The Ministry of New and Renewable Energy (MNRE) has issued a clarification that calls for procuring power from small solar and wind projects through feed-in tariffs determined by their respective State Electricity Regulatory Commissions (SERCs).

The feed-in tariff mechanism is expected to apply towards solar projects with capacities less than 5 MWs and wind projects with capacities below 25 MWs.

The MNRE announcement comes just two months after the Ministry of Power issued final competitive bidding guidelines for wind projects. Those guidelines provided a framework for the cost-effective procurement of wind power using a transparent bidding process for projects above 25 MW in size.

MNRE released guidelines for a tariff-based competitive bidding process for solar projects in August of last year addressing many of the developer concerns and with a goal to make projects more bankable.

Though feed-in tariff is not new to wind projects in India, large-scale solar power has been primarily procured through a reverse auction process since the inception of the National Solar Mission. The only time a large quantity of solar projects was procured through the feed-in tariff process in the country was when Gujarat -led by then Chief Minister Modi – announced in 2010 the procurement of 968 MW of solar PV at a feed-in tariff rate if ₹15/kWh for the first 15 years and ₹5/kWh for the next 15 years.

Back then this was the most lucrative tariff in India and eventually, the cost of procurement was so high that Gujarat Urja Vikas Nigam Limited (GUVNL) sought to cut the tariff rate it pays to projects, citing excessive profits from project owners. The petition for this retroactive tariff cut was rejected in the courts.

Ever since the Gujarat experiment, no government agencies in India have tried to use the feed-in tariff mechanism to procure solar.

With this background, the announcement is a little bit of a surprise and we will have to wait for more details to emerge. The most important points to look for are: How low will the tariff level be? Will there be a limit for procurement? Will it be first come first serve? How will a project be selected? It will be very important to make the process transparent as opportunities for mischief and corruption is greater with this mechanism.