On 25.08.2026, the Central Electricity Regulatory Commission (“CERC”) notified the Central Electricity Regulatory Commission (Deviation Settlement Mechanism and Related Matters) (Third Amendment) Regulations, 2026 (“Third Amendment”) in exercise of its powers under Section 178 of the Electricity Act, 2003. The Third Amendment takes effect from 31.08.2026 and amends the Central Electricity Regulatory Commission (Deviation Settlement Mechanism and Related Matters) Regulations, 2024 (“DSM Regulations”).
Regulation 8 of the DSM Regulations is headed “Charges for Deviation” and prescribes deviation charges by category. Clause (1) deals with a General Seller, i.e., a conventional thermal or hydro station, and clause (4) deals with a WS Seller, being a generating station based on wind, solar or a hybrid of the two.
The new provision inserted by the Third Amendment, namely clause (4A), provides that notwithstanding clause (4), the charges for deviation in respect of a WS Seller shall be “treated at par with General Sellers” in two cases: (i) for projects under the bidding route with tendering or bid submission dates on or after 01.01.2027; and (ii) for projects other than those covered by the first case, having a date of commercial operation on or after 01.01.2029. In plainer terms, a wind or solar generator will be charged for its deviations on precisely the terms that apply to a coal or gas station.The reasoning
CERC’s defence of clause (4A) rests on maturity. Renewable energy is no longer a marginal source with India recording renewable share at 51.5% of the generation mix on 29.07.2025.
To add to it, high-frequency events have become frequent, and the reserves that correct them are paid for by distribution licensees and ultimately by consumers. CERC argues that relief in the form of differential deviation treatment has already run for more than a decade, through a relaxed definition of deviation, a tolerance band, and the delinking of charges from frequency. CERC also reasons that aggregation and storage are now available to manage variability.
On the above footing, CERC concludes that variability “can increasingly be managed through improved forecasting, scheduling and balancing practices”, and that future projects are expected to account for those obligations when they plan, bid and operate.
What “at par” imports, and what it leaves open
Frequency is the grid’s real-time measure of balance. It rests at 50 Hz when generation and demand are matched and rises when generation runs ahead. Under the present framework a WS Seller’s charge turns solely on the quantum of deviation and the condition of the grid does not enter the calculation. Under the General Seller framework, the calculation depends on the frequency of the grid.
A solar plant over-injects whenever the sun outruns its forecast. Presently, the surplus unit is paid at contract rate, but under the General Seller table the identical physical event is treated differently depending on the frequency band it falls in.
National solar output peaks at midday, when the grid is likely to be running surplus and the plant likeliest to overshoot. So in case of solar projects, the deviation charge and the condition that triggers it (over-injection) arrive together. A coal station is exposed to no such coincidence. Sharpening a forecast and pricing the state of the grid are two different demands, and CERC has justified only the first.
Additionally, deviation charge is not a fixed sum but a percentage of a price. So every charge needs a rupees-per-unit figure to work on. The WS Seller provisions use the “contract rate”, which Regulation 3(1)(j) defines for such a seller as its tariff. The General Seller provisions, on the other hand, use the “Reference Charge Rate”, which Regulation 3(1)(y) defines as the seller’s energy charge.
The difference between the two is deliberate. A conventional station is paid a capacity charge for being available and an energy charge for its fuel. In case of deviation by a conventional generator, only the fuel component is used.
In contrast, a solar or wind or hybrid plant has a single all-in tariff and burns no fuel, so it has no energy charge at all. The Third Amendment does not convert a WS Seller into a General Seller. It says only that its charges are at par. It therefore sends the generator to a table priced in a rate that, on its own wording, does not apply to it. Neither the Third Amendment nor the Statement of Reasons address this point.
Deviation is also charged as a percentage, so the figure it is divided by matters as much as the deviation itself. Regulation 6(1) requires a conventional station to divide its deviation by Scheduled Generation, but Regulation 6(2)(b) allows a wind or solar generator to divide its deviation by blending Available Capacity (i.e., the quantum the plant could have generated from the weather actually available, and always the larger figure) with Scheduled Generation, in a proportion fixed by the factor “X”.
A larger divisor produces a smaller percentage, and the difference is not marginal. A 100 MW plant on a cloudy forecast schedules 40 MW; the sky clears and it injects 48 MW. Against Scheduled Generation the deviation is 20 per cent, outside any band and chargeable; against an Available Capacity of 100 MW it is 8 per cent. Same plant, same weather, same 8 MW. The illustration assumes X at its present value of 100 per cent; the advantage narrows as X steps down.
Clause (4A) sits in Regulation 8 and, by its own words, overrides only clause (4) of that Regulation. Regulation 6 has not been touched. Whether parity in respect of charges carries with it the General Seller’s computation base is therefore an open question on the text.
Even though the CERC was asked to close the ambiguity regarding the gap in the denominator during the public consultation phase, it did not do so perhaps since the gap is in any event time-limited. Under the order dated 31.03.2026 in Petition No. 9/SM/2025, the value of X declines in stages to zero with effect from 01.04.2031, at which point every WS Seller’s denominator becomes Scheduled Generation.
However, between 01.01.2029 and 01.04.2031 two computation bases and two charging tables will coexist, in some cases at the same pooling station, and the Commission has left their reconciliation to an operational protocol that Grid India is yet to develop.
The precision demanded is not attainable
The objection to the Third Amendment is not that renewable generators should escape responsibility for their deviations. It is that the amendment treats two unlike things as though they were alike.
A thermal station decides its own output. If it schedules 800 MW and injects 600 MW, the gap is a matter of choice, and a charge is a fair way of correcting it. However, a solar or wind plant does not decide its output; the weather does. The deviation gap in a wind or solar project is a failure of prediction rather than of discipline, and the prediction of weather a day in advance has limits that no investment removes.
Better instruments although narrow the error, but nothing eliminates it. The Third Amendment therefore prices a residual that the generator cannot get rid of, and prices it as though it were deliberate.
Treating unequals as equals is, on settled principle, as much a denial of equality as treating equals differently, and that is the shape any constitutional challenge will take. The CERC evidently anticipated it and thus, defends the classification in the Statement of Reasons as resting on an “intelligible differentia”. The commercial objection, however, is the more immediate one.
The gap between the reasoning and the text
The differentia CERC relies on is prior knowledge. The CERC reasons that projects caught by clause (4A) “would be developed with prior knowledge of the applicable DSM framework” and would have adequate opportunity to incorporate the obligation into their bidding, project design, financing arrangements and risk allocation, whereas existing projects “were conceptualised, bid out, financed, and developed in accordance with the regulatory framework prevailing at the relevant time”.
However, the text of the amended provision does not carry that reasoning through. Sub-clause (b) applies to “projects, other than those covered under sub-clause (a)”. Sub-clause (a) covers only bidding-route projects whose tendering or bid submission dates fall on or after 01.01.2027. As such a project bid out in 2025 or 2026 is not a project “covered under sub-clause (a)”, and if such project achieves commercial operation on or after 01.01.2029 (even due to regulatory or force majeure delays), it is caught by sub-clause (b). Given ordinary construction timelines and the present state of transmission connectivity, such projects are not a marginal class.
If the classification is to be defended on the ground of prior knowledge, sub-clause (b) requires a carve-out for projects already bid out or financially closed. As drafted, the answer clause (4A) gives those projects is that they had prior knowledge, which they did not.
A stricter regime imposed upon a suspended one
The final difficulty is one of timing. CERC is prescribing a stricter regime at a moment when the framework it builds upon is not operating as written.
Regulations 6(2)(b) and 8(4) of the DSM Regulations (i.e., the provisions that narrowed the tolerance band and began the shift in the denominator) have already been stayed by the High Court of Karnataka in April 2026 on a petition by the National Solar Energy Federation of India, and also the High Court of Madras in June 2026 on a petition filed by NTPC. The DSM Regulations are separately under challenge before the High Court of Delhi in W.P.(C) No. 5487/2025.
Pendency does not divest CERC of its legislative function, and CERC has said as much. That answer does not meet the structural difficulty. Clause (4A) opens with a non obstante clause directed at clause (4). If clause (4) is set aside, the provision that clause (4A) is drafted to displace will not exist, and the non obstante will have nothing to operate on. A provision whose operative words are keyed to a suspended regulation is not made safe by being prospective.
Conclusion
The Third Amendment does not build a new charging regime, but removes a distinction. The CERC’s answer to the equality objection is that its classification rests on an intelligible differentia, and as between projects bid in 2027 and projects bid in 2024 that is right. But the differentia it has articulated is prior knowledge, and the line it has actually drawn does not track prior knowledge.
This is the vulnerability in the Third Amendment. Beneath it lies the older objection, a coal station that misses its schedule has made an error in choice but a wind or solar plant that misses its schedule has made an error in forecast. The Third Amendment charges both alike and calls the result parity. Parity between a decision and a prediction is not equality of treatment, but the imposition of a standard on one party that only the other can meet.
(Views are personal)
