This tension between predictable scheduling of RE power supply and the desired grid discipline under the DSM Regulations has already landed in two High Courts.

Through the 2024 DSM Regulations, the permissible deviation (earlier allowed at 15%) was reduced to 5% for solar and hybrid and 10% for wind projects. Penalties for under-injection beyond a point were increased up to 200% of the contracted rate of power, and payment for over-injection beyond a point was reduced to Zero. This framework was put into effect from 01.04.2026. We had suggested in an earlier article in these pages that the 2024 DSM Regulations, taking effect from 01.04.2026, were liable to be challenged. The challenges before the Delhi and Karnataka High Courts duly followed.

Subsequently, the Central Electricity Regulatory Commission has now proposed to amend the DSM Regulations, once again. The draft Third Amendment to the 2024 DSM Regulations (which was intended to come into force on 01.07.2026), this time expressly states that deviation by RE projects commissioned beyond a prescribed timeline will be treated at par with thermal / conventional generators. Therefore, despite the known conflict and the pending proceedings before two High Courts, the Regulator now is expressly equating renewable power with thermal power for the purpose of the deviation mechanism.

Interim protection from the High Courts

On 27.04.2026, in a writ filed by the National Solar Energy Federation of India, the Hon’ble Karnataka High Court granted interim relief, permitting deviations of up to 15% to continue under the earlier 2014 framework.

Previously, in relation to the 2022 DSM Regulations attempting similar reduction of permissible deviation bands on renewable energy generators, the Hon’ble Delhi High Court had directed that no coercive steps be taken. Another challenge to the 2024 Regulations remains pending before the Hon’ble Delhi High Court, with a similar interim direction against implementation being granted on 20.11.2024.

Legislating around a Stay

The recent amendment proposed by the Regulator proceeds on the same premise, as was the case in earlier regulations, i.e. a narrower band with a penalizing charge is the right instrument for enforcing discipline, irrespective of dependency on weather conditions.

The Explanatory Memorandum to the proposed amendment expressly records that “the challenges arising from the intermittency and variability of renewable energy sources are expected to be progressively addressed through advancements in forecasting, scheduling practices, operational experience, and the deployment of enabling technologies”. However, it discloses no fresh material on forecasting accuracy, or viable deployment of energy storage systems.

As such, any new amendment will also be susceptible to the same fate as the earlier framework, as the very premise under challenge is carried forward unchanged by the Regulator.

The cheap battery v. the firming battery

The justification given by the Regulator presumes that the changes in technology, i.e. improvement in forecasting, deployment of storage systems, offers a complete solution to the commercial and practical difficulties being faced by RE Generators.

Firstly, there is no credible data which shows that forecasting with the precision of fifteen-minute block has been achieved.

Secondly, storage merely resolves mismatch in injection v. scheduled power, within the limits of the battery storage capacity. A two-hour BESS system, therefore, only solves a two-hour mismatch. If the deviation exists for longer, or the battery is already discharged, the deviation remains unaddressed.

Further, the storage that is cheap (limited capacity) and the storage that firms output (high capacity) are not the same asset. A standalone two-hour, two-cycle battery performs a foreseeable duty – for instance for solar power, it charges during hours of solar availability and injects power during evening/low-solar hours for 2 hours in 2 cycles. Given the predictability of evening / traditional low-solar hours, the ulitlization of the battery remains high, and it solves deviation for up to 4 hours. However, a battery deployed to fully correct deviation (i.e. firm storage) performs an entirely different duty. It must be available the moment the forecast fails, which is by definition not known in advance. Further, it must have storage capacity to cater for the largest expected forecast error rather than a 2-hour cycle. Crucially, such a firm BESS earns nothing on the day the forecast holds.

The discovered tariffs for firm / round-the-clock dispatchable RE have been approved in the range ₹4.25 to ₹5.07 per kWh. As against this, solar-plus-storage (2 hour cycle) supply power at around ₹2.70 to ₹3.41 per kWh and vanilla solar at around ₹2.4 to ₹2.7 per kWh. Therefore, “firmness” of supply, using storage, is directly proportional to the costs. Cheaper storage alternates do not fully correct deviation. In other words, underlying premise of the Regulator i.e. elimination of deviation by storage mechanisms, ignores the cost impact on the tariff for the procurers and eventual consumers.

The increase in tariff for RE power is a concern which has even been echoed by the Ministry of New and Renewable Energy as well. In its comments to the draft amendment it has forewarned that requiring scheduling compliance at par with traditional generators “may significantly increase commercial risk for renewable energy developers”, and “affect project bankability, and slow down RE capacity addition”.

Economic viability risks of current storage projects

Even with respect to the cheaper 2-hour storage system, questions remain on whether contracted storage will be viable. JMK Research and IEEFA found in May 2026 that against a viability benchmark near ₹2.3 lakh per MW per month, roughly three-fourths of allocated two-hour capacity now sits in what they describe as the “at-risk” category. As per the report, developers of BESS systems have factored in “aggressive expectations of declining battery costs”, resulting in an excessive lowering of bid tariffs. The result is an anomaly: during 2022-25, average battery pack prices fell by 36.5%, while BESS tariffs declined almost 79.6%. Therefore, while cheaper storage systems only provide a partial solution, their commercial viability also remains questionable.

Where the challenge lies

The question before the two High Courts is not whether deviations should be discouraged. It is whether this instrument, applied to this class of generator, survives judicial scrutiny. Four propositions matter.

First, no law can compel a person to do the impossible. A charge levied on an outcome the generator does not control, is a charge for the weather, not for indiscipline.

Second, an excessive or disproportionate charge is a recognized ground for striking down subordinate legislation as “manifestly arbitrary”. The enquiry is whether less restrictive means were considered and rejected on disclosed reasons.

Third, consumer interest in terms of tariff shock should be considered and not assumed, while proposing solutions for grid discipline.

Fourth, a classification that does not have nexus with the object that it serves, is liable to be struck down by courts. The draft Amendment treats RE projects commissioned beyond a prescribed timeline at par with thermal generators. The classification completely ignores the fact that a renewable power project commissioned after the specified date remains as weather-dependent as one commissioned on time.

While courts will rightly decline to sit in appeal over an expert regulator on grid security, attributability, proportionality and classification remain the material questions.

This article was originally published in Saur Energy on 25 August 2026 Co-written by: Aashish Gupta, Partner; Puneeth Ganapathy, Principal Associate. Click here for original article

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