Energy demand is increasing rapidly because of developments in the agricultural, industrial, commercial and transportation sectors. Improved lifestyle and population rise are other reasons for the increase in energy demand. The development of an electricity allocation model will help in the proper allocation of the energy sources to meet the future electricity demand in India. In this paper, an attempt has been made to develop a fuzzy-based linear programming, optimal electricity allocation model (OEAM) that minimizes the cost and determines the optimum allocation of different energy sources to the centralized and decentralized power generation in India. The potential of energy sources, energy demand, efficiency of the energy systems, emission released by the energy systems and carbon tax for the emissions released by each system are the main factors that influence the pattern of electricity distribution and are used as constraints in the model. Executing this model results in an optimal electricity distribution pattern. The results indicate that the commercial energy sources such as coal, nuclear and hydro would meet nearly 68% of total electricity demand and that the remaining 32% of the electricity demand will be met by the renewable energy sources, namely, wind, biomass, biogas, solid waste, cogeneration and mini hydel for the year 2020. Various scenarios are also developed by varying the demand, potential, emission and carbon tax. This study will help in the formation of strategies for effective utilization of energy sources in India. Copyright (c) 2012 John Wiley & Sons, Ltd.