CERC Issues Draft Deviation Settlement Mechanism Regulations

The guidelines, if approved, will supersede the DSM Regulations 2022


The Central Electricity Regulatory Commission (CERC) has released a draft Deviation Settlement Mechanism (DSM) Regulations 2024 to provide a framework of charges and penalties to treat and settle deviations from scheduled generation or drawal of electricity to ensure grid stability.

The charges get progressively steep as the percentage deviation increases from the safe range of 49.90 Hz to 50.05 Hz. They also factor in grid frequency – from paying back at normal rates for moderate deviations to heavy penalties of up to 200% of normal rates for large deviations.

The regulations distinguish the charges applicable for different players – general sellers, run-of-river (RoR) generators, renewable energy sellers, municipal solid waste generators, energy storage systems, and buyers.

According to the draft regulation, Standalone Energy Storage System (ESS) deviation charges will be at par with the charges for deviation for a general seller (excluding RoR or municipal solid waste generators).

Special provisions have been incorporated for renewable-rich and super renewable-rich states, allowing larger volume limits for permissible deviations on the demand side.

Renewable-rich states have a combined installed wind and solar capacity of over 1 GW but less than 5 GW. Super renewable-rich states have a capacity higher than 5 GW.

The deviation charges when drawing power before the commercial operation date (COD) of a generating unit for start-up purposes or for drawing power to run auxiliaries during the shutdown of a generating station must be paid at the reference charge rate or the contract rate or in the absence of reference charge rate or contract rate, the weighted average area clearing price (ACP) of the day-ahead market segments of all power exchanges for the respective time block.

The deviation charges payable by a seller are given below:

Deviation Charges for Sellers

The deviation charges in a time block payable by a buyer are given below:

Deviation charges for buyers

The table outlines Buyer Volume Limits (VLB) for different buyer types based on their schedule and renewable energy (RE) status. Non-RE buyers have VLB tiers based on deviations from their scheduled purchase up to 10%, 15%, and beyond 15%. Buyers with schedules up to 400 MW have VLB tiers at 20% deviation and beyond. RE-rich States have VLB tiers at 200 MW, 300 MW, and beyond 300 MW deviations. Super RE-rich States have higher VLB tiers at 250 MW, 350 MW, and beyond 350 MW deviations.

Energy Storage System Charges

The regulations also specify ESS charges but distinguish between standalone ESS and ESS co-located with wind and solar.

Standalone ESS charges will be at par with general sellers, excluding RoR generating stations, municipal solid waste generation, or wind-solar sellers.

For ESS paired with wind and solar, the seller must provide a separate schedule for the wind-solar and ESS components through the lead generator or qualified coordinating agency (QCA).

The ESS component for over-injection will be charged for volume limits up to 20% deviation from available capacity. Charges range from the contract rate to 50% of the contract rate, but beyond a 20% deviation, charges will be zero.

As for under injection, volume limits up to 20%/25% deviation from available capacity, and charges range from the contract rate to 200% of the contract rate. Beyond 20%/25% deviation, charges will be 200% of the contract rate.

Accounting for Deviation Charges

All deviations and ancillary service charges payments will be pooled into regional Deviation and Ancillary Service Pool Accounts maintained by the Regional Load Despatch Centres (RLDCs).

This account will receive credits from deviation charges, late payment surcharges, and payments from ancillary service providers. The account will also be used to pay sellers for over-injection, buyers for under-drawal, costs of deployed ancillary services, and other notified charges.

However, the surplus of other regions will meet the deficit in one region’s pool account.

By every Thursday, RLDCs must provide the previous week’s deviation data to the respective Regional Power Committee (RPC) Secretariats. By the following Tuesday, RPC Secretariats will issue statements of deviation charges for the previous week to all regional entities, except transaction-wise DSM accounting for intra-state entities.

The payment of deviation charges will be a high priority to ensure strict compliance. After receiving the statement, the regional entity will have seven days to pay the charges. Failure to pay on time will attract a late payment surcharge of 0.04% per day of delay.

Any regional entity that fails to pay deviation charges during the previous financial year promptly must open a Letter of Credit in favor of the RLDC. The credit amount will equal 110% of their average weekly payable liability for deviations in the previous financial year.

If the regional entity fails to pay into the Deviation and Ancillary Service Pool Account within seven days from the date of issue of the deviation charges statement, the RLDC can encash the LC to the extent of the default amount.

The CERC has invited comments and suggestions from stakeholders on these draft regulations by May 24, 2024. Once notified, these regulations will supersede the existing regulations.

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