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New Delhi: The Central Electricity Regulatory Commission (CERC) has tightened the Deviation Settlement Mechanism (DSM) for wind, solar and wind-solar hybrid generators, setting a phased reduction in the value of “X” used to calculate deviation from April 1 onwards. In the DSM framework for renewable energy (RE) generators, “X” is a tolerance factor used to determine how much deviation from schedule is allowed without full financial penalty.
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The order keeps X at 100 percent in the first year, before lowering it in stages until it reaches zero from April 1, 2031. For solar and wind-solar hybrid projects, the trajectory is 100 percent, 90 percent, 75 percent, 55 percent, 30 percent and 0 percent; for wind projects, it is 100 percent, 95 percent, 85 percent, 65 percent, 35 percent and 0 percent. The order has now been challenged in the Delhi High Court (HC).
The commission said the decision was taken after reviewing comments from 46 stakeholders and hearing arguments in a public hearing held on December 3, 2025. The order notes that “the stability of the grid is a shared responsibility” and describes the X factor as a “calibrated regulatory tool” meant to strengthen scheduling discipline as renewable penetration rises.
The consultation drew sharply divided views. Renewable developers and industry groups including ACME, Gentari, HFE, KPI, Serentica, NSEFI, Tata Power and others argued that the study underlying the proposal was too narrow, covering only 16 projects over 41 weeks, and said forecasting tools in India still face limits such as low spatial resolution and weather uncertainty. Several of them warned that a tighter regime could sharply raise revenue losses, hurt bankability and in some cases amount to a change in law for existing projects.
The order records that some stakeholders sought a much slower transition, with proposals ranging from keeping X at 100 percent for several years to compressing the phase-down into three years. Others pushed for schedule-based settlement sooner, with distribution companies and system operators such as APDISCOM, TNPDCL, MSEDCL, UPPCL, WBSETCL and SRPC arguing that forecasting has improved and that stricter accountability is justified to protect consumers and the grid.
CERC also noted calls for aggregation at the pooling-station level through qualified coordinators, with stakeholders arguing that pooling can reduce deviations by smoothing weather-driven fluctuations. The commission accepted that aggregation helps and said developers should make use of the existing provisions, but it still opted for a phased glide path because many regional entities have not yet adopted pooling-based aggregation.
CERC said renewable generators have had “sufficient transition time since 2015” to improve forecasting and scheduling, pointing out that the inter-state wind and solar forecasting framework has been in place for a decade. It said the present calibration of X does not create a new burden, but instead reflects the maturing of the sector and the need to internalise the cost of deviations as renewable capacity grows.
The commission leaned heavily on grid-security concerns. It said that as wind and solar capacity has expanded, even moderate forecasting errors can create large absolute deviations that affect frequency, reserve deployment and ancillary services. It also cited recent high-frequency events and said extra balancing costs are borne by discoms and ultimately consumers. On that basis, CERC said tighter deviation norms would “incentivise improved forecasting discipline and reduce avoidable operational stress on the grid.”
CERC further said it accepted a differential treatment for wind and solar because solar projects are generally more predictable than wind projects. It also directed NLDC, in consultation with RPCs, to prepare a procedure for computing deviation beyond March 31, 2031 in time blocks where schedules are very small.
The order says enforcement of its directions will remain subject to the outcome of the writ petitions pending before the Delhi High Court, and that no coercive action will be taken while the court’s interim orders continue. It also makes clear that other issues raised in consultation, including broader alignment of RE projects with the general seller framework, fall outside the scope of this order and would require a separate regulatory process.
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DSM, or deviation settlement mechanism, is the commercial framework that penalises or incentivises electricity buyers and sellers when actual drawal or injection differs from the schedule. It exists to keep India’s grid frequency close to 50 Hz, because demand-supply imbalance can destabilise the system; in the older framework, charges were linked to frequency and were used to push participants to stick to their schedules.
The mechanism has evolved to handle renewable variability and transmission congestion, and that the mechanism uses penalties, incentives and settlement rules to encourage better forecasting and discipline. In simple terms, it is the grid’s financial enforcement tool for keeping supply and demand in balance.
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