Regulatory Mechanism for handling imbalances for Renewable Energy (RE) sources in India

Settlement Mechanism (DSM). The Central Electricity Regulatory Commission (CERC) introduced DSM as a pricing mechanism for handling inadvertent deviations from schedules

(i.e. imbalances) by giving frequency linked price signals to the generators as well as load serving entities. With an ambitious target of 500 GW of renewable energy (RE) generation capacity by 2030, India [1] has reached a major milestone in its energy transition journey by achieving 50% of installed generation capacity from non-fossil fuel-based resources in July 2025. On 29th July 2025, the combined instantaneous Variable Renewable Energy (VRE) penetration touched 37%. At such higher penetration levels, the VRE pose significant operational challenges due to their intermittent nature. Hence, the enabling regulatory interventions for forecasting, scheduling, and imbalance handling of VRE generation have gradually evolved over the past decade. In the initial phase several relaxations were provided to wind and solar generators in the CERC (DSM) regulations to facilitate a smooth onboarding.

However, with the fast-growing VRE penetration, the regulations for scheduling and imbalance management have undergone several modifications to bring the VRE fleet into the mainstream.

These modifications primarily aimed at giving a signal to the VRE plants to improve their forecasting and scheduling to make them more responsive to the balancing needs in the grid.

This paper explains the regulatory interventions in India over the past decade in designing the

DSM price signals for the VRE (wind and solar) plants connected at inter-state transmission system (ISTS). This also highlights a key intervention from the CERC in Aug 2024, wherein the proposed formula for computation of deviation for wind/solar plants has undergone a major modification that would encourage better forecasting, aggregation, deployment of energy storage and would promote more responsible behaviour from such intermittent generation resources for reliable operation of the grid.