⚡ Quick Read
- What happened: The CERC has extended the current 50:50 drawal and GNA-based deficit sharing formula for the Deviation Settlement Mechanism (DSM) until October 4, 2026.
- Why it matters: This extension provides regulatory stability for ISTS consumers by delaying the transition to a complex, reserve-based allocation methodology that currently lacks operational readiness.
- Watch: Future NLDC procedures and methodologies for reserve computation and settlement that must be finalized before the new October 2026 deadline.
Background and Context
The Central Electricity Regulatory Commission (CERC) has issued a significant directive regarding the Deviation Settlement Mechanism (DSM) Regulations, 2024. Under the original framework, Regulation 9(7) stipulated that the recovery of deficits in the Deviation and Ancillary Service (DAS) Pool Account would shift from a drawal-based formula to a reserve-based allocation methodology starting April 1, 2026. This transition was intended to align the recovery mechanism with the shortfall of reserves allocated by the National Load Despatch Centre (NLDC) to designated interstate transmission system (ISTS) consumers.
Key Details
Following representations from Grid-India and the NLDC, the CERC acknowledged that the industry is not yet prepared for the transition to a reserve-based settlement system. Stakeholders highlighted critical operational challenges, specifically regarding the quantification and declaration of reserves, the precise measurement of actual reserves, and the absence of a fully developed dispatch and settlement framework. The Commission noted that the necessary procedural readiness to support such a complex methodology is currently lacking. Consequently, the CERC has extended the applicability of the existing mechanism—where deficits are shared based on a 50% drawal and 50% General Network Access (GNA) ratio—until October 4, 2026. The new reserve-based mechanism is now scheduled to take effect on October 5, 2026.
What This Means for EPCs and Developers
For solar and wind developers, as well as large-scale EPC contractors operating as ISTS consumers, this extension offers a reprieve from immediate regulatory uncertainty. The current 50:50 formula provides a predictable cost-sharing structure that developers have already integrated into their financial models and operational planning. A premature shift to a reserve-based system could have introduced volatility in deviation charges, complicating project cash flows. By deferring this change, the CERC ensures that developers can continue to operate under a known framework while the grid infrastructure and settlement systems are refined.
What Happens Next
The period leading up to October 2026 will be critical for the development of robust methodologies for reserve computation and allocation. The CERC has emphasized that the transition requires extensive regulatory approval of NLDC procedures. Industry participants should monitor upcoming regulatory filings and public consultations regarding the finalization of these procedures. The Commission is also actively reviewing other aspects of interstate transmission, including the methodology for determining real-time congestion charges, which will further influence the cost landscape for renewable energy projects.
