MNRE's CfD pilot likely to bring revenue certainty for RE developers

MNRE launches a 500 MW CfD pilot to ensure revenue certainty, reduce risks, and improve market stability for renewable energy developers

The Ministry of New and Renewable Energy (MNRE) has launched a pilot contract for difference (CfD) scheme for 500 MW of renewable energy capacity, with developers required to supply 1,500 MWh of power daily during non-solar hours, across any three-hour window of their choice. The Solar Energy Corporation of India (SECI) has been designated as the nodal agency for its implementation.

 

CfD in renewable energy policy is a long-term, government-backed financial mechanism designed to stabilise revenue for low-carbon electricity generators, while preserving competitive, market-based price discovery. It encourages investment by guaranteeing a fixed “strike price” where the government pays producers if market prices are lower, and developers repay the difference if market prices are higher.

 

The contracts for the projects, to be developed on a build-own-operate basis, will be signed for a period of 12 years, and the strike price will be determined through a reverse bidding process. No single bidder will be allocated more than 125 MW (375 MWh in energy terms) of the total capacity.

 

Moreover, the government will create a stabilisation fund of Rs 76 crore to manage pay-ins and pay-outs. RE generators are also required to follow a bidding sequence of the green day-ahead market (GDAM), followed by order carry forward to the DAM, with any remaining volume to be bid in the real-time market.

 

“By introducing a price assurance mechanism, the initiative will help ensure revenue certainty, market stability, and greater confidence for renewable energy developers,” renewable energy minister Pralhad Joshi said on X.

 

“Developers face significant challenges in financing renewable capacity that operates only during flexible or non-solar hours without long-term contracts. Battery-backed solar raises generation costs to Rs 5.5–6.0 per unit, while merchant market prices remain volatile and uncertain, making projects difficult to bank,” said Padam Prakash, partner, power and utilities, PwC India.

 

The scheme, therefore, reduces investor risk without forcing discoms into long-term procurement commitments, thereby introducing system flexibility. Prakash added that the pilot is a signal of how India’s renewable procurement framework is beginning to evolve beyond long-term fixed-price power purchase agreements. This move reflects the government’s broader plan to shift away from 25-year contracts that the power sector, including renewables, has historically relied on.

 

The pilot is also expected to reduce mismatch between RE supply and demand. With solar now dominating renewable additions, generation peaks during daytime hours, whereas demand peaks in the evening and early morning. “Beyond solar hours, power is largely supplied by thermal plants at higher prices, as renewable generators struggle to compete once storage costs are factored in,” Prakash noted.

 

Internationally, CfDs have been successfully deployed in markets such as the UK and Spain. In India, if the pilot performs as intended, CfDs could emerge as a useful intermediate step between fixed-tariff contracts and fully merchant renewable projects, particularly for evening and peak-hour supply, he added.

 

However, the pilot scheme may only act as an initial push for market-based renewable projects to stand on their own feet. Prakash said, “Over time, as costs fall and market depth improves — especially with growing commercial and industrial participation — the model could evolve towards a more commercial, self-sustaining structure.”