Demand Response and Time-of-Day Tariffs Under the Draft Electricity Consumer Rules 2026: What They Mean for Businesses

Introduction: The Grid Management Challenge

India's power grid faces a fundamental tension. The country is adding renewable energy capacity — primarily solar — at a rapid pace to meet its climate commitments. Solar energy is cheap, clean, and abundantly available during daylight hours. But it is unavailable at night and unreliable on cloudy days. The result is a grid that is increasingly characterised by surplus power during the day and tight supply in the evening — a phenomenon known as the "duck curve" in grid management literature.

To manage this challenge, the Draft Electricity (Rights of Consumers) Amendment Rules, 2026, released by the Ministry of Power on 12 March 2026, introduces two interconnected mechanisms: Demand Response (under a new Rule 17) and revised Time-of-Day (ToD) tariffs (under an amended Rule 8A). Both are designed to encourage consumers to shift their electricity usage patterns in ways that support grid stability and reduce system costs.

Part I — Time-of-Day Tariffs

What is a Time-of-Day Tariff?

A Time-of-Day tariff is a pricing mechanism under which the rate charged for electricity varies depending on when it is consumed. The basic logic is straightforward: electricity is cheaper when it is plentiful (such as during solar generation hours) and more expensive when grid demand is high and supply is tight (peak hours, typically morning and evening).

ToD tariffs already exist in India's regulatory framework but have been implemented inconsistently across states and have faced delays in rollout. The 2026 amendment formalises and accelerates the ToD framework.

The Proposed Tariff Structure

Under the amended Rule 8A, the ToD tariff structure is as follows:

| Time Period | C&I Consumers (demand >10 kW) | Other Consumers (excl. agriculture) | |---|---|---| | Solar Hours | At least 20% below normal tariff | At least 20% below normal tariff | | Normal Hours | Normal tariff | Normal tariff | | Peak Hours | At least 1.20x normal tariff | At least 1.10x normal tariff |

Solar hours are defined as an eight-hour window determined by State Electricity Regulatory Commissions (SERCs), broadly coinciding with peak solar generation periods.

Peak hours are typically morning and evening — when solar generation is low or absent and residential and commercial loads are highest. The duration of peak hours shall not exceed the duration of solar hours notified by the State Commission.

Importantly, ToD tariffs apply to the energy charge component of the normal tariff, not to fixed or demand charges.

Implementation Timeline

Commercial and Industrial consumers with contracted demand above 10 kW: Mandatory by 1 April 2027
All other consumers (excluding agriculture): Mandatory by 1 April 2028, or upon smart meter rollout completion, whichever is earlier

The linkage to smart meter rollout is significant — ToD tariffs require smart meters to function, as traditional electromechanical meters cannot record time-stamped consumption data. The amendment effectively creates a deadline for smart meter deployment to be completed for the covered consumer categories.

Impact on Commercial and Industrial Consumers

For a typical commercial or industrial establishment with significant electricity loads, ToD tariffs create strong incentives to restructure energy consumption:

Winners under ToD:

Businesses that can schedule energy-intensive processes (manufacturing, data centres, cold storage operations) during solar hours will see meaningful reductions in their electricity bills
Consumers who shift discretionary loads — pumping, refrigeration, EV charging — away from peak hours benefit directly

Challenges:

Consumers with inflexible processes (hospitals, continuous process industries) face higher costs during peak hours without the ability to shift load
State Commissions must calibrate peak and solar hour definitions carefully to reflect actual grid conditions in each state

The Relationship Between ToD and Renewable Integration

The 20% discount during solar hours is not merely a consumer benefit — it is a price signal designed to increase absorption of solar energy during periods of surplus. When solar generation is high and demand is low, grid operators face the challenge of "curtailment" — switching off solar panels because the grid cannot absorb all available power. By incentivising consumption during solar hours, ToD tariffs help solve this problem at the demand side.

Part II — Demand Response Framework

What is Demand Response?

Demand response (DR) is a broader strategy of which ToD tariffs are one component. In a DR program, consumers agree to reduce or shift their electricity usage during specific periods in response to a request from the grid operator or DISCOM — typically when grid demand is unexpectedly high or supply is constrained.

In exchange for this flexibility, consumers receive financial incentives — either direct payments or bill credits. DR programs convert electricity consumers from passive recipients of power into active participants in grid management.

The Proposed Rule 17

The 2026 draft introduces demand response through a new Rule 17, which mandates State Commissions to establish a regulatory framework for demand response in their jurisdictions. Under Rule 17, State Commissions would specify:

Eligibility criteria for demand response providers — the intermediaries who aggregate DR capacity from multiple consumers
Incentive structures for participating consumers — the financial terms on which consumers participate
Software and system requirements — the technology infrastructure needed to implement DR
Communication protocols — the standards for signals between grid operators, DISCOMs, DR providers, and consumers
Procedures for measurement, verification, and financial settlement — how DR contributions are measured and how payments are calculated and made

Types of Demand Response

The framework envisages both price-based DR (consumers respond to price signals like ToD tariffs) and incentive-based DR (consumers receive explicit payments for agreeing to reduce load on request). Rule 17 primarily addresses the latter.

Incentive-based DR programs typically involve:

A consumer agreeing in advance to reduce load by a specified amount when called upon
The grid operator or DISCOM sending a "dispatch signal" when DR is needed
The consumer reducing consumption accordingly
Measurement of the actual reduction against a "baseline" consumption level
Payment to the consumer based on the measured reduction

Who Can Participate?

The framework contemplates demand response providers — intermediaries who aggregate DR capacity from multiple smaller consumers (who individually may not have sufficient load to participate directly). This is analogous to how renewable energy aggregators work in the generation sector.

Large commercial and industrial consumers with interruptible or flexible loads — such as cement plants, steel mills, data centres, shopping malls, and large commercial buildings — are the most obvious participants.

Significance for Grid Stability

As India's renewable energy share grows, grid operators will increasingly need flexible demand resources to balance the variability of wind and solar. Battery storage is one solution — but it is capital-intensive. Demand response from the consumer side is often cheaper and faster to deploy.

The formal introduction of DR through Rule 17 lays the legal and regulatory groundwork for this market to develop. The detailed implementation will depend on individual State Commission regulations, but the central mandate provides the necessary authority.

Intersection of ToD and Demand Response

ToD tariffs and demand response are complementary instruments:

ToD tariffs provide a continuous, automatic price signal that shapes everyday consumption decisions
Demand response provides a targeted, event-based mechanism for managing specific grid stress situations

Together, they form a demand-side management framework that can significantly reduce the need for expensive "peaking power" plants — generators that are used only during periods of very high demand — and improve the economics of renewable energy integration.

Conclusion

The demand response and ToD provisions in the 2026 amendment rules are the most forward-looking components of the draft. They reflect a recognition that the future of India's electricity system lies not just in building more supply capacity but in intelligently managing demand. For commercial and industrial consumers, these changes require early preparation — particularly investment in sub-metering, building management systems, and process scheduling — to capture the cost-saving opportunities they create.