DSM Regulations and Policies
Sharp increase in electricity demand and inadequate generation capacity addition
has led to huge demand-supply gap in the country. The situation is further aggrieved
by the high T&D losses, fuel constraint, environmental concern, and financial
constraint. In such a scenario, DSM provides an effective solution for optimal utilization
of existing resources.
Any DSM related activity, even in the nature of general consumer awareness activity,
costs the utility to plan, develop and implement. Though Electricity Act 2003 has
put significant emphasis on efficiency and optimal utilization of resources, issues
related to regulatory treatment of costs and benefits however need clarity.
Distribution Utility’s perception of losing revenue by way of DSM implementation is one of the reasons for their non-interest in this area. The cost plus tariff
determination does not necessarily have adequate inducement to utilities for carrying
out such measures. In addition utility does not get induced to implement DSM measures as they are neither directly related to their core business of electricity supply
nor mandated under the legal framework. Further, in most cases, the utilities are
not able to visualise the impact of DSM programme but at the same time, investment
in power purchase has direct impact in terms of energy injected in the system. Therefore,
focus is on capacity addition rather than implementing such programme.
Even though there are policies to support the DSM and energy efficiency, as per
the Forum of Regulators there is an urgent need to develop regulatory mechanism
which incentivises utilities to take up DSM. Following key initiatives are proposed
as a part of Regulatory Framework to encourage distribution utilities to undertake
DSM initiatives:
Regulatory Commissions may make suitable provisions in the Tariff Regulations to
include DSM related expenditure as a part of the Annual Revenue Requirement and
develop simple mechanism to allow recovery of DSM related costs through tariffs.
Regulatory Commissions may develop suitable incentive mechanism for utility to allow
them to earn additional return on equity for procurement of DSM Resources in place
of supply side resources. Such incentive could be in the form of additional return
on equity (say 1% incremental Return on Equity) for DSM/EE programs in subsidised
categories like Residential, Municipal & Agricultural Sectors.
Higher incremental return on equity (say 2%) be provided to utility for investments
in DSM programs in subsidizing categories like Commercial and Industrial Sector.
This will encourage utilities to undertake DSM even in subsidized categories.
Alternative incentive mechanism in the form of savings in costly power purchase
may be developed where it is possible to identify costly power purchase. Utilities
may be encouraged to develop peak load saving programs so that overall power purchase
cost utility decreases. Utilities may be allowed to retain percentage of such saving.
The policies in support to DSM initiatives and DSM regulations and government notifications
are discussed in details in following sections
National Electricity Policy Integrated Energy Policy DSM Regulations and Government notification BEE Initiatives International Initiatives
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