Tariff-Based Competitive Bidding (TBCB) is a procurement method in the power sector. Here, government bodies or distribution utilities invite bids from power supplier agencies. The power supplier has to feed the specified quantity of power to the grid. The project offering the lowest tariff (price per kWh) is selected through tender.
This mechanism was introduced to replace the traditional “cost-plus” tariffs. The scheme is mandated under Section 63 of the Electricity Act 2003. Then the regulatory committee adopts the lowest tariffs through the bidding process. This tariff rate is adopted for long-term power procurement for nearly 20 to 25 years.
Why do we use Tariff-Based Competitive Bidding (TBCB)?
The government encourages power procurement through competition. Distribution companies should procure power through a competitive bidding process to get the best possible price.
The market can discover the lowest possible tariff. For example, in wind auctions, tariffs fell from ₹4–5/kWh under old feed-in tariffs to around ₹2.4–3.0/kWh under auctions.
The bidding rules and outcomes are public. This makes the process transparent.
Developers or power suppliers bid only on projects they can develop cost-effectively. That improves the efficiency of developers. The grid agencies also save time on lengthy cost verification.
Developers or power suppliers take on risks of construction, etc. So consumers don’t carry all project risks.
India’s National Tariff Policy (2006) directs distribution companies to use competitive bidding for long-term power purchases. The competitive bidding drives costs down for renewable energy procurement, too. Over time, all new large-scale renewable energy purchases are shifting to TBCB.
The Ministry of Power and MNRE (Ministry of New & Renewable Energy) have issued detailed guidelines for various types of projects under Section 63. For example, solar, wind, and storage projects exist (Solar: 2017, Wind: 2023, Hybrid: 2023) for procuring power via TBCB. The authorities now use TBCB even for pumped storage, grid stability schemes, etc. 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.
How the TBCB Process Works
Here is a step-by-step outline of a typical TBCB power procurement process.
Procurement Planning: A distribution utility decides how much capacity (MW) or energy (MWh) it needs. Also, the utility decides what type renewal energy they require. Then the utility 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 clarification.
Bid Submission: Bidders submit their technical and financial bids. Technical bid check minimum eligibility based on credentials, previous experience, customer feedback, net worth, land, finance, etc. Only technically qualified bidders advance to the pricing stage.
Competitive Auction: The financial (tariff) bid of technically eligible bidders is opened. The tender committee selects the lowest offered tariff (L1), sometimes the second-lowest (L2).
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.
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 term of LoA typically spans 20–25 years. During this prolonged period, the developer supplies power at the fixed tariff (possibly with pre-agreed escalations).