Risk Allocation In India's 2025 Renewable Tenders (Curtailment, DSM, Change In Law And Performance Security)

1. Introduction

In India's 2025 renewable tenders, risk is being re‑balanced more carefully between government procurers and private developers, especially around curtailment, deviation charges, change‑in‑law and execution security. Recent amendments to competitive bidding guidelines and tender documents show a clear attempt to make projects bankable while still protecting grid stability and public finances.

2. Core Risk themes in 2025 tenders

Recent bid documents for solar, wind and hybrid projects build on MNRE's (Ministry of New and Renewable Energy, the central ministry responsible for policy and promotion of renewable energy in India) "50 GW annual bidding trajectory" and updated tariff based competitive bidding guidelines. The Ministry of Power's 2025 proposals and amendments aim to improve clarity, standardise treatment of events like force majeure and change‑in‑law, and recalibrate performance‑security levels for different project types.

SECI (Solar Energy Corporation of India Limited; a central public sector company that conducts renewable tenders and implements MNRE schemes) and other implementing agencies are issuing increasingly sophisticated RfS (Request for Selection; the bidding document through which agencies invite and shortlist project developers for renewable projects) and PPA (Power Purchase Agreement; the long‑term contract under which a generator sells electricity to a procurer at an agreed tariff and terms) formats, especially for ISTS (Inter‑State Transmission System; the high‑voltage transmission network that carries electricity across state boundaries in India) connected hybrid and RTC (Round‑The‑Clock; a renewable supply product that requires firm, continuous power delivery across all hours, often through a mix of technologies and storage) projects. These templates reveal evolving positions on who bears forecasting risk, how DSM (Deviation Settlement Mechanism; the pricing and settlement system that charges or credits entities when their actual power injection or drawal deviates from schedule) exposure is shared, and what compensation, if any, is payable for off taker‑driven curtailment.

3. Curtailment and "Must‑run" status

Policy and case law continue to emphasise "must‑run" treatment for renewable generators, but practical curtailment risk remains central in 2025 documents. Many PPAs and PSAs (Power Sale Agreement; the contract by which an intermediary agency, like SECI resells power to state or bulk procurers on back‑to‑back basis) now distinguish between grid security curtailment (where no compensation is due) and commercial curtailment by the procurer (where deemed generation or fixed charge compensation is provided), although formulations vary across tenders.

Some bid documents tie compensation to demonstrated availability or scheduling discipline, linking curtailment protection to proper forecasting and adherence to dispatch instructions. The public‑sector lesson is that clear drafting of curtailment categories reduces disputes and improves tariff discovery, while the private‑sector lesson is that bankability hinges on ensuring that at least commercial curtailment is compensated and that verification mechanisms are workable.

4. Deviation Settlement and Forecasting Risk

DSM risk has moved from being a technical afterthought to a key commercial allocation in renewable PPAs and open‑access contracts. As renewable penetration and scheduling obligations expand, 2025 tenders more explicitly address who bears DSM charges. Whether the generator, the procurer, or a shared allocation based on cause and control, and whether DSM changes are treated as change‑in‑law, with pass‑through of incremental costs subject to regulatory approval.

Commentary suggests that carefully drafted DSM clauses allocating liability, clarifying the impact of future regulatory changes, and setting clear settlement mechanics are now essential to preserve project bankability. For public procurers, pushing all DSM risk to developers can look attractive but may ultimately raise tariffs. For developers, failing to negotiate realistic DSM treatment can erode returns or even break financing covenants.

5. Change‑in‑law and Regulatory Risk

2025 bid documents continue to rely heavily on change‑in‑law clauses to manage long‑term regulatory risk in a sector subject to evolving central and state regulations. Updated guidelines seek to tighten definitions, timelines for claims and evidentiary requirements, aiming to reduce opportunistic claims while preserving genuine relief for material changes in taxes, duties or sectoral rules.

Some tenders explicitly reference key Supreme Court and APTEL (Appellate Tribunal for Electricity; the specialised tribunal that hears appeals against decisions of electricity regulators and certain adjudicating bodies) decisions on change‑in‑law and compensation methodology, to align contractual language with judicial expectations. For private participants, the key is to scrutinise whether future DSM tariff adjustments, transmission‑loss regimes, or RPO (Renewable Purchase Obligation; a regulatory mandate requiring specified consumers or utilities to source a minimum percentage of their power from renewables) / RCO (Renewable Consumption Obligation; a mandate that ties required renewable use to total electricity consumption rather than only contracted purchases) changes are covered or excluded. For public agencies, the challenge is to give enough comfort on genuine regulatory risk without underwriting all policy movement for 25 years.

6. Performance Security and Execution Risk

The recent amendments also recalibrate PBG (Performance Bank Guarantee; a bank guarantee furnished by the developer to secure performance of project obligations and milestones) and other security requirements. For certain solar, wind, hybrid and firm‑and‑dispatchable projects with storage, procurers are directed to fix PBGs at lower percentages of project cost (around 3% in many cases) with a minimum floor to discourage speculative bidding and slippages.

Tender documents increasingly link bid bonds, PBGs and liquidated damages to clear milestone schedules (land, connectivity, financial close, commissioning), making execution timelines contractually sharp. This framework pushes private developers to be realistic about timelines and site readiness, while allowing public procurers to deter non serious bids without making security so onerous that it scares off capable players.

7. Relief for Regulator‑caused delays

Proposed changes to competitive‑bidding guidelines also address delays caused by public authorities themselves. Draft language recognises that slippages in transmission approvals, connectivity or other statutory clearances granted by government bodies may warrant extensions of time and, in some cases, relief akin to change‑in‑law, rather than being treated as pure developer default.

By more clearly separating developer‑caused delays from regulator‑caused bottlenecks, the guidelines aim to reduce disputes and avoid penalising developers for risks they cannot control.

8. Convergence across Solar, Wind, Hybrid and RTC tenders

A notable 2025 development is the gradual convergence of risk‑allocation principles across different renewable technologies. Amendments to standard bidding guidelines for solar, wind‑solar hybrid and other schemes show increasing alignment on how curtailment, DSM, change‑in‑law and PBGs are handled, even if specific numbers differ by scheme.

For market participants, this convergence reduces template‑by‑template uncertainty and makes it easier to price risk across a portfolio of projects, instead of relearning risk allocation rules for every new tender.

9. Lender perspective on 2025 templates

From a lender's perspective, the real test of the 2025 tender guidelines is whether they translate into predictable cash flows across curtailment, DSM and regulatory change scenarios, not just whether headline risk has notionally shifted. Curtailed energy that is compensated on a transparent, formula‑based basis, DSM exposure that is either expressly passed through or bounded by caps, and change‑in‑law definitions that clearly extend beyond narrow tax changes are increasingly viewed as baseline conditions for bankable renewable projects.

Project finance models now typically run sensitivities on prolonged commercial curtailment, tightening DSM regimes and staggered policy changes, and lenders mark down structures where these risks sit unhedged with the generator. Where tender language leaves "grid security" curtailment undefined, excludes DSM reforms from change‑in‑law, or allows offtakers wide discretion to deny relief, banks and infrastructure debt funds either widen pricing, demand stronger sponsor‑support undertakings or decline exposure altogether.

Execution risk is treated in a similarly granular way. Reductions in PBG percentages and a shift towards milestone‑linked LDs (Liquidated Damages; pre‑agreed monetary sums payable on specified breaches or delays, instead of proving actual loss) are credit‑positive because they reduce dead capital lock‑up and focus discipline on concrete delays, but lenders will still scrutinise whether cure periods, step‑in rights and termination formulas are workable in practice. Termination payments that do not cover outstanding senior debt, or handover regimes that are vague or litigation‑prone, can undermine otherwise attractive tariff levels. In effect, the 2025 guidelines show that lender comfort now depends less on absolute risk transfer and more on whether each risk bucket is contractually framed in a way that can be priced, monitored and enforced over a 25 year life.

10. Practical checklist for bid teams

For developers, investors and lenders participating in 2025 tenders, a simple pre‑bid checklist helps convert this evolving risk allocation into concrete internal approvals and bid strategies. Before fixing tariffs, locking in financing terms or signing PPAs, bid teams can run through the following questions, ideally with inputs from legal, finance and technical advisers.

A. Curtailment:

Do the documents clearly differentiate "grid‑security" curtailment from commercial curtailment, and is compensation for the latter framed through a transparent deemed generation or fixed charge mechanism with objective verification.

B. DSM and forecasting:

Who ultimately bears DSM charges in different scenarios, how are future DSM or grid code reforms treated (for example, as change‑in‑law or pure business risk), and are forecasting and scheduling obligations realistic for the project's technology mix and site characteristics.

C. Change‑in‑law:

Does the clause capture not only taxes and duties but also material sectoral or regulatory changes, including DSM, transmission‑loss and RPO/RCO reforms, with clear thresholds, timelines for claims and restitution mechanics that can be implemented without regulatory deadlock.

D. Security and LDs:

Are bid bonds, PBGs and LDs proportionate to project size and risk profile, linked to defined milestones rather than broad notions of "default", and free from overlapping or punitive remedies that could trigger multiple recoveries for the same breach.

E. Termination and authority delays:

Do termination formulas protect outstanding senior debt and reasonable equity in different default and force majeure situations, and are delays by regulators or transmission utilities clearly carved out from developer default and aligned with the new relief language in competitive bidding guidelines.

11. Public‑private lessons from recent documents

Some cross‑cutting lessons from 2025 renewable tenders and related regulatory commentary are clear. Allocate risk to the party best able to manage it. Developers are better placed to control construction, O&M and day‑to‑day scheduling, while procurers are better suited to shoulder pure policy and political risk. Draft DSM and curtailment clauses with precision for vague references to "grid security" or "technical issues" are no longer acceptable in bankable projects. Contracts must specify compensation triggers, data‑sharing and verification. Keep change‑in‑law targeted but meaningful. Narrow, tax only definitions under protect long‑term projects, while overly broad definitions invite tariff shocks and litigation. Use security as a scalpel, not a hammer. Right sized PBGs and milestone linked LDs discipline execution without excluding smaller but capable developers.

Overall, India's 2025 renewable tender documents show a sector maturing away from pure tariff competition towards more sophisticated risk priced procurement, where legal drafting around allocation of curtailment, DSM, regulatory and execution risk is as important as the headline bid number.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.