The Central Electricity Regulatory Commission (Deviation Settlement Mechanism and Related Matters) Regulations, 2024 aim to bring precision and stability to India’s electricity grid. However, they introduce new complexities that stretch the renewable energy sector’s capacity to adapt.

Renewable energy generators are asked to meet these new standards without the tools needed to succeed. Although remarkable progress has been made, India’s renewable expansion is built on the foundation of a grid that wasn’t initially designed for these demands. This puts India’s energy transition efforts to a live test for integrating renewables into large-scale grid systems.

A Deviation Settlement Mechanism (DSM) ensures the grid remains balanced between supply and demand. Renewable sources like wind and solar are naturally variable, producing power that depends heavily on weather conditions. When actual generation deviates from the forecasted schedule, it creates instability—leading to potential power surges or shortages. The DSM system penalizes such deviations to incentivize generators to remain within their scheduled limits, helping stabilize the grid and preventing disruptions.

The 2024 DSM regulations introduce more stringent penalties for renewable energy generators based on deviations from scheduled output. Solar and hybrid (wind-solar) projects must adhere to a 10% deviation limit, tightening to 5% after 2026, while wind generators face a 15% cap, later reduced to 10%. When these limits are exceeded, generators face penalties of up to 200% of the contract rate. This system is intended to mitigate grid imbalances, but it places a heavy financial burden on renewable energy generators.

The regulations further tie penalties to market rates, including the Real-Time Market (RTM), Integrated Day-Ahead Market (I-DAM), and Ancillary Service Charges. Charges are based on the highest of these rates within permissible deviation limits. However, once generators exceed the thresholds, the penalties escalate, amplifying the financial risks, with significant consequences for even minor forecasting errors.

Legal precedents and policy frameworks reinforce that promoting renewable energy serves a larger public interest in India. The Supreme Court has underlined the importance of renewable energy for social equity, poverty alleviation, and sustainable development. The Electricity Act 2003 and the National Tariff Policy also underscore the need for regulations that support renewable energy without imposing undue burdens. These principles highlight that the DSM penalties should encourage stability but must consider the current limitations in forecasting technology.

Precision on Forecasting Models Insufficient

India’s renewable energy generators currently lack access to the sophisticated forecasting tools needed to meet the DSM regulations’ 15-minute accuracy demands. Most available forecasting models only offer predictions in broader hourly intervals, which are insufficient for the precision required by the new rules. Additionally, these tools often fail to account for hyper-local weather conditions—particularly relevant for wind farms, where even slight variations in wind speed across small distances can lead to significant deviations from the forecasted output.

Even the National Load Despatch Centre (NLDC), which manages grid operations, struggles to achieve the accuracy required by the DSM rules. If NLDC’s forecasts frequently miss the mark, it is unreasonable to expect renewable generators to outperform these forecasts with significantly greater accuracy. Whether relying on their own forecasting models or those provided by the NLDC, deviations will remain inevitable, highlighting a deeper issue: the tools currently available in the country are not yet aligned with the stringent demands of the new DSM regulations.

Overly stringent policies without addressing technical challenges can undermine the sector they aim to support. For India, the lesson is clear: regulations are necessary to ensure grid stability, but they must be designed in a way that promotes the growth of renewables without imposing an undue burden.

Without this balance, the renewable sector risks being unfairly penalized for deviations beyond its control. These penalties won’t improve grid stability, nor will they encourage the necessary investments in clean energy. Instead, they will deter growth in a sector critical to India’s clean energy goals.

India can learn from countries like Germany, where transmission system operators work with advanced tools that provide detailed, localized data for solar and wind generation, offering precision that extends down to small geographic areas. These sophisticated models, driven by real-time data combined with advanced weather predictions, allow generators to better align their output with grid demands, significantly reducing deviations and ensuring smoother integration of renewables into the grid.

India has room to enhance its efforts. Collaborations with the Indian Meteorological Department (IMD) should focus on developing similar tools tailored to the unique geographic and weather patterns across India. Forecasting products must account for local weather conditions and provide accurate predictions in 15-minute intervals, which would help wind and solar developers manage their output and reduce penalties under DSM. Penalties for deviations should be moderated to reflect the current limitations of forecasting technology. Until better tools are available, it is crucial that regulations strike a balance between encouraging accurate scheduling and not overburdening the renewable energy sector.

Before tightening the screws any further, the focus must shift to providing renewable generators with the resources they need to succeed. Only then can India realize the full benefits of a stable, well-integrated renewable energy system.

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(The author, Parinay Deep Shah, is a partner at Praxis Urja Law Firm, an alumnus of Stanford Law School, and specializes in energy law with a focus on regulatory frameworks)