CERC proposes capacity market framework to ensure resource adequacy
The Central Electricity Regulatory Commission (CERC) has released a staff paper proposing a capacity market framework for India’s electricity sector, aimed at ensuring resource adequacy, improving availability during system stress, and shifting dispatch and pricing towards market-based mechanisms. The paper was published in April 2026 and notified through a public notice on April 29, 2026.
The proposal marks a shift from the conventional long-term Power Purchase Agreement (PPA) model, where generators recover fixed costs based on availability and buyers retain scheduling rights. Drawing on models from Great Britain, PJM in the United States, and Germany, the paper outlines approaches where capacity is contracted separately, with payments linked to market participation rather than assured cost recovery.
The paper presents three broad market design options for consultation. The first is a Resource Adequacy (RA) Obligation Capacity Market. Under this, distribution companies would procure capacity based on capacity charges, with demand determined using a net cost of new entry approach. Contracts may extend up to 15 years, with both generators and discoms participating in day-ahead and real-time markets. Variants include retaining the current two-part tariff structure while shifting dispatch to the market, and a centralised residual RA market where a designated agency conducts auctions for discoms facing capacity shortfalls.
The second option is a Reserve Capacity Market to address shortages in secondary and tertiary reserves, particularly during periods of high renewable generation. Under this framework, the National Load Dispatch Centre (NLDC) would conduct annual auctions, with one-year capacity contracts. The NLDC would have priority dispatch rights, while contracted capacity could participate in ancillary services and energy markets when not requisitioned. Costs would be allocated to states with reserve deficits.
The third proposal is a Secondary Short-Term Capacity Market for existing assets, allowing trading of capacity on a monthly or quarterly basis. Two formats are considered: a single-part capacity charge bid and a two-part bid covering both capacity and energy. In both cases, generators would be required to supply during peak or stress periods, with penalties for non-compliance set at 1.5 times the discovered capacity charge.
To limit strategic behaviour, the paper suggests that capacity providers act as price takers during peak and stress hours identified by the NLDC. The framework is designed to be technology-agnostic, with the expectation that renewable energy projects will participate by integrating storage solutions to offer firm capacity.
CERC clarified that the paper reflects staff views and is not binding on the Commission. Stakeholders have been invited to submit comments by May 27, 2026.
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