide templates for project data, cost-benefit analyses, financing plans, EMV procedures, and reporting formats.

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### **11. Miscellaneous Provisions**

* **Repeal:** DSM Regulations, 2015 stand repealed upon enforcement.
* **Continuity:** Previous actions remain valid under new rules.
* **Amendment & Relaxation:** KERC retains authority to modify or relax provisions in public interest.
* **Interpretation:** KERC’s decision shall be final in case of disputes.

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