Industry executives warned that regulatory efforts to stabilize the national power grid and make green energy more reliable could drain producers of revenue and potentially lead to tariff hikes. The regulator has proposed tougher penalties for companies that are under- or over-producing power, troubling solar and wind power companies that depend on vagaries of weather.
In the power sector, the Deviation Settlement Mechanism (DSM) penalizes producers when the delivery they make to discoms differs from what they promised. The Central Electricity Regulatory Commission (CERC) has set a tolerance band of 10% for wind energy and 5% for solar energy. Essentially, this means that a company producing above or below these limits is liable to pay hefty fines. Previously, these bands were more relaxed – 15% for wind and 10% for solar. On March 1, CERC also introduced a new formula to progressively tighten the regime over the next five years, worrying industries struggling to sign power purchase agreements (PPAs) even as they face generation cuts and distressed sales on exchanges.
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According to developers, it is difficult to comply with the new devolution rules because, unlike coal or hydropower, wind and solar are unstable sources of energy. According to the National Solar Energy Federation of India, the penalty could lead to revenue loss of up to 48% in the case of wind power and 11.1% in the case of solar power, compared to 1-3% loss under the old system. On 27 April, the Karnataka High Court stayed the scheme till 10 June after the National Solar Energy Federation of India challenged the CERC order. However, concerns remain.
The chief financial officer of one of India’s largest renewable energy companies said, “A survey of about 52GW capacity shows that the revenue loss will be around ₹1,000 crore on an annual basis. This is a huge impact. Operating costs will increase and tariffs may increase.
India’s renewable energy capacity stood at 274.68GW as of March 31, with an increase of 51GW in FY26 alone.
The DSM criteria also propose a so-called “X-factor” for hardening the system over time, which can have a significant impact in the long term.
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Questions sent by mail to the Ministry of New and Renewable Energy remained unanswered; However, a ministry official, on condition of anonymity, said that MNRE had received some inputs from industry bodies on the impact of DSM penalty as a percentage of revenue for different values of ‘X’ under the new regulation.
“The exact impact of this change will vary from project to project depending on the location, forecasting tools being used, data quality etc. As per the feedback received from the industry, the impact of the new regulation is greater on wind projects as the uncertainty in wind generation is higher,” the official said.
Regarding impact on tariffs, the MNRE official said no immediate impact on tariffs is expected. “The ministry will continue to work with all stakeholders on all possible solutions to manage the divergence,” the official said on condition of anonymity.
MP Ramesh, former executive director of the National Institute of Wind Energy under the Ministry of New and Renewable Energy, said the new DSM rules could reduce the net revenue of wind power projects by 48% over a five-year period. However, he said this estimate is based on the assumption that weather and production forecasts will not improve from current levels.
While solar and wind companies follow the Indian Meteorological Department (IMD) forecasts to plan their generation schedules, these do not have the accuracy required to conform to the narrow tolerance bands set by CERC. IMD’s Vision 2047 plan aims to reach near-accurate forecast up to 3 days, 90% accuracy up to five days, 80% accuracy up to seven days and 70% accuracy up to 10 days in terms of each severe weather event at the block and panchayat level by 2047.