Electrical power systems — both generation and transmission — are built to supply power at all times. While this has ensured reliable supply, there is an embedded inefficiency too: oversized capacities remain under-utilised during non-peak hours.

The evolving nature of electricity demand suggests the core challenge is no longer about energy adequacy, but managing sharp and time-concentrated peaks.

Peak demand is growing faster than overall energy consumption, resulting in declining load factors. Moreover, instead of a single evening peak there are significant loads during midday too.

However, peak demand typically persists only for a few hours each day, and, more importantly, only a small fraction of annual hours — often less than 2 per cent — drives capacity planning decisions. This creates a structural imbalance: power systems are designed for rare peak conditions but operated for average conditions, leading to underutilisation of assets.

Peaking power plants, typically gas-based, operate only during high-demand periods and, therefore, only at 10-15 per cent of their capacity. In many systems, the marginal cost of peak power could be two to three times higher than the average cost of generation.

The ongoing energy transition adds another layer of challenge. Electrification of end-use sectors is introducing new demand patterns that are both dynamic and time-sensitive. Electric vehicle charging, for instance, is creating localised peaks, while rising cooling demand in tropical regions is amplifying summer loads.

The rapid expansion of renewable energy — especially solar — has introduced new complexities. While solar generation reduces daytime net demand, it also creates steep ramping requirements in the evening — a phenomenon commonly referred to as the “duck curve”.

The misalignment between supply and demand requires thermal power plants to operate in flexible modes, involving frequent ramping and cycling of generation. This, in turn, not only reduces plant load factors but also impacts efficiency and increases wear and tear, thereby affecting overall economics.

Demand response represents the most immediate and cost-effective source of flexibility in modern power systems. By enabling consumers to adjust their consumption in response to grid conditions or price signals, it shifts non-essential loads away from peak periods. Industrial facilities, commercial buildings, agricultural loads, and, increasingly, residences can contribute meaningfully to peak reduction. Importantly, demand response requires minimal capital investment and leverages existing infrastructure, making it scalable and economically feasible.

Role of storage

Battery energy storage systems (BESS) provide a complementary solution, particularly for managing short-duration peaks. By storing energy during low demand or high renewable generation and discharging during peak periods, they are well suited for peak shaving applications. Since peak durations usually range from two to four hours, BESS aligns closely with system requirement. Although capital costs are currently ₹4–5 crore per MW for four-hour systems, the avoided cost of peak power procurement, coupled with deferred investments in generation and network infrastructure, make them attractive.

For longer requirement and system-level balancing, pumped storage plants (PSPs) offer value. Although they involve higher upfront capital, typically ₹6–7 crore per MW, their long life — often exceeding several decades — and low operating cost make them viable over the long term.

PSPs also provide critical grid services such as frequency regulation, inertia support, and system balancing, which are increasingly essential in renewable-dominated power systems.

Virtual infrastructure

An emerging transformative concept is ‘virtual infrastructure’. Instead of expanding physical networks, system operators can use distributed resources to deliver equivalent capacity more efficiently. Localised storage and generation reduce peak power flows, effectively creating “virtual transmission capacity” and alleviating congestion. At the distribution level, flexible loads and distributed storage reduce stress on feeders and transformers, avoiding the need for network upgrades.

Another key enabler for this shift would be the ability to harness small, behind-the-meter battery systems across residential and commercial consumers — often paired with rooftop solar — which, although installed for backup of essential loads, collectively represent a vast and underutilised flexibility resource. When aggregated, these distributed resources can form virtual power plants that operate as despatchable entities, providing peak capacity and grid support while blurring the boundary between generation and consumption for a more integrated and resilient power system.

A key point to note is that investment in flexibility than in rarely used capacity yields higher returns. By aligning infrastructure utilisation with actual demand, the system can achieve cost efficiency and operational resilience.

The traditional paradigm of designing power systems around peak demand is increasingly unsustainable in a rapidly evolving energy landscape. The emerging new model prioritises flexibility, efficiency, and intelligent system management over capacity expansion. Through integrated deployment of demand response, energy storage, and virtual infrastructure, power systems can transition toward a future that is not only reliable but also economically and environmentally sustainable.

Ultimately, the grid of the future will be defined not by capacity built, but demand management, flexibility and the interplay between them.

(The writer is a power industry expert and former director general of National Institute of Wind Energy)

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Published on March 30, 2026