The increasing penetration of renewable energy in India’s power system is reshaping grid operations and necessitating continuous refinements in regulatory frameworks. Among these, the deviation settlement mechanism (DSM) plays a critical role in maintaining grid discipline by linking deviations from scheduled generation or drawal with financial implications. However, the variability and intermittency associated with wind and solar generation have posed challenges to the traditional DSM framework, which was originally designed around conventional generation.
In this context, the Central Electricity Regulatory Commission’s (CERC) order in Petition No. 9/SM/2025 assumes significance as it addresses a key parameter governing permissible deviations under the DSM framework. The order focuses on the determination of the “X” factor, which is central to the revised deviation calculation methodology introduced for renewable energy generators.
Background
The DSM framework has evolved over time from the earlier unscheduled interchange mechanism, which was primarily aimed at maintaining grid frequency through price signals. With the increasing complexity of the power system, the framework was formalised into DSM regulations, providing a structured approach to deviation accounting and settlement.
Over the years, the regulations have undergone multiple revisions to tighten deviation limits, reduce gaming and align the framework with emerging system requirements.
The DSM Regulations, 2024, marked a significant shift in this direction. The revised regulations introduced stricter deviation limits, rationalised sign conventions and measures to maintain grid frequency within a narrower band. Importantly, they proposed a new approach for calculating deviations for wind and solar generators by moving away from a purely available capacity (AC)-based methodology to a hybrid framework incorporating both available capacity and scheduled generation (SG).
Under this framework, deviations are calculated using a weighted denominator, with the relative weight of AC and SG determined by the “X” factor. A higher value of “X” places greater emphasis on available capacity, allowing flexibility for renewable energy generators, while a lower value shifts the focus towards scheduled generation, thereby strengthening grid discipline.
The CERC proposed a phased trajectory for the “X” factor based on simulation studies conducted by GRID-INDIA using historical generation data. The proposal aimed to gradually transition towards a schedule-based framework, while taking into account improvements in forecasting accuracy and operational experience.
The proposal elicited responses from a wide range of stakeholders, including renewable energy developers, discoms and system operators.
Stakeholders raised concerns regarding the adequacy of the data used for simulations, persistent forecasting challenges and the potential financial impact of a lower “X” factor. They highlighted that forecasting errors, particularly for wind generation, remain inherent due to weather variability and cautioned against an aggressive reduction in “X”.
Suggestions were also made for adopting differentiated treatment for wind and solar projects, enhancing flexibility in scheduling, improving forecasting tools and promoting aggregation and storage solutions to manage variability. These inputs formed an important basis for the CERC’s subsequent decision.
CERC’s order
In its order in Petition No. 9/SM/2025, the CERC has determined the trajectory for the “X” factor under the DSM Regulations, 2024, thereby operationalising the revised deviation framework for renewable energy generators.
The commission observed that the dataset used in the simulation studies was sufficiently representative, covering multiple projects, regions and time periods. It also noted that forecasting and scheduling requirements have been in place for several years and that the proposed changes reflect a natural progression in line with increasing renewable penetration.
Highlighting the growing challenges in grid management, the CERC pointed out that even small forecasting errors can result in significant deviations at higher levels of renewable integration, thereby affecting frequency stability and increasing reliance on ancillary services.
Taking into account stakeholder feedback and system requirements, the CERC has approved a phased trajectory for the “X” factor, with differentiation between technologies.
For solar and wind-solar hybrid projects, the value of “X” will initially remain at 100 per cent and will be reduced progressively to 0 per cent by April 2031. A relatively more gradual reduction trajectory has been specified for wind projects in view of their higher variability.
Implications and the way forward
The move towards a schedule-based deviation formulation is expected to strengthen grid discipline and improve adherence to schedules, thereby enhancing overall system reliability.
The transition also poses challenges for renewable energy generators. A lower “X” increases the weight of scheduled generation in deviation calculations, which may lead to higher deviation volumes and financial exposure in case of forecasting errors, particularly for wind power projects.
The evolving DSM framework is expected to influence market behaviour and contracting strategies in the renewable energy segment. As deviation costs become more sensitive to scheduling accuracy, developers are likely to prioritise investments in advanced tools, data analytics and real-time monitoring systems. This could also accelerate the adoption of hybrid project configurations, combining solar, wind and storage, to smoothen output profiles and reduce variability.
The revised framework may further strengthen the role of aggregators and pooling mechanisms, enabling better forecasting at a portfolio level rather than at an individual project level. Such aggregation can help mitigate the impact of localised weather variations and improve overall schedule adherence.
From a system perspective, the gradual shift towards a schedule-based regime aligns with the broader transition towards market-based despatch and real-time electricity markets. Tighter deviation norms are likely to complement the development of ancillary services and balancing mechanisms, which are becoming increasingly important for managing grid stability in a high-renewable scenario.
Overall, the trajectory of the “X” value signals a move towards a more mature and market-oriented power system, where operational discipline, technological capability and portfolio optimisation will play a defining role.
Aastha Sharma