The Ministry of Power (“MoP”) has notified the ‘Guidelines for Tariff Based Competitive Bidding Process for Procurement of Power from Grid Connected Wind Solar Hybrid Projects’ on August 21, 2023 (“Guidelines”) in furtherance of the objective set out by the Ministry of New and Renewable Energy (“MNRE”) in its Wind-Solar Hybrid Policy issued on May 14, 2018 as amended on August 13, 2018. The Guidelines will replace the erstwhile guidelines issued by the MoP for this purpose vide No. 238/78/2017-Wind on October 14, 2020, and as amended subsequently. The key aspects of the Guidelines have been summarized hereinbelow:

Objectives: The Guidelines have been issued with the following objectives:

1. Promoting competitive procurement of electricity from grid connected wind solar hybrid power projects (“Hybrid Projects”) by distribution licensees;
2. Facilitating renewable capacity addition and renewable purchase obligation (“RPO”) of distribution companies;
3. Bringing transparency and fairness to the power procurement process and setting out a standard framework for the process; and
4. Providing a risk-sharing framework between stakeholders and ensuring reasonable returns to the investors.

Key Terms: The key definitions provided under the Guidelines are as follows:

1. “Procurer(s)” means the distribution licensee(s), their Authorized Representative, or an Intermediary Procurer.
2. “Intermediary Procurer” is an intermediary designated by the MNRE or a state government, to aggregate the power purchased from different generators and sell it to the distribution licensees, consuming entities, or open access consumers (“End Procurer”). The Intermediary Procurer will enter into a PPA with the Hybrid Power Generators (“HPG”) and a Power Sale Agreement (“PSA”) with the End Procurer who will pay a trading margin of Rs. 0.07/kWh to the Intermediary Procurer.
3. “HPG” means the generator and supplier of electricity generated through a Hybrid Project.
4. “Scheduled Commencement of Supply Date” or “SCSD” is the date of commencement of supply quoted in the Request for Selection (“RfS”).

Applicability:

1. The Guidelines have been issued under Section 63 of the Electricity Act, 2003 (“Act”), and will be applicable to the procurement of electricity by Procurers from Hybrid Projects having a bid capacity of at least (a) 10 MW for projects connected to intra-state transmission system; and (b) 50 MW for projects connected to inter-state transmission system, provided the rated power capacity of each source (wind or solar) is at least 33% of the total contracted capacity.
2. The solar and wind projects comprising a Hybrid Project may be located at same or different locations.
3. Storage may be added to Hybrid Project to:
   1. reduce the variability of output power;
   2. provide higher energy output for sanctioned capacity at delivery point by installing additional capacity; and
   3. ensure fixed availability of power for a certain period.
4. The Guidelines are binding on Procurer, Authorized Representative, and Intermediary Procurer.
5. Power purchased from Hybrid Projects may be used to fulfill RPO, pro-rated to the respective rated capacity of wind and solar power.
6. The standards provided in the Guidelines may be further detailed in the Standard Bidding Documents, viz., model RfS document, model PPA and model PSA. 

Invitation for Bids by the Procurer:

1. The Procurer will prepare the bid documents in compliance with the Guidelines.
2. Additional milestones such as land acquisition, connectivity, etc. for the project, may be specified in the RfS, apart from regular reporting requirements for HPG and penalty for non-compliance.
3. HPG will be responsible to obtain clearances, permits, and licenses required prior to the SCSD, and Procurer will have no liability for delay in obtaining any such clearances, permits, and licenses.

Bid Structure: The bidding structure must comply with the following:

1. Bid Size- The Procurer will invite bids based on power capacity (MW) and may specify the maximum capacity that can be allotted to a single bidder (including its affiliates).
2. Bidding parameters-
   1. The tariff quoted by the bidder will be considered as the bidding parameter and will be a fixed tariff in Rs./kWh terms for the PPA period.
   2. The capacity will be allocated based on Bucket filling with the least quoted tariff bidder getting the priority, subject to a maximum of 50% of total capacity specified in the RfS (L1 bidder) at the rates quoted (L1 rates), the next lowest bidder getting capacity awarded and so on.
   3. The bidders having quoted tariff within a pre-defined “Range” of (L1 rates + ‘x’%) Rs./kWh, x being the value fixed in the RfS and ranging from 2 (Two) to 5 (Five), are eligible for allocation under the bid based on the ascending order of quoted tariff.
   4. The Procurer also has the option to use the reverse auction method for selecting final bidders, however, the same needs to be specified in the notice inviting bids and bid document.

Power Purchase Agreement: The Procurer is required to issue the draft PPA and the PSA with the RfS. The standard PPA must contain, inter alia, the following provisions:

1. PPA Period- The PPA period is generally for 20 years from SCSD or rescheduled commencement date of supply. Developers having already installed Hybrid Projects or are in the process of constructing plants and having untied capacity will also be eligible to participate in the bidding process. In such cases, they will receive the benefit of a longer PPA period proportionate to the duration between the actual commencement date and SCSD.
2. Quantum of Power- The procurement of power is required to be in power (MW) terms.
   1. The range of Capacity Utilization Factor (“CUF”) will be specified in the bidding documents and calculated on a yearly basis, and the penalty for non-compliance must be specified in RfS.
   2. In case of a shortfall in production, i.e., less than minimum CUF, the HPG will pay a penalty to the Procurer of an amount equivalent to one and a half of the PPA tariff for the shortfall.
   3. If the availability of energy exceeds the maximum annual CUF, the HPG is entitled to sell it to another entity, subject to the Procurer’s right of first refusal.
   4. The HPG may also sell the power offered on a day-ahead basis (within maximum CUF) to the Procurer but not scheduled by the Procurer, to any third party or power exchange without the Procurer’s approval.
   5. The RfS will specify the penalty for non-performance by HPG.
   6. The deviation settlement mechanism (“DSM”) for deviations from the schedule will be as per the applicable regulations and DSM charges will be settled by the HPG.
3. Payment Security Mechanism (PSM)- A developer undertaking to pay PSM charges of 2 paise per unit will be eligible to seek coverage under the Procurer’s payment security fund.
4. Offtake Constraints- The Procurer will pay a penalty as per the Electricity (Promotion of Generation of Electricity from Must-Run Power Plant) Rules, 2021 on failure to offtake power scheduled by HPG.
   1. For offtake constraints due to grid unavailability beyond 50 hours in a contract year, the Procurer will address the generation compensation as follows:
      Generation Compensation = ((Tariff X RE power (MW) offered but not scheduled by Procurer)) X 1000 X No. of hours of grid unavailability.
      However, in case of third-party sale or sale in the power exchange, as price taker, 95% of the amount realized, after deducting expenses, will be adjusted against the generation compensation payable, on monthly basis.
   2. For constraints due to the Procurer’s failure to offtake power beyond 50 hours in a year, despite the availability of supply of power, the Procurer will pay the following compensation to the HPG:
      Generation Compensation = ((Tariff X RE power (MW) offered but not scheduled by Procurer)) X 1000 X No. of hours of Reduced Offtake.
      However, in case of third-party sale or sale in the power exchange, as price taker, 95% of the amount realized, after deducting expenses, will be adjusted against the generation compensation payable, on monthly basis.
   3. HPG is required to sell its power in the power exchange as a price taker to claim compensation, which will be limited to the difference of the actual generation up to the declared capacity subject to a maximum of up to the contracted capacity and quantum of power scheduled by the Procurer.
5. Event of Default- The following events will be considered as events of default:
   1. A delay in commencement of supply beyond 6 months from SCSD will be construed as a generator event of default.
   2. Failure of the generator to maintain energy supply corresponding to the minimum CUF, rendering the PPA liable for termination and making the generator liable to pay damages equal to the lesser of the tariff for 24 months, or balance PPA period.
   3. Any assignment, novation of any rights or obligations, repudiation of the PPA, or any commission or omission, contrary to the PPA, which remains uncured within the specified cure period, will make the generator liable to pay damages equal to the lesser of the tariff for 24 months or balance PPA period.
   4. For a generator’s event of default, the Procurer may also substitute the defaulting generator or terminate the PPA if substitution is not achieved within the specified period.
   5. The generator may terminate the PPA in case of default of the Procurer or Intermediary Procurer such as failure to make timely payment of dues. Such default will make the Procurer liable to pay damages equal to the lesser of the tariff for 24 months or the balance PPA period.

Bidding Process: The bids will be called in a single stage two-part process comprising a technical bid followed by a financial bid, conducted through electronic mode. Only the bidders qualifying the technical bid will be entitled to participate in the financial bid. The Procurer will provide pre-bid conference to the prospective bidders and will provide written interpretation of bid documents to the bidders, which will be relied on by the bidders.

RfS Document: The RfS document will include, inter alia, the following standard provisions:

1. Qualification requirements for the bidders:
   1. Technical Criteria- The Procurer may specify the technical criteria after an assessment of the number of project developers expected to meet the criteria, to be fulfilled by the bidders.
   2. Financial Criteria- The following financial criteria must be fulfilled by the bidder-
      1. The net worth requirement for the selection of bidders must be a minimum of 20% of the estimated capital cost for the project for the year in which bids are invited or any other criteria specified in the RfS. For this purpose, ‘net worth’ will be calculated as per the Companies Act, 2013 and will be the aggregate net worth of the bidding company or consortium along with that of their affiliates who undertake to contribute the requisite equity funding and performance bank guarantee (“PBG”) in case of bidder’s failure to do so.
      2. Bidder must ensure sufficient cash flow/ internal accruals to manage the fund requirements for the project and comply with any specified parameters such as annual turnover, bidding capacity, etc.
2. Earnest Money Deposit (EMD): Quantum of EMD must be specified in the RfS document and will not be less than 2% of the estimated capital cost of the Hybrid Project. EMD may be forfeited if HPG fails to execute the PPA within the specified time period.

Bid Submission and Evaluation:

1. The bidders may form a consortium and identify a lead member to act as the contact point for the bidding process.
2. The bidders will need to submit separate technical and price bids and furnish the requisite EMD.
3. The Procurer will set up an Evaluation Committee to evaluate the bids and select the bidder on the basis of the detailed procedure for evaluation and eligibility criteria to be provided in the RfS.
4. There must be at least 2 qualified bidders. However, if there are less than 2 qualified bidders even after 3 bidding attempts, the Procurer may continue the bidding process after obtaining approval from the appropriate commission.

Timelines for Bid Process: The Guidelines have set out a tentative timeline of 140 days for the completion of the bid process, i.e., signing of PPA and PSA, provided there is a minimum period of 22 days between issuance of RfS documents and the last date of bid submission.

Award of Contract: The Procurer will enter the PPA with the successful bidder/ project company or special purpose vehicle formed by the successful bidder. The names of the successful bidders and their quoted tariff will be publicly disclosed by the Procurer through its website.

The distribution licensee or the Intermediary Procurer will approach the appropriate commission for the adoption of tariffs as per Section 63 of the Act within 15 days of discovering the tariffs in the transparent bidding conducted as per the Guidelines. If the appropriate commission fails to decide within the higher of 60 days of such submission or 120 days from the date of PSA, the Procurer will extend SCSD for a time corresponding to the delay by the appropriate commission.

Bank Guarantees: The HPG will be required to provide the following bank guarantees/ letters of undertaking to pay the Procurer as per the RfS:

1. EMD in the form of (i) bank guarantee; or (ii) payment on order instrument/ letter of undertaking to pay in case of HPG’s default from Indian Renewable Energy Development Agency (“IREDA”)/ Power Finance Corporation Limited (“PFC”)/ REC Limited (“REC”).
2. PBG, as may be fixed by the Procurer and being a minimum 5% of the Estimated Capital Cost for Hybrid Project for the financial year in which bids are invited, in the form of (i) bank guarantee; or (ii) payment on order instrument/ letter of undertaking to pay in case of HPG’s default from IREDA/ PFC/ REC.

Change in Shareholding:

1. The successful bidder signing the PPA, is required to ensure its promoters’ control for 1 year from the SCSD, unless otherwise approved by the Procurer.
2. The shareholding of the successful bidder, being a single entity or a consortium, in the SPV/ project company, must not fall below 51% at any time prior to 1 year from the SCSD, except with the Procurer’s prior approval.
3. Any change in shareholding after the expiry of 1 year from SCSD can be undertaken after intimating the Procurer.

Commencement of Power Supply: The HPG must commence supply of power within (i) 24 months from the date of execution of PPA, where quantum allotted does not exceed 1000 MW; and (ii) 30 months from the date of execution of PPA, where quantum allotted exceeds 1000 MW, unless otherwise specified by the Procurer.

1. Part Commencement of Supply- The Procurer will accept the part commencement of power supply, provided that (i) the minimum capacity for acceptance will be the lower of 50% of project capacity or 50MW and (ii) in the case of inter-state project, a minimum capacity of 50MW. The projects can commence supply in parts of a minimum 10 MW capacity. SCSD will remain unaltered on part commencement of power supply and the PPA will remain in force for the period specified in the bid.
2. Early Commencement of Supply of Power- In a Hybrid Project, if one or more such component (wind or solar) is ready to inject power to the grid, while the remaining component is not ready, the HPG will be permitted to commence supply from such component which is outside the ambit of PPA, with the End Procurer having first right of refusal, followed by the Intermediary Procurer. In such case, the Procurer/ Intermediary Procurer will purchase such power at up to 75% of the PPA tariff for the applicable contract year.
3. Delay in Commencement of Supply of Power- HPG will be liable to pay the following penalties for delay in commencement of supply beyond the SCSD:
   1. For delay of up to 6 months from SCSD, encashment of PBG or alternate instruments, on a per day basis and proportionate to the capacity that has not commenced supply of power.
   2. For delay beyond 6 months from SCSD:
      The contracted capacity will be reduced to the project capacity that has commenced within the period of SCSD plus 6 months and the PPA for the balance contracted capacity will be terminated.
      
      The HPG will be debarred from participating in bids issued by any procurer for:
      1. 1 year, in case of first default; and
      2. Minimum 2 years, and maximum 3 years for the second and any subsequent defaults.

Transmission Connectivity: The HPG will obtain transmission connectivity to the ISTS network under the GNA Regulations at its own cost. The HPG will also bear all the expenses such as wheeling charges and losses between the project and the metering point, i.e., points at which energy supplied to the Procurer will be measured. Further, any such expenses incurred in transmission and distribution beyond the metering point will be borne by the Procurer.

Performance Monitoring: All Hybrid Projects will install requisite measuring equipment for wind and solar resource data and submit such data to the Procurer, National Institute of Wind Energy, National Institute of Solar Energy and/ or other designated monitoring agency. The successful bidder will also submit requisite data to enable the Procurer to regularly monitor the status of the project.

Deviation from the Guidelines: In case the Procurer/ Intermediate Procurer deems necessary to deviate from the process set out in the Guidelines, it will obtain approval from the appropriate government before initiating the bidding process and the appropriate government will be required to approve or require modification to bid documents within 60 days.

Please find attached a copy of the Guidelines.

This update has been contributed by Rachika Agrawal Sahay (Partner), Siddhant Satapathy (Senior Associate) and Sakshi Sharma (Associate).

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