What is Tariff-Based Competitive Bidding (TBCB)?
Tariff-Based Competitive Bidding (TBCB) is a procurement method in India’s power sector where distribution utilities or other procurers invite bids from power generators and select the project offering the lowest tariff (price per kWh), subject to meeting technical and financial criteria.
In simple terms, the government or utility issues a “Request for Selection” (RfS) for a certain amount of power capacity, developers compete by quoting how much they will charge, and the winners are chosen based on the lowest bid prices.
This mechanism was introduced to replace the traditional “cost-plus” or negotiated tariffs with a transparent, market-driven process.
The scheme is mandated under Section 63 of the Electricity Act 2003, which requires that tariffs discovered through a transparent bidding process be adopted by regulators for long-term power procurement.
Key points:
TBCB uses auctions (often e-reverse auctions) to find the cheapest power tariff.
It aims to ensure competition, transparency and lower costs for consumers.
Any tariff found through TBCB must be adopted by the regulatory commission (it is “automatic” under the law).
Why use Competitive Bidding?
India’s National Tariff Policy (2006) and Electricity Act encourage power procurement through competition, not fixed tariffs.
The 2006 Tariff Policy specifically states that distribution companies should procure power (including renewable power) “through a competitive bidding process” to get the best prices.
The main goals of TBCB are:
Lower tariffs: By pitting multiple developers against each other, the market discovers the lowest possible tariff. (E.g. in wind auctions, tariffs fell from ₹4–5/kWh under old feed-in tariffs to around ₹2.4–3.0/kWh under auctions.)
Transparency: The bidding rules and outcomes are public, reducing opaque negotiations. All bidders know the rules (bank guarantees, milestones, evaluation method, etc.), and results are usually published.
Efficiency: Private developers bid only on projects they can develop cost-effectively, so unviable proposals drop out. Procurers also save time on lengthy cost-verification.
Risk sharing: Developers take on risks of construction delays, fuel supply (for thermal), etc., so consumers don’t carry all project risks.
In short, TBCB “promote[s] competition [and] transparency in procurement” and “protect[s] consumer interests” by letting the market set prices.
It also speeds up project execution by imposing firm timelines in the bid documents.
Legal and Policy Framework
The authority for TBCB comes from Section 63 of the Electricity Act, 2003, which says that if a licensee procures power through a bidding process, the tariff so discovered must be adopted by the regulator without re-discussing its components.
In other words, once a transparent auction is conducted, the regulators (CERC/SERCs) must “adopt” that tariff in their orders.
India’s National Tariff Policy (2006) reinforced this, directing distribution companies to use competitive bidding for long-term power purchases.
Under the Tariff Policy, renewable energy procurement was initially to be done at “preferential tariffs” (like feed-in tariffs) but moving to competitive bidding to drive costs down.
Over time, all new large-scale generation (especially renewables) has shifted to TBCB.
The Ministry of Power and MNRE (Ministry of New & Renewable Energy) have issued detailed guidelines (RfS/PPA templates) for various types of projects under Section 63.
For example:
Solar and wind projects: Standard model bidding documents exist (Solar: 2017, Wind: 2023, Hybrid: 2023) for procuring power via TBCB.
Firm/RTC power: Recent guidelines (2020–2023) for “round-the-clock” or “firm renewable + storage” power procurement use TBCB.
Transmission: Even transmission lines/projects are awarded under “TBCB” guidelines (since 2006).
These guidelines typically require a single-part tariff bid (Rs/kWh), single-stage bidding, and lowest-tariff selection.
For example, the CERC list of guidelines shows that every category – solar, wind, hybrid, pumped storage, grid stability schemes, etc. – now uses TBCB.
This wide adoption reflects the government’s push to use market mechanisms wherever possible.
How the TBCB Process Works
Here is a step-by-step outline of a typical TBCB power procurement process:
Procurement Planning: A distribution utility or procurer decides how much capacity (MW) or energy (MWh) it needs and what type (e.g. solar, wind, “firm dispatchable RE” including storage, thermal, etc.). The procurer (or an intermediary like SECI) issues a Request for Selection (RfS) document detailing the requirements.
Bid Documents: The RfS and model Power Purchase Agreement (PPA) are prepared following the relevant guidelines. These specify the technical criteria, bid format, penalties, bank guarantees, project milestones, timeline, and evaluation method.
Bid Security (EMD): Typically, bidders must submit an Earnest Money Deposit (EMD), often around 1-2% of project cost, as a bank guarantee to ensure only serious bidders participate.
Pre-bid Activities: Sometimes a pre-bid meeting is held for clarifications. Bid documents are based on “lowest tariff wins” with usually one-part (single) tariff bids (Rs per kWh at a specified delivery point).
Bid Submission – Two-Part (often): Bidders submit their technical and financial bids (sometimes in one stage with an e-reverse auction). Technical bids check minimum eligibility (net worth, experience, land, finance). Only technically qualified bidders advance to the pricing stage.
Competitive Auction (Reverse Auction): The financial (tariff) bids are opened via an electronic (e-reverse) auction. Starting from an initial bid, participants undercut each other until no one lowers further. The auction yields the lowest tariff (L1), second-lowest (L2), etc.
Selection and L1+X% Band: Capacity is allocated to lowest bidders. Often, all bids within a band (say up to L1 + 2–5%) are considered. For example, if L1=₹3.00/kWh and band is 2%, then any bid ≤₹3.06 qualifies. The procurer “fills the bucket” by giving allocations to L1, L2,… in ascending order until capacity is met.
Letter of Award (LoA): The procurer issues a LoA to the selected bidder(s), specifying capacity and tariff. The selected developer must then sign the PPA and related agreements (PSA if an intermediary is involved) by a deadline, or forfeit the EMD.
Regulatory Adoption: The procurer submits the tariff discovered to the appropriate electricity regulator (CERC or State ERC) for “adoption” under Sec 63. This is usually a formality – the regulator adopts the tariff as bid unless there is a clear legal issue.
Project Execution: The developer constructs the plant and commissioning is verified. The PPA term typically spans 20–25 years, during which the developer supplies power at the fixed tariff (possibly with pre-agreed escalations).
Key Features of TBCB
Single Tariff Quote: Developers quote one composite tariff (Rs/kWh) that covers all costs (fuel if applicable, operations, financing, etc.) up to the delivery point. This contrasts with cost-plus where each cost component is vetted.
Lowest Bid Wins (L1): The lowest tariff wins, ensuring competitive pricing. (Sometimes an L1+X% provision allows some more bids to qualify.)
Transparent Rules: All bidders know the rules in advance (e.g. RfS terms), and bids are often done online, reducing chances of favoritism.
Firm Commitment: PPAs in TBCB usually include strict milestone dates. Delays or shortfalls invite penalties (often large multiples of tariff) to enforce delivery as agreed.
Regulatory Approval: By law, the regulator must accept the auction-determined tariff rather than re-calculate costs. This speeds up approvals compared to old cost-plus cases.
Applicability: While initially used for large thermal and hydro projects (Case-I, II bids), TBCB is now standard for most new large-scale generation, especially renewables (solar, wind, hybrid, storage, etc.).
Examples and Case Studies
Solar and Wind Auctions: Since ~2010, solar and wind projects have predominantly been awarded via reverse auctions. For instance, SECI and state utilities repeatedly run auctions of 100–1000+ MW tranches, driving tariffs down.
Round-the-Clock (RTC) RE Tenders: These are special TBCB tenders where “dispatchable” renewable power (with storage) is procured to ensure power supply 24×7. The IEEFA report (Nov 2021) details how Delhi’s “RTC I” tender for 400 MW of firm RE mandated an 80% annual plant load factor and provided tariff escalation. (This shows how technical conditions are built into RfS even in TBCB.)
Pumped Hydro (PSP) Auctions: New guidelines (2024) use TBCB to procure pumped storage capacity as a separate product.
Transmission Projects: Even high-voltage transmission lines in India are contracted via TBCB (so-called “Competitive Bidding Route”), as noted by the government and industry analyses.
In all these cases, developers compete on tariff. Those with lower costs (better locations, cheaper finance, more efficient equipment) can bid more aggressively.
Roles of Stakeholders
Procurer (Buyer): Usually a state DISCOM or central agency (e.g. SECI), which defines the need, issues the RfS, evaluates bids, and signs the PPA with winning developers (or the PSA with them if an intermediary is used). The procurer must follow the model guidelines and cannot deviate without high-level approval.
Developers (Bidders): Power project companies (often SPVs or consortia) that build the plant. They must meet technical criteria (land, clearances, net worth) and then propose tariffs. Their strategy involves optimizing design (e.g. size of solar/wind plant vs storage) to minimize cost and risk of penalties.
Regulators (CERC/SERCs): Review and “adopt” the tariff after bidding. They ensure the process was transparent. Post-adoption, regulators mostly stay out of tariff details (since tariff is fixed in bid).
Intermediary Procurer: In many RE auctions (wind/solar), a central agency like SECI buys the power from generators and then sells to state DISCOMs on a “back-to-back” basis. This arrangement allows multiple DISCOMs to procure jointly.
Investors/Lenders: They evaluate the winning tariff and project risk before financing. Rapid tariff drops in auctions have raised concerns, since projects have low margins.
Consumers: Ultimately benefit from lower power costs. Regulators expect TBCB to reduce the overall cost of electricity supply for DISCOMs and hence retail consumers.
Developer Considerations and Strategies
Optimizing Costs: Developers calibrate plant design (e.g. mix of wind vs solar vs storage) to minimize levelized cost of electricity. For example, pairing solar+wind with just enough battery to meet the required load profile.
Technology Choices: They may choose the latest turbines or panels for higher efficiency, or locate in wind-rich or sun-rich regions.
Bid Tactics: Bidders estimate what tariff is low enough to win but still allow profit. They use historical generation data and simulations to forecast energy output and set tariffs.
Risk Management: TBCB PPAs have strict penalties for delays or shortfalls (often 1.25× or 1.5× tariff for each missed unit). Developers thus aim to underbid battery discharge targets or keep a margin of safety rather than risking penalties.
Financing: A winning low tariff must still satisfy lender requirements (debt coverage). Developers may slow down equity return, reduce returns to optimize tariff.
Collaboration with Procurers: Since some guidelines (like recent MNRE rules) allow “early generation” if part of project is ready, developers may negotiate intermediate supply to minimize idle capacity losses.
In sum: developers adjust their technical and financial plans to offer the lowest viable tariff, while meeting all RfS conditions.
However, if tariff bids are unrealistically low, there’s a risk projects may stall or be canceled, as some industry commentators have noted.
Summary
Tariff-Based Competitive Bidding is a method that uses market competition to set power tariffs.
It shifts the focus from negotiating costs to discovering prices in an auction.
Under Section 63 of the Electricity Act and the Tariff Policy, distribution utilities must use TBCB for long-term procurement whenever possible.
In practice, this means issuing tenders, holding online reverse auctions, and signing PPAs with the lowest bidders.
The approach has been credited with driving down tariffs (especially for renewables) and ensuring transparency, although it also requires careful project management.
Overall, TBCB is now the cornerstone of large-scale power procurement in India, aiming to balance affordable tariffs with reliable supply.
Sources: Official guidelines and policies (Electricity Act 2003 Section 63, MoP/NMNRE bidding guidelines) and industry analyses.
Citations above reference government notifications and expert reports on India’s TBCB framework.