Ministry of New and Renewable Energy has rolled out a pilot Contract for Difference framework aimed at strengthening renewable energy supply beyond solar hours and improving market-linked procurement mechanisms.
As per news reports, the pilot scheme covers 500 MW of renewable energy capacity, with developers required to supply 1,500 MWh of electricity daily during non-solar periods. Developers can choose any three-hour window for delivery based on operational flexibility.
Solar Energy Corporation of India has been appointed as the implementing agency. Projects under the scheme will follow a build-own-operate model and will be backed by contracts spanning 12 years.
The pricing will be determined through a reverse bidding process, where a strike price is discovered. Under the CfD mechanism, if market prices fall below this level, the government compensates developers, while any excess above the strike price is returned by the developers.
To ensure wider participation, no single bidder can be allocated more than 125 MW, equivalent to 375 MWh. A stabilisation fund of ₹76 crore has been created to manage financial settlements, including pay-ins and pay-outs under the CfD arrangement.
Developers will also be required to participate in a structured market sequence, beginning with the Green Day-Ahead Market, followed by the Day-Ahead Market, and finally the real-time market for any remaining electricity.
Renewable Energy Minister Pralhad Joshi stated that the initiative aims to provide revenue certainty, improve market stability, and enhance investor confidence.
Industry experts highlighted the financial challenges associated with renewable energy projects operating during non-solar hours.
The scheme is expected to reduce investment risks without imposing long-term procurement obligations on distribution companies.
It also introduces flexibility into the system and reflects a gradual transition away from traditional 25-year fixed-price power purchase agreements towards market-based mechanisms.
The pilot also addresses a key imbalance in the energy system. While solar generation peaks during the day, demand tends to rise in the evening and early morning.
Currently, this gap is largely filled by thermal power at higher costs, as renewable sources struggle to compete once storage costs are included.
Contract for Difference mechanisms have been successfully implemented in countries such as the UK and Spain.
In the Indian context, this pilot could serve as a transitional model between long-term fixed tariff arrangements and fully market-driven renewable projects, particularly for peak-hour supply.
Over time, as costs decline and market participation increases, especially from commercial and industrial consumers, the model may evolve into a more commercially sustainable framework.
Read More: World Bank’s IFC to Double India Investments to $10 Billion by 2030, Focus on Infra and Energy!
The CfD pilot represents a shift in India’s renewable energy policy, combining market-based pricing with revenue assurance to support non-solar power supply and encourage investment in flexible generation capacity.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks, read all the related documents carefully before investing.
Published on: Apr 27, 2026, 11:05 AM IST
Team Angel One
We're Live on WhatsApp! Join our channel for market insights & updates
Get the link to download the App
