Deviation Settlement Mechanism Linked with Market Price in Indian Power Sector

In India, before introduction of Availability Based Tariff (ABT) grid was undisciplined. There was large variation in the grid frequency. After implementation of ABT grid frequency was narrowed as well as grid was disciplined. Main aim of ABT was to increase generation capacity of the nation but it was taken as a profit making entity. Deviation Settlement Mechanism (DSM) is a regulatory mechanism by which grid stability is achieved by imposing penalty and incentives for over drawl/injection or under drawl/injection from the schedule. DSM is a frequency linked mechanism. It is not related to any market conditions. In this paper we tried to link market price with DSM price along with frequency. It is observed that DSM price is much less than the market price-Market clearing price (MCP). A case of Maharashtra state is taken for DSM price and MCP for last two years. It is observed that if DSM is linked with market price there will be more discipline in the grid as well as frequency band can be narrowed.