The Ministry of New and Renewable Energy has approved a pilot project to introduce a Contract for Difference (CfD) scheme for renewable energy in India. The decision, announced through an office memorandum dated March 30, 2026, signals a shift from traditional power purchase models toward a more flexible and market-driven system. The Solar Energy Corporation of India has been appointed as the nodal agency to manage the project, which will cover a total capacity of 500 MW.
Under this new mechanism, renewable energy developers will be allowed to sell electricity directly in the open market instead of relying only on fixed Power Purchase Agreements. The CfD model aims to ensure stable revenue for developers while exposing them to market signals. A key element of this system is the “strike price,” which will be discovered through a competitive reverse bidding process. If the market price of electricity rises above this strike price, developers will deposit the extra earnings into a central CfD pool. On the other hand, if the market price falls below the strike price, the pool will compensate developers for the difference. This structure is designed to protect generators from price fluctuations while promoting participation in power exchanges.
The pilot project focuses on supplying 1500 MWh of renewable energy daily during non-solar hours. This is aimed at addressing the growing need for power during evening and night-time periods when solar generation is not available. The projects will follow a Build-Own-Operate model and will have a contract duration of 12 years. To ensure fair competition, a single bidder will not be allowed to secure more than 125 MW of capacity.
An important feature of this pilot is the sharing of financial gains and losses between developers and the CfD pool. Any profit or loss arising from market operations will be shared in a 30:70 ratio between the developer and the pool. In addition, developers must sell any Renewable Energy Certificates they receive and deposit the proceeds into the same pool. This approach is expected to strengthen the financial base of the mechanism.
To support the scheme, the government has created a CfD Stabilization Fund of ₹276 crore. This fund will act as a buffer to manage daily financial settlements and ensure smooth operation. SECI will be responsible for maintaining this fund throughout the 12-year period and will need to replenish it from its own resources if required. To cover its administrative expenses, SECI can take up to 25 percent of the pool’s profits, although it will not be allowed to withdraw any amount during the first two years.
The pilot project is expected to test how well the CfD model works in the Indian context. By moving away from fixed contracts and encouraging market participation, the government aims to create a more competitive electricity market and improve the integration of renewable energy into the power system.
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