The Ministry of New and Renewable Energy (MNRE) has notified guidelines for its 500 MW pilot Contract for Difference (CfD) scheme, with Solar Energy Corporation of India Limited (SECI) as the nodal agency. The mechanism allows developers to sell power on exchanges while ensuring revenue certainty through the settlement of the difference between market and strike prices.
Notably, India has made remarkable progress in scaling up variable renewable energy capacity, surpassing 220 GW as of March 2026. Up until now, the power puchase agreement-based procurement model has successfully attracted private investment. However, as the power market evolves, there is a need to introduce advanced market mechanisms such as CfDs to support the sale of power on the exchanges.
Globally, CfDs have delivered stable revenue to developers and ensured market-based price discovery. The CfD pilot project aims to demonstrate fiscal prudence, operational transparency and the institutional scalability of the mechanism in India, setting the stage for large-scale deployment in the renewable energy sector.
The MNRE’s CfD pilot, designed to procure power during evening and peak periods, is expected to provide revenue certainty to renewable energy developers in time blocks where price volatility is higher. It will make renewable energy projects more financially viable and encourage investment in firm, despatchable renewable energy when solar generation is unavailable. CfD complements the existing PPA framework by offering an additional instrument for integrating renewables into a more competitive and liquid electricity market. A CfD guarantees a fixed “strike price” ensuring that the generator’s revenue remains stable while the broader market remains competitive and flexible.
CfD tender guidelines
As per the MNRE guidelines, SECI will implement the pilot CfD scheme for the supply of 500 MW of renewable energy capacity during any three non-solar hours (that is, for the procurement of 1,500 MWh of renewable power). SECI will have the flexibility to invite bids to supply power in a limited band of hours within non-solar hours to increase market depth and ensure supply as per the need for storage seasonally. Further, the hours for injection on the exchange will be chosen by the renewable energy generator during the non-solar hours or the band specified by SECI within non-solar hours daily to maximise revenue.
The projects will be developed on a build-own-operate basis with a contract period of 12 years. After this period, the developer can continue selling power in the market without a CfD, or enter into a PPA/bilateral contract. The developer will be selected through competitive reverse bidding, on a bucket-filling basis. In order to ensure maximum participation, the maximum bid capacity for a single bidder will be restricted to 125 MW, and SECI may introduce a minimum project capacity, if required.
The strike price will be discovered by SECI through reverse bidding, with the option to set a ceiling on it to ensure proper market discovery based on the approved methodology that accounts for future energy storage costs. Under the CfD mechanism, if the market clearing price (MCP) is higher than the strike price, the surplus will be credited to the CfD pool, while any shortfall when the MCP is lower will be compensated from the pool to ensure payment at the strike price. A 30:70 profit-loss sharing arrangement between the developer and the CfD pool will apply, with daily settlement and monthly reconciliation. To ensure transparency and minimise curtailment risks, the tender will define a clear bidding sequence, starting with the green day-ahead market, followed by carry-forward to the day-ahead market and subsequently the real-time market for any remaining volumes.
A stabilisation fund of Rs 760 million has been created as a revolving buffer to manage pay-ins and payouts under the framework, to ensure financial discipline and smooth functioning during the pilot phase. To meet its operational expenses, such as market monitoring, settlement processes and coordination with SLDCs and power exchanges, SECI may retain up to 25 per cent of the net profits credited to the CfD pool (after deducting the renewable energy generator’s share). To strengthen the pool in the initial years, a two-year moratorium has been set on SECI’s withdrawals, with accrued income allowed to be withdrawn subsequently. Thereafter, withdrawals will be undertaken on a quarterly basis, capped at 30 per cent of SECI’s entitled share, subject to the liquidity position and anticipated requirements of the CfD pool. SECI will maintain the pool over the entire 12-year contract period and, in case of any deficit, it will replenish the pool from its own resources.
Overall, the MNRE’s CfD guidelines are a positive step towards improving renewable power procurement, particularly by focusing on non-solar and peak-hour supply, and encouraging storage-based projects. The framework enhances revenue visibility for developers while better aligning renewable supply with grid requirements. However, based on the pilot’s outcomes, the design may need to be strengthened in terms of government support, contract tenor and risk coverage to better meet industry expectations.
Priyanka Kwatra