CERC Proposes Changes To Renewable Energy Grid Balancing

India is preparing to revise its Deviation Settlement Mechanism (DSM) to enhance grid stability amid its ambitious goal of 500 GW non-fossil fuel capacity by 2030. The Central Electricity Regulatory Commission (CERC) has proposed reforms to penalise deviations by renewable energy generators more strictly. These changes aim to improve grid balancing but have sparked concerns among solar and wind power developers over increased costs and operational risks.

About Grid Balancing

Grid balancing ensures electricity supply matches demand at all times. This is vital to maintain a stable power grid and prevent blackouts. Power plants adjust output while consumers may alter usage to keep the system stable. The rise of intermittent renewables such as wind and solar makes balancing more complex. Grid operators use tools like battery storage to respond quickly to supply-demand mismatches and maintain frequency.

Key Proposed Changes in DSM

Currently, deviations are measured against available capacity. The draft proposes a hybrid formula focusing increasingly on scheduled generation, which is the expected supply to distribution companies. This shift means stricter penalties for deviations from scheduled output. Tolerance bands for deviations will tighten, penalising smaller errors. This raises forecasting and compliance challenges for renewable projects, especially wind farms. The changes will come into effect from April 1, 2026.

Industry Concerns and Challenges

Renewable energy developers warn that tighter DSM rules could increase costs and risks, threatening project viability. Forecasting accuracy is limited due to inadequate weather data and technology. Wind and solar output naturally fluctuate, making strict penalties unfair. Many projects lack advanced generation projection tools needed to comply retrospectively. The absence of a liquid ancillary power market further complicates balancing and scheduling. Financial impacts could reduce gross revenue by up to 2.5% for wind projects, discouraging investment and potentially raising consumer tariffs.

Regulatory and Market Implications

The National Solar Energy Federation of India criticises the draft for flawed assumptions about renewable variability and forecasting. It advocates for a flexible, market-driven DSM that supports grid stability without harming renewable growth. Experts suggest that developers will need to invest in better forecasting and energy storage. Existing power purchase agreements may face strain under stricter penalties, affecting profitability and debt coverage. New projects may see higher capital costs, pushing tariffs upward. Both regulators and industry stress the need for a phased approach mindful of consumer impact.

Technological and Operational Adaptations

Meeting the new DSM requirements will require advanced forecasting systems and integration of battery storage in renewable projects. This will improve scheduling accuracy and reduce deviations. However, these adaptations increase upfront and operational costs. Improved weather monitoring infrastructure is essential to provide granular data for better prediction. A functional ancillary services market will facilitate real-time power trading and grid management, helping balance supply and demand more effectively.

Questions for UPSC:

1. Critically discuss the role of grid balancing in integrating renewable energy into the power sector and its challenges in India.
2. Analyse the impact of stricter Deviation Settlement Mechanism rules on renewable energy project viability and consumer tariffs.
3. Examine the technological measures required to improve forecasting accuracy for wind and solar power generation and their economic implications.
4. Point out the importance of ancillary power markets in maintaining grid stability and how they complement renewable energy integration.

Answer Hints:

1. Critically discuss the role of grid balancing in integrating renewable energy into the power sector and its challenges in India.

1. Grid balancing ensures real-time equilibrium between electricity supply and demand, preventing blackouts and grid instability.
2. Intermittent renewables like wind and solar increase variability, complicating balancing efforts due to unpredictable output.
3. India’s target of 500 GW non-fossil capacity by 2030 necessitates stronger grid discipline and advanced balancing mechanisms.
4. Challenges include limited forecasting accuracy, inadequate weather data infrastructure, and lack of real-time flexibility in the grid.
5. Current DSM reforms aim to penalise deviations to enforce discipline but risk raising costs and operational risks for renewable projects.
6. Developing ancillary markets and storage solutions is critical to address variability and support large-scale renewable integration.

2. Analyse the impact of stricter Deviation Settlement Mechanism rules on renewable energy project viability and consumer tariffs.

1. Stricter DSM rules tighten tolerance bands and increase penalties for deviations from scheduled generation, raising compliance pressures.
2. Renewable projects, especially wind, face higher forecasting challenges and financial risks due to natural variability and limited prediction tools.
3. Penalties could reduce gross annual revenue by up to 2.5% for some wind projects, threatening project viability and discouraging investment.
4. Higher operational and capital costs (e.g., advanced forecasting, battery integration) may increase tariffs passed on to consumers.
5. Existing power purchase agreements may become less profitable, affecting debt coverage and financial stability of projects.
6. A phased and flexible implementation is needed to balance grid stability goals with renewable sector growth and consumer affordability.

3. Examine the technological measures required to improve forecasting accuracy for wind and solar power generation and their economic implications.

1. Installation of advanced forecasting systems using AI, machine learning, and granular weather data to predict generation more accurately.
2. Development of high-quality, widespread weather monitoring stations to provide real-time, localized meteorological inputs.
3. Integration of battery energy storage systems to buffer variability and enable more precise scheduling of power injection.
4. Upfront capital investment and increased operational costs for developers due to technology upgrades and storage integration.
5. Improved forecasting reduces penalties and grid imbalances but may raise tariffs due to higher project costs.
6. Better forecasting enhances grid reliability and supports long-term renewable energy sustainability and investor confidence.

4. Point out the importance of ancillary power markets in maintaining grid stability and how they complement renewable energy integration.

1. Ancillary power markets enable real-time trading of power to quickly address supply-demand imbalances and frequency deviations.
2. They provide flexibility services like frequency regulation, spinning reserves, and reactive power support essential for grid stability.
3. Such markets allow renewable generators to sell excess power or procure balancing power, reducing financial risks from deviations.
4. Ancillary services complement battery storage and forecasting improvements by offering market-based balancing mechanisms.
5. India’s lack of a liquid ancillary market currently limits effective grid management and integration of variable renewables.
6. Developing functional ancillary markets will reduce penalties, improve grid resilience, and encourage renewable investments.