Deviation Settlement Mechanism (DSM) guidelines 2024

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As per the latest Deviation Settlement Mechanism (DSM) guidelines from the Central Electricity Regulatory Commission (CERC), DSM charges are defined based on grid stability needs, particularly regarding frequency deviation and renewable energy dynamics. The charges vary depending on the deviation percentage from the target frequency range (49.90 Hz to 50.05 Hz), with penalties scaling for larger deviations.

For renewable-rich and super renewable-rich states (based on their installed wind and solar capacity), CERC allows greater flexibility in permissible deviation limits on the demand side. This aims to balance the grid challenges posed by variable renewable generation. States with renewable capacities between 1 GW and 5 GW are considered renewable-rich, while those with over 5 GW are super renewable-rich.

Stand-alone energy storage systems (ESS) are subject to similar DSM charges as general sellers, but ESS paired with renewables like wind and solar follow specific volume limits for over- or under-injection of power. Deviations here are structured to encourage precision in balancing injections and withdrawals, with zero or high-rate penalties applied beyond specific deviation thresholds.

All collected DSM charges are managed through regional pool accounts by the Regional Load Despatch Centres (RLDCs), which ensure funds for over-injections and under-drawals, and to cover ancillary services where needed. To enforce prompt payments, CERC applies a late surcharge of 0.04% per day for delayed payments.

For a detailed overview, CERC has published these DSM guidelines, and draft regulations are available that may soon replace the 2022 framework with refined terms​.

The Deviation Settlement Mechanism (DSM) penalties for renewable energy (RE) generators such as wind and solar in India are structured in bands based on the percentage deviation from scheduled generation. These penalties are designed to encourage accurate forecasting and minimize grid imbalances caused by unpredictable generation. Here's a general outline of the DSM penalty charges across bands:

  1. 0-15% Deviation: Minor or no penalty, as this deviation range is within acceptable limits. Generators may incur minimal charges, often related to grid operation costs.

  2. 15-25% Deviation: Penalty increases based on a per-MWh rate, calculated as a percentage of the cost of power or Average Power Purchase Cost (APPC). For most states, this rate is between 10-15%.

  3. 25-35% Deviation: The penalty escalates further, often around 20-30% of the APPC per MWh of deviation.

  4. Above 35% Deviation: This highest deviation band incurs substantial penalties, with charges potentially reaching up to 50% of the APPC per MWh. This level aims to deter high forecast inaccuracies significantly.

These bands are structured differently depending on the state's specific grid demands and policies set by the respective State Load Dispatch Centers (SLDCs). Moreover, these penalties apply only to grid-connected RE generators with a capacity of 5 MW and above, and specific exemptions exist for conditions like "declared extreme weather events" and energy storage integration, as per Central Electricity Regulatory Commission (CERC) recommendations.

Notes:

  1. APPC Calculation: The Average Power Purchase Cost (APPC) varies state by state and serves as the base for penalty calculation.
  2. Renewable Energy Focus: Most deviations are structured to penalize wind and solar for higher unpredictability but provide leeway within certain limits to account for inherent variability.
  3. Energy Storage Integration: States like Gujarat and Karnataka offer differentiated penalties for RE sources with co-located energy storage systems​.

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