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MoP Advocates Insurance Surety Bonds as Substitute for Bank Guarantees in Power Sector Tenders

The Ministry of Power (MoP) has directed states, Union Territories, and power procurement agencies to allow the use of Insurance Surety Bonds (ISBs) as an alternative to conventional bank guarantees for bid and performance security requirements. The directive applies across power procurement as well as battery energy storage system (BESS) tenders.

This move builds on earlier policy updates, where provisions for ISBs were already incorporated into the Standard Bidding Guidelines for renewable energy projects—including solar, wind, hybrid, and firm and dispatchable renewable energy (FDRE)—as well as pumped storage and transmission projects. These changes were enabled through amendments to the General Financial Rules (GFR), 2017 in 2022.

According to the ministry, Insurance Surety Bonds provide a level of financial assurance comparable to bank guarantees while offering greater flexibility to developers. By reducing dependence on traditional credit lines, ISBs can help ease liquidity pressures, particularly in capital-intensive sectors such as renewable energy and energy storage.

The ministry has further recommended expanding the adoption of ISBs across all categories of power procurement, including long-term, medium-term, and short-term tenders, along with emerging segments like BESS. This broader implementation is expected to improve policy uniformity, enhance ease of doing business, and encourage more competitive participation within the sector.

Under the revised financial rules, both bid security and performance security can now be furnished through ISBs, placing them on par with bank guarantees and other accepted financial instruments.

The initiative comes at a time when India is accelerating the deployment of renewable energy and storage infrastructure. Greater financial flexibility through instruments like ISBs is expected to support faster project execution and attract wider participation from developers across the power ecosystem.