The Ministry of New and Renewable Energy (MNRE) has reiterated that renewable energy implementing agencies (REIAs) cannot include a greenshoe option in their tenders unless they obtain prior approval from the appropriate electricity regulatory commission.

This clarification follows repeated observations by electricity regulators that the existing bidding guidelines do not explicitly permit the greenshoe mechanism.

Last November, the Ministry of Power had directed REIAs to stop including greenshoe provisions in renewable energy tenders. It subsequently directed all REIAs to close legacy bids and cancel letters of award for renewable energy projects for which power purchase agreements (PPAs) and power sale agreements (PSAs) were not feasible by November 30, 2025. At that time, the four REIAs together had unsigned PPAs/PSAs for around 42 GW of projects.

The Power Secretary had termed the continued use of the greenshoe mechanism “unreasonable,” particularly when base capacities in several tenders remained unsubscribed.

REIAs have frequently used the greenshoe option to allocate additional capacity to successful bidders at the same discovered tariff, avoiding a fresh bidding process. They have argued that the approach helps save time, lowers transaction costs, and prevents tariff escalation that could arise from a fresh tender.

However, regulators have flagged the issue, consistently maintaining that the bidding guidelines are silent on such allocations.

Over the past year, the Central Electricity Regulatory Commission (CERC) has either rejected or questioned additional capacity allocations made under the greenshoe route in several tariff adoption petitions.

In a recent NHPC case, the CERC observed that while REIAs may have used the greenshoe option to procure extra capacity at the same tariff, the absence of clear guidelines or prior regulatory approval made the practice open to interpretation. The Commission disallowed the additional capacity awarded to two bidders under this route.

The CERC said the practice was inconsistent with the ratio legis (logical element of the law) of Section 63 of the Electricity Act, which emphasizes transparency and fair competition in tariff-based procurement.

In another NHPC petition, the central regulator stated that even if bidding documents contain provisions for such allocation, increasing capacity beyond the originally awarded quantum could raise concerns around transparency, consistency, and fair treatment of bidders.

While acknowledging that the greenshoe mechanism follows the same technical and commercial terms as the original bid, the CERC said there is a need for explicit recognition of the provision in the bidding guidelines.

In one tariff adoption order, the CERC asked all REIAs to seek clarity from the Ministry of Power on the use of the greenshoe option, including the method for allocating additional capacity. It also suggested capping such allocation at 50% of the originally awarded capacity, especially when excess capacity arises due to bidders not accepting their allocations.

The MNRE clarification would help ensure consistency across tenders, maintain competitive neutrality, and reduce regulatory uncertainty, even if it may reduce the flexibility for REIAs.