The Karnataka High Court has issued an interim stay on the enforcement of the Central Electricity Regulatory Commission’s (CERC) revised deviation settlement mechanism (DSM) for renewable energy project developers.

The stay will be in force until the next hearing on June 10, 2026.

The revised mechanism proposed changes to the deviation calculation formula, tighter deviation bands, and higher penalties, effective April 1, 2026.

The High Court said that since the petitioners are willing to continue under the earlier DSM regime and comply with the existing deviation norms, the revised norms cannot be enforced.  The petitioners can continue under the earlier DSM regime; deviations of up to 15% will be governed by that framework, and the petitioners will pay deviation charges accordingly.

The petition was filed by the National Solar Energy Federation of India (NSEFI), challenging the new DSM mechanism on the grounds that renewable energy generation is inherently weather-dependent and uncontrollable, unlike conventional sources.

Since the CERC failed to consider the objections/suggestions of the stakeholders before the issuance of the final notification, the High Court said that CERC defeated the purpose of the publication of the regulation, rendering the impugned provision arbitrary and violative of the principles of natural justice.

NSEFI argued that the revised DSM mechanisms were notified without complying with the mandatory requirement of prior publication under the Electricity Act, 2003.

It contended that the draft notification did not contain the revised deviation formula as ultimately notified, thereby denying stakeholders a meaningful opportunity to object to the substantive change.

In September 2025, CERC proposed changing the calculation of deviation settlement to use the project’s scheduled generation instead of available capacity. The move also reduces the DSM tolerance band for wind from ±15% to ±10% and for solar from ±10% to ±5%. Developers had expressed concerns that implementing this DSM regime would lead to significant revenue losses due to the intermittency of renewables.

The DSM framework was notified on April 1, 2,026, indicating a phased shift to the new DSM regime. Regarding the implementation of the order, CERC said that it will be subject to the outcome of writ petitions against the regulations pending before the Delhi High Court.

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