On 5 August 2024, the Central Electricity Regulatory Commission (“CERC”) issued new regulations in relation to deviation settlement mechanism and related matters – CERC (Deviation Settlement Mechanism and Related Matters) Regulations, 2024 (“DSM Regulations”). The new DSM Regulations replace the earlier CERC (Deviation Settlement Mechanism and Related Matters) Regulations, 2022. The new regulations shall come into force on such date as may be notified by CERC separately.

The DSM Regulations inter alia introduce a new mechanism to calculate “Normal Rate of Charges for Deviation” (NR), which is calculated based on the highest value among the weighted average area clearing price (ACP) of the integrated-day ahead market, the real-time market, or a combination of these markets along with ancillary service charges.

The DSM Regulations apply to all grid connected entities and other entities engaged in inter-state purchase and sale of electricity. To ensure secure and stable grid operations, the DSM Regulations require every grid-connected entity to adhere to its schedule of drawal and injection of electricity as per the grid code. Any deviations from the schedule will be managed through ancillary services, with the computation, charges, and related matters addressed according to the DSM Regulations.

For the purpose of DSM Regulations, ‘ancillary services’ refer to the services necessary to support grid operations by maintaining power quality, reliability and security. These include primary reserve ancillary service, secondary reserve ancillary service, tertiary reserve ancillary service, active power support for load following, reactive power support, black start and other services defined in the grid code.

The DSM Regulations provide guidelines for computation of deviations in: (a) time block for general sellers; (b) time block for WS Sellers*; and (c) time block for buyers. For sellers of electricity, the deviation is calculated based on the difference between actual injection and scheduled generation, whereas, for buyers, it is based on the difference between actual drawal and scheduled drawal.

The DSM Regulations also detail the charges applicable for deviations. These charges vary based on the extent of deviation and grid frequency. Special provisions are set out for run-of-river (RoR) generating stations and municipal solid waste-based stations, where charges are not linked to grid frequency but are based on a percentage of the normal rate or the contract rate.

For accounting purposes, the Regional Load Despatch Centres (“RLDC”) will, by every Thursday, provide data on deviations for the previous week (ending on Sunday midnight) to the Secretariat of the respective Regional Power Committee. After receiving this data, the Secretariat will prepare and issue a statement of charges for deviation prepared for the previous week to all entities by the following Tuesday. It is important to note that accounting for intra-state entities will not be carried out at the regional level.

The payment of charges for deviation will be given high priority. The relevant entity will be required to pay the due amounts within ten days of the issuance of the statement of charges for deviation by the Regional Power Committee. If the payment is delayed, a late payment surcharge will be payable at the rate of 0.04%, for each day of delay.

Any entity which fails to pay deviation charges for the previous financial year within the prescribed time period, will be required to open a letter of credit (“LC”) equal to 110% of its average payable weekly liability for deviations in the previous financial year, in favour of the relevant RLDC. If the relevant charges are not paid within 10 (ten) days from the date of issuance of the statement, the RLDC will be entitled to encash the LC to cover the defaulted payment. In such case, the relevant entity will be required to replenish the LC amount within three days of encashment.

The DSM Regulations aim to promote grid stability and security by ensuring that grid users adhere to their schedules of drawal and injection of electricity. It is hoped that the charges imposed under the DSM Regulations will encourage grid users to maintain grid discipline.

*”WS Seller” is defined to mean a seller in the case of a generating station based on wind or solar or a hybrid of wind-solar resources and shall include such solar or wind or hybrid generating station, with or without storage.

Authors: Akshay Malhotra – Partner and Kush Saggi – Managing Associate

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