Ministry Of Power Introduces Insurance Surety Bonds To Replace Bank Guarantees In The Power Sector

The Government of India’s Ministry of Power has introduced a major reform to improve financial processes in the energy sector. In a directive issued on April 6, 2026, the ministry announced that Insurance Surety Bonds (ISBs) will now be accepted as an alternative to traditional Bank Guarantees (BGs) and bid security instruments across all power procurement frameworks.

This decision is aimed at making project participation easier for developers and utilities while also improving the overall ease of doing business in India’s power sector. By allowing a wider range of financial instruments, the government hopes to reduce the burden on companies that earlier depended heavily on bank guarantees.

The move follows an earlier amendment made by the Ministry of Finance to the General Financial Rules (GFR), 2017. Under this amendment, Rules 170(i) and 171(i) were revised to expand the list of acceptable instruments for bid and performance security. Earlier, only options like Account Payee Demand Drafts, Fixed Deposit Receipts, and Bank Guarantees from commercial banks were commonly accepted. With the latest update, Insurance Surety Bonds have been formally included and given equal status alongside these traditional instruments.

According to the Ministry of Power, ISBs offer the same level of financial security as bank guarantees but come with added benefits. One of the key advantages is that they reduce the pressure on a company’s credit limits and free up liquidity. This is expected to help developers manage their finances better and participate in more projects without being restricted by banking limits.

The ministry has already taken steps to ensure that this new system is adopted smoothly. Provisions related to Insurance Surety Bonds have been included in the standard bidding guidelines for a wide range of projects. These include solar and wind energy projects, hybrid renewable energy projects, pumped storage projects, and power transmission works. The inclusion of ISBs is also being extended to newer segments such as Battery Energy Storage Systems (BESS).

In its memorandum, the ministry has advised all states, union territories, and power procurement agencies to update their bidding documents in line with the new rules. This applies to all types of power purchase agreements, including long-term, medium-term, and short-term contracts. The goal is to ensure uniform implementation of the policy across the country.

The directive was issued by Director Manish Mishra and shared with key stakeholders in the power sector. These include Principal Secretaries of power and energy departments in all states, heads of distribution and generation companies, and State Electricity Regulatory Commissions. The Central Electricity Authority and the Central Electricity Regulatory Commission were also informed to maintain consistency in policy implementation.

This reform is expected to bring more flexibility to the financial structure of power projects. At the same time, it maintains the necessary safeguards required for large infrastructure investments. Overall, the introduction of Insurance Surety Bonds marks an important step toward making India’s power sector more efficient, competitive, and investor-friendly.