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NSEFI Writes To MNRE To Analyze ‘Disastrous’ Impact Of New DSM Rules On Renewable Sector

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The National Solar Energy Federation of India (NSEFI), a key organization of renewable sector players, has raised major industry concerns about the Deviation Settlement Mechanism (DSM) for renewable energy as notified by the Central Electricity Regulatory Commission (CERC) in a letter to Indu Shekhar Chaturvedi, Secretary, Ministry of New and Renewable Energy (MNRE).

The new regulations, which went into effect on March 14, were made public via a notice issued on March 22.

The NSEFI stated in its letter that the final notification appears to have neglected representations made during conferences with MoP, CERC, and MNRE, and that CERC has published final DSM regulations that are substantially stiffer than the existing ones and will have a ‘disastrous’ influence on renewable energy project revenues.

NSEFI cited that developers had requested to reduce the deviation settlement band from the existing 15% to 12%. The penalty for exceeding this limit may be given equally to over and under injection.

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NSEFI set forth that Wind and Solar are both sporadic sources, and it is impossible to anticipate with accuracy, especially at the individual project level, what the resource would be in each 15-minute interval as needed by DSM, which was already a heavy load.

The federation added that developers should be permitted to ‘virtually’ pool forecasting and scheduling in order to make more accurate forecasts. Further, the penalty should be related to the PPA pricing rather than the Ancillary market, which is still in its early stages. The link to the ancillary market might be introduced under future rules.

Because of the same reasons, the proposed regulations, which provided for zero compensation in the event of deviations, drew a concerted industry effort to address the bias against renewable players.

The industry organization has released estimates on the anticipated impact of the new restrictions on projects if they are implemented. The consequence will be 4-5 % on the annual income of operational solar projects and 7-8% on the annual revenue of wind projects, which is much greater than the present impact of 0.3-0.5% for solar and 2% for wind.

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Along with the significant income effect, the industry is concerned that because there are no appropriate means of predicting wind & solar, developers’ capacity to adequately outline the risks of this DSM shift, especially for new projects, would be challenging.

The federation added that, since all developers utilize the same internationally approved forecasting methodology, the body has advocated for permitting project aggregation at the regional level to decrease unpredictability.

It also provides a case for connecting penalties, when applicable, to project PPA rates rather than power exchange market pricing, because these markets are not yet operating and exchange prices can be quite volatile.

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