India, May 2 -- A regulatory effort to keep the national power grid stable and make green power more reliable may wreck the revenues of producers and potentially lead to tariff hikes, industry executives warned. The regulator has proposed steep penalties for companies which are under- or over-producing power, rattling solar and wind power firms dependent on the vagaries of weather.

In the power sector, a deviation settlement mechanism (DSM) penalizes producers when what they deliver to discoms differs from what they promised. The Central Electricity Regulatory Commission (CERC) has set a tolerance band of 10% for wind power and 5% for solar. Essentially, this means a company producing above or below these thresholds is liable to pay stee...