Quick Facts
What solar bidding mechanisms are
Solar projects in India are typically awarded through competitive bidding mechanisms. The bidding mechanism determines how developers compete and how the project is structured. Different mechanisms suit different project types, risk allocations, and policy objectives.
The dominant mechanism is reverse auction (tariff-based bidding) for utility-scale solar. SECI, state DISCOMs, and other procurers use this for most large solar tendering. Tariffs are discovered competitively, with the lowest bidder winning.
Other mechanisms exist for specific applications: VGF auctions for early support, bucket bidding for rapid expansion, CapEx bidding for government-financed projects, and hybrid bidding for storage-integrated solutions.
Reverse auction (tariff bidding)
The most common mechanism. The process:
Tender announcement: Specifications, location, capacity, terms.
Bidder qualification: Technical and financial criteria.
Bid submission: Sealed bids with EMD.
Bid opening: Initial tariffs disclosed.
Reverse auction: Real-time online auction where bidders progressively lower bids.
L1 selection: Lowest bidder wins.
LOA (Letter of Award): Formal award.
PPA signing: 25-year PPA at discovered tariff.
Construction: 18 to 24 month commissioning timeline.
Operation: 25-year revenue stream at discovered tariff.
This mechanism has been highly successful in India, driving solar tariffs from Rs 12-15 per kWh in 2010 to Rs 2.50 per kWh and below by 2024.
Viability Gap Funding (VGF) auction
VGF was the earlier mechanism, used when private solar financing was unproven:
Process:
Government sets the feed-in tariff (FIT).
Developers bid the lowest VGF (capital subsidy) needed.
L1 (lowest VGF) wins the project.
The project then operates at the fixed FIT.
VGF was instrumental in early NSM solar deployment but has largely been replaced by tariff-based bidding as the market matured.
Bucket bidding
Bucket bidding awards multiple developers at uniform tariff:
After competitive bids, projects within a tariff range (the bucket) are all accepted.
Uniform tariff applies to all bucket projects (often the highest accepted bid).
Allows multiple developers to win, expanding deployment.
Used in some early SECI tenders for rapid solar build-out.
Bucket bidding helped scale solar quickly but was largely replaced by strict L1 selection for cost optimisation.
CapEx-based bidding
For government-financed projects:
Government holds the solar plant.
Developers bid the construction cost (Rs per MW).
Lowest CapEx bidder wins.
Used for CPSU solar, defence solar, and similar publicly-owned projects.
Different from tariff-based bidding because the government takes generation risk; developer’s role is construction.
Bundled bidding
Bundled bidding combined solar with conventional power:
Solar power was bundled with thermal/hydro at a weighted tariff.
DISCOMs purchased the bundled power at a lower combined tariff than pure solar.
Used in early NSM phases to ease DISCOM adoption.
Less common now as solar tariffs have become competitive with conventional generation.
Hybrid and storage bidding
Modern bidding evolution includes:
Solar plus storage: Bids combine solar generation with battery storage. Specifications for round-the-clock or peak-shifted delivery.
RTC (Round-the-Clock) tenders: Combined solar, storage, and possibly wind/thermal to provide 24x7 renewable power.
Firm and dispatchable RE: Specified delivery profile (e.g., 12 hours peak coverage).
These advanced tenders address the dispatchability challenges of variable renewables.
Manufacturing-linked bidding
PLI (Production-Linked Incentive) scheme created manufacturing-linked solar bids:
SECI tendering linked to manufacturing capacity establishment.
Developers must establish or have access to domestic solar manufacturing.
Higher tariffs justified by manufacturing investment.
This category supports both deployment and the development of domestic manufacturing capability.
Bid evaluation criteria
Solar tenders evaluate bidders on:
Technical: Project experience, capacity track record, financial strength.
Financial: Tariff bid (primary criterion).
Documentation: Compliance with tender requirements.
Bonding: EMD and performance guarantee.
Some tenders weight technical and financial scores. Most use L1 (lowest tariff) as primary criterion for qualified bidders.
Common bidding mistakes
Underbidding without business case. Aggressive bids leading to project distress.
Over-relying on cost reductions. Future cost trends not always favourable.
Insufficient due diligence on tender site. Land, evacuation, water issues.
Poor PPA understanding. Long-term commitments require careful evaluation.
Inadequate bid bond planning. Forfeiture for breaches.
Ignoring connection costs. Connection charges separate from tariff.
Best practices
For solar developers:
Develop bidding capability with detailed cost models.
Understand all tender terms including PPA implications.
Engage experienced bid advisors.
Maintain documentation supporting bids.
Have multiple project options to manage tender risks.
For SECI/DISCOM procurement:
Clear tender specifications.
Reasonable bid bonds and performance guarantees.
Transparent evaluation criteria.
Realistic commissioning timelines.
For analysts:
Monitor tariff discovery patterns across tenders.
Compare bid prices to project economics.
Identify trends in solar pricing.
Standards and references
Solar bidding in India follows MNRE TBCB guidelines, SECI tender documents, and state-specific procurement rules. CERC RE guidelines provide regulatory framework. Tender documents specify all terms, qualifications, and evaluation criteria.
Related glossary terms
Key takeaways
Solar projects in India are awarded through various competitive bidding mechanisms. Reverse auction (tariff-based bidding) is the dominant method, used by SECI and state DISCOMs for utility-scale solar. Other mechanisms include VGF auctions (legacy), bucket bidding (multiple developers at uniform tariff), CapEx-based bidding (government-financed projects), bundled bidding (solar plus thermal), and hybrid bidding (solar plus storage). Each mechanism suits different project types and policy objectives. The reverse auction mechanism has been highly successful, driving Indian solar tariffs to among the world’s lowest.