CERC Finalizes Phased Transition to Schedule-Based Deviation Settlement for Wind and Solar Projects

The April 1, 2026 Regulatory Milestone

On March 31, 2026, the Central Electricity Regulatory Commission (CERC) issued a final order formalizing the phased transition of the Deviation Settlement Mechanism (DSM) for wind and solar (WS) generators. Informed by a public hearing held in December 2025 and extensive stakeholder consultations, the order establishes a regulatory roadmap beginning April 1, 2026. The objective is to move renewable energy (RE) generators toward the strict scheduling discipline required of conventional power plants by 2031. The order utilizes a calibrated “X” parameter to transition the market from “Available Capacity” to “Scheduled Generation” as the basis for deviation settlement.

Redefining Deviation: The Blended Denominator Formula

The Commission has redefined the technical calculation of deviation percentages to incorporate a blended denominator. This formula shifts the focus from a plant’s potential capability to its actual forecasting accuracy.

The new blended formula is:

Deviation % = 100 × [(Actual Injection – Scheduled Generation) / (X% of Available Capacity + (100-X)% of Scheduled Generation)]

In this regulatory framework:

• Available Capacity is defined as the cumulative rating of turbines or inverters capable of generating power in a specific time block.
• The “X” Factor serves as a weighting parameter. As the value of “X” decreases to zero, the denominator aligns fully with “Scheduled Generation.”

This shift ensures that generators are increasingly held commercially accountable for deviations from their committed schedules.

Tightening of Revenue-Neutral Tolerance Bands

Effective April 1, 2026, the Commission will implement tighter revenue-neutral tolerance bands. This reduction narrows the volume of deviation allowed before a generator incurs financial penalties, thereby increasing commercial exposure for inaccurate forecasting.

• Solar and Solar-Hybrid Projects: Permissible deviation limits reduced from ±10% to ±5%.
• Wind Projects: Permissible deviation limits reduced from ±15% to ±10%.

The Commission’s decision was supported by a 41-week simulation study conducted by Grid-India. The study indicated that under these tighter bands, compliance levels drop significantly; for instance, the proportion of time solar projects remain within limits is estimated to fall to between 45% and 58%, highlighting the urgent need for improved forecasting infrastructure.

The Phased Trajectory: Annual “X” Factor Reduction

The Commission has adopted a differentiated trajectory for the “X” value to account for the inherent forecasting volatility of wind generation compared to solar. While all existing projects will maintain X at 100% for FY 2026–27 to provide “additional adjustment time,” the pathways diverge thereafter.

The slower reduction for wind projects (e.g., 95% vs 90% in FY 2027-28) acknowledges the higher uncertainty associated with wind resource prediction. Notably, new projects with bid submission dates on or after April 1, 2026, will be treated at par with conventional generators (X=0) from their commissioning date.

Grid Stability Measures and Over-Injection Rules

To manage grid security as renewable penetration deepens—reaching a record 51.5% of total installed capacity on July 29, 2025—the CERC has introduced strict over-injection rules. No payment will be made to wind or solar sellers for electricity injected beyond the schedule when system frequency is at or above 50.05 Hz.

The Commission cited severe grid stability concerns as the rationale, noting that on May 25, 2025, system frequency exceeded the 50.05 Hz threshold for approximately 30% of the day. Independent analysis by Prayas Energy Group suggests the revenue impact of this rule is manageable, as the energy affected by these high-frequency conditions is estimated to be under 1% of total generation.

Stakeholder Arguments and Industry Impact

The regulatory process captured divergent submissions from industry stakeholders and system operators.

• Industry Concerns: Developers represented by the National Solar Energy Federation of India (NSEFI) and the Indian Wind Power Association (IWPA) warned that inadequate forecasting infrastructure could lead to significant financial distress. Estimates suggest internal rate of return (IRR) reductions of up to 5.5 percentage points for solar-hybrid projects and 24 percentage points for wind projects under high-deviation scenarios, potentially turning existing assets into non-performing assets (NPAs).
• Operator Support: Grid-India and various distribution companies (Discoms) argued that stricter discipline is essential to curb rising grid-balancing costs borne by consumers.
• Mitigation and Infrastructure: The Commission emphasized that generators now have access to sophisticated tools, including Regional Energy Management Centres (REMCs), to improve accuracy. Furthermore, “aggregation” through Qualified Coordinating Agencies (QCAs) at pooling stations was identified as a primary strategy, capable of reducing DSM charges by up to 67%.

Legal Status and Future Procedures

The implementation of these reforms remains subject to the final outcome of writ petitions currently pending before the Delhi High Court. In the interim, the CERC has directed that no coercive action be taken against generators while the court’s interim relief continues.

The National Load Despatch Centre (NLDC) has been directed to develop specific procedures, in consultation with Regional Power Committees (RPCs), to compute deviation percentages in time blocks with very low scheduled generation. This procedure will be vital as the industry approaches the April 2031 deadline, when the “X” factor reaches zero for all projects.