The ministry of new and renewable energy (MNRE) in its recent amendments to the tariff-based competitive bidding guidelines for procurement of grid-connected solar power has stated that a letter of undertaking (LoU) from public sector financiers Indian Renewable Energy Development Agency Limited (IREDA), Power Finance Corporation (PFC), or REC Limited would have the same effect as that of a bank guarantee.
As per the guidelines, an LoU from the three non-banking financial institutions (NBFCs) under MNRE and power ministry to pay in case of default of solar power generator in terms of tender conditions and power purchase agreement, would have same the effect as that of a bank guarantee issued by any public sector bank. According to the amendments, solar power generators could get such LoUs by offering due security to any of the three NBFCs. However, letter from any other financial institutions would not be accepted.