India’s grid runs on promises. Every scheduled generator tells the system operator, in advance, how much power it will inject in each time block. The operator plans the rest of the system around those declarations.
The Deviation Settlement Mechanism (DSM) is what happens when the promise is not kept. If you inject more or less than you scheduled, you are charged — or in some cases paid — at a rate linked to grid frequency at the time. Deviate in the direction that hurts the grid and it costs you; deviate in the direction that helps and it may not.
For a coal plant this is largely a discipline problem. For a wind or solar plant, it is a physics problem, because nobody can forecast a cloud perfectly.
Why this is becoming a bigger deal
Renewable generators have historically been treated more gently under deviation rules than conventional ones, on the reasonable ground that they cannot control their fuel. That concession made sense when renewables were a small slice of the system. At current penetration, it means a growing balancing cost being absorbed by everybody else.
CERC has been steadily closing the gap. Under proposed amendments to the deviation settlement framework:
- Renewable projects bid out on or after 1 January 2027, and projects commissioned on or after 1 January 2029, would be treated at par with conventional generators for deviation charges.
- Deviation would be computed against the project’s scheduled generation rather than its available capacity — a meaningfully stricter basis, because it removes the cushion of claiming a lower availability after the fact.
- Amendments to the 2024 regulations have been proposed to come into force from 1 July 2026, with further updates expected.
The practical effect on a bid is direct. If you are pricing a project that will be assessed on conventional-generator terms, deviation exposure has to sit in the tariff from the outset. Underestimate it and you have written the error into a twenty-five-year contract.
Where storage comes in
A battery is the most direct answer to a forecast error, because it works in both directions.
Over-generating. Your plant is producing more than you scheduled. Instead of injecting the surplus and taking a deviation charge, the battery absorbs it. You inject your schedule; the extra sits in the battery for later.
Under-generating. A cloud arrives, output drops below schedule. The battery discharges to fill the gap, and the meter at the connection point sees the number you promised.
This is precisely the function we describe in renewable firming — turning a variable output into a declared, dependable one. Analysts have noted that tighter deviation rules push developers toward heavier investment in forecasting tools and co-located storage, and toward hybrid project designs combining solar, wind and batteries.
Worth being clear about the sequencing, though: better forecasting is the cheaper first move and should come first. Forecasting narrows the error band. Storage covers what remains. Sizing a battery to cover errors that a decent forecasting system would have eliminated is an expensive way to solve a software problem.
How the rules treat storage itself
The draft framework introduces dedicated provisions for standalone battery energy storage systems and pumped hydro storage projects — recognising that a storage asset both draws from and injects into the grid, and cannot sensibly be settled as if it were a generator.
Two specifics worth knowing:
- For standalone pumped hydro plants regulated under Section 62 of the Electricity Act, deviation charges would be computed using the energy charge rate specified under the CERC tariff regulations. The comparison between the two technologies is in pumped hydro versus BESS.
- Infirm power — the electricity a plant injects between first synchronisation and the completion of trial runs — would be compensated at normal deviation rates, subject to a ceiling of ₹2 per kWh. That matters at commissioning, when a project is testing and injecting before it is formally in commercial operation. Our guide to commissioning and acceptance testing covers that phase.
What this means for you
- If you are a renewable developer: price deviation exposure into bids for projects that will fall under par treatment, and evaluate co-located storage against expected DSM charges rather than against arbitrage revenue alone. Avoided penalties are a revenue stream, and one of the more predictable ones — see revenue stacking.
- If you already operate wind or solar: work out your current deviation charges per megawatt-hour before doing anything else. That number is the honest budget for a firming solution, and many operators have never calculated it.
- If you are bidding hybrid or firm-power tenders: deviation discipline is increasingly what separates a deliverable bid from an optimistic one. Our guides to FDRE tenders and round-the-clock renewable tenders cover the structures where this bites hardest.
- If you want it sized: wind plus storage and solar plus storage are the two common configurations, and our team can model deviation exposure against battery size for a specific plant — get in touch.
Deviation settlement regulations are actively being amended, and draft provisions frequently change before notification — including the dates and thresholds above. Treat this as an August 2026 snapshot and verify the current CERC regulations and their applicability to your project before relying on any of it commercially.