SECI 500 MW Pilot RE Project: Overview of the CfD Mechanism (SECI-CfD-I)

The Ministry of New and Renewable Energy (MNRE) has approved the implementation of a pilot Contract for Difference (CfD) framework for 500 MW of renewable energy capacity. This initiative, designated as SECI-CfD-I, represents a transition in India’s power procurement strategy from fixed-price Power Purchase Agreements (PPAs) toward a market-linked model. The Solar Energy Corporation of India (SECI) is the designated nodal agency for the project.

Project Scope and Development Model

The SECI-CfD-I tender covers a total capacity of 500 MW with a mandated daily energy supply of 1,500 MWh. This supply volume is based on the technical specification of 500 MW delivered over a 3-hour duration.

The project will be executed under the Build-Own-Operate (BOO) model for a contract duration of 12 years. The pilot is designed to evaluate the financial and operational viability of market-linked revenue support and to test the institutional scalability of the CfD mechanism within the Indian power market.

The Contract for Difference (CfD) Mechanism

The CfD framework is a financial settlement mechanism that reconciles a “Strike Price,” discovered through competitive bidding, against the “Market Clearing Price” (MCP) prevailing on the power exchange. This structure is intended to provide revenue stability to developers while ensuring that power is traded based on market signals.

The financial settlement logic for the CfD pool is defined as follows:

Profit and Loss Sharing Daily profits and losses are shared between the CfD pool and the Renewable Energy Generator (REG) in a 70:30 ratio. While the mechanism protects against price volatility, it requires that for power sold in conventional markets (DAM/RTM), Renewable Energy Certificates (RECs) will be issued to generators. All revenues generated from the sale of these RECs must be deposited into the CfD pool.

CfD Stabilization Fund A Stabilization Fund with a corpus of ₹76 crore serves as a revolving buffer to manage the timing of pay-ins and pay-outs. To maintain fiscal prudence, the Government of India’s total financial exposure under this framework is capped at the initial fund amount of ₹76 crore.

Operational and Technical Requirements

The project contains specific mandates for grid integration and power delivery designed to address supply constraints during non-solar periods.

• Grid Integration: Generators are required to establish an Inter-State Transmission System (ISTS) connection.
• Supply Scheduling: Supply is mandated for a 3-hour duration during non-solar hours. This requirement is intended to provide liquidity in non-solar hours when supply is historically harder to secure.
• Operational Flexibility: REGs are granted the flexibility to select their injection windows within the specified non-solar hours. This allows generators to optimize market participation and maximize revenue based on price signals.
• Energy Storage Systems (ESS): Co-location of Energy Storage Systems is a requirement to fulfill the obligation of supplying power during non-solar hour windows.
• Bidding Sequence: To minimize curtailment risks, generators must follow a prescribed bidding sequence on the power exchange:
  1. Green Day Ahead Market (GDAM)
  2. Order Carry Forward (OCF) to the Day Ahead Market (DAM)
  3. Real Time Market (RTM)

Financial and Bidding Parameters

SECI will select developers through a reverse bidding process on a bucket-filling basis. Bidders must comply with the following parameters:

• Minimum Bid Capacity: 50 MW.
• Maximum Capacity Per Bidder: 125 MW (equivalent to 375 MWh).
• Strike Price Ceiling: SECI may impose a strike price ceiling to ensure prudent price discovery.
• Earnest Money Deposit (EMD): Mandatory submission as per the tender guidelines.

Implementation Timeline and Governance

As the nodal agency, SECI is responsible for managing the CfD pool and ensuring regulatory compliance with the Central Electricity Regulatory Commission (CERC) and the Securities and Exchange Board of India (SEBI).

• Key Milestones: The implementation timeline includes a pre-bid meeting and final bid submission. [Dates to be specified upon SECI notification].
• SECI Operational Expenses: SECI is authorized to retain up to 25% of the profits credited to the pool to cover administrative and operational expenses. This retention is calculated only after the generator’s 30% share has been accounted for.
• Fund Management: A two-year moratorium on withdrawals from the pool has been established to strengthen liquidity. Following this period, SECI may perform withdrawals on a quarterly basis, subject to the pool’s liquidity conditions.

Post-Contract Flexibility

The CfD revenue support terminates at the conclusion of the 12-year contract period. Following the contract expiry, generators retain full ownership of the assets and have the flexibility to:

• Sell power directly in the open market (merchant route).
• Negotiate and enter into new Power Purchase Agreements (PPAs).
• Execute bilateral power supply agreements, subject to the prevailing regulatory framework.