CERC’s Proposal on Deviation Settlement for Wind & Solar Sellers

CERC’s Proposal on Deviation Settlement for Wind & Solar Sellers: A Turning Point in Renewable Energy Regulation

Introduction

India’s energy transition is gaining speed, with renewables expected to play a central role in achieving the 500 GW target by 2030. However, as wind and solar (WS) capacities grow, their variable and uncertain generation poses serious challenges to grid stability. The Central Electricity Regulatory Commission (CERC), through its Suo-Motu Petition No. 9/SM/2025, has proposed a phased tightening of the Deviation Settlement Mechanism (DSM) for wind and solar generators. This marks a significant regulatory shift, pushing renewable developers toward greater forecasting accuracy and scheduling discipline.

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Background: DSM Regulations, 2024

The DSM Regulations, 2024 (effective from September 16, 2024) set the rules for managing deviations between scheduled and actual power injection into the grid.

• Until March 31, 2026, deviations for WS sellers are calculated using Available Capacity as the denominator.

• From April 1, 2026, CERC proposes a new formula based on a mix of Available Capacity and Scheduled Generation, weighted by a factor “X”.

This transition is designed to gradually shift RE generators toward the same accountability framework as conventional power plants.

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The Proposal: Phasing Out “X”

CERC has proposed the following trajectory for “X” (the share of Available Capacity in deviation calculation):

Period	Value of “X”	Basis of Deviation (%)
01.04.2026 – 31.03.2027	100%	Entirely Available Capacity
01.04.2027 – 31.03.2028	80%	Mix: 80% Available + 20% Scheduled
01.04.2028 – 31.03.2029	60%	Increasing weight to Scheduled
01.04.2029 – 31.03.2030	40%	Closer to Schedule-based
01.04.2030 – 31.03.2031	20%	Mostly Schedule-based
From 01.04.2031 onwards	0%	Fully Schedule-based

This step-by-step approach balances grid reliability needs with the forecasting challenges faced by renewable developers.

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Key Findings from the Grid-India Study

CERC’s proposal is backed by an extensive 41-week simulation study (Sept 2024 – June 2025) across 16 RE plants (solar, wind, hybrid). The findings are telling:

1. Tightening tolerance bands shrinks compliance:

   • Solar compliance drops from 74–84% to 45–58%.

   • Wind compliance falls sharply from 73–93% to 32–73%.

   • Hybrid plants reduce from 72–87% to 38–47%.

2. Revenue impacts are uneven:

   • Solar plants: moderate losses (3.5%–11.1%)

   • Hybrid plants: slightly higher losses (2.4%–11.8%)

   • Wind plants: severe losses (2.8%–48.2%) due to higher variability.

3. Aggregation works as a shield:
   When multiple RE plants aggregate schedules through a Qualified Coordinating Agency (QCA) at pooling stations, the net deviation — and therefore DSM charges — drop significantly. This highlights aggregation as a risk-mitigation strategy.

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Why This Matters

1. Grid Security First: With RE now ~50% of installed capacity and WS contributing ~35%, large deviations could destabilize the grid. A schedule-based DSM strengthens reliability.

2. Fairness Across Generators: From 2031, all existing WS sellers will be treated at par with conventional sellers. New projects (bid after April 2026) will face this parity from the start.

3. Curtailing Over-injection Risks: Over-injections at high system frequency (>50.05 Hz) will no longer be compensated, reducing the risk of frequency spikes.

4. Push for Better Forecasting: With reduced tolerance bands and schedule-based deviation rules, developers must invest in AI-driven forecasting, real-time weather data, and advanced scheduling tools.

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Industry Implications

• Developers: Must strengthen forecasting systems and explore aggregation models to minimize DSM penalties.

• DISCOMs: Benefit from more reliable schedules, lowering balancing costs.

• Investors: Should factor in DSM-related revenue risks when evaluating RE projects.

• Technology Providers: Huge opportunity in offering forecasting, scheduling, and QCA services.

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Conclusion

CERC’s proposal reflects the maturing status of renewables in India. The era of wide tolerance bands and leniency is ending. Wind and solar generators are expected to operate with the same discipline as conventional plants, ensuring that India’s green transition is not just ambitious, but also grid-secure and sustainable.

The Commission has invited stakeholder comments on this proposal by October 5, 2025. The outcome of this consultation will shape the regulatory framework for India’s renewable energy integration in the coming decade.