Quick answer
In April 2026, the Ministry of Power asked states, union territories and procuring utilities to accept insurance surety bonds (ISBs) as an alternative to bank guarantees for bid and performance security. The rule covers long-, medium- and short-term power procurement and battery energy storage (BESS) tenders. Renewable, pumped storage and transmission bidding guidelines already allowed ISBs. For developers, it means security can be posted without locking up bank limits or margin money.
- The Ministry of Power's April 2026 directive puts insurance surety bonds on par with bank guarantees for bid and performance security in power procurement.
- It covers long-, medium- and short-term power procurement and BESS tenders; renewable, pumped storage and transmission guidelines already allowed ISBs.
- The legal basis is the February 2022 amendment to Rules 170(i) and 171(i) of the General Financial Rules, 2017.
- For inter-state transmission, the bid bond stays at 2% of estimated capital cost and the contract performance guarantee at 5%, and either can be an IRDAI-approved ISB.
- Check each tender document. Acceptance still depends on whether the procuring utility has added ISB wording to its bid documents.
What changed in April 2026
The Ministry of Power (MoP) now recognises insurance surety bonds (ISBs) as an acceptable alternative to bank guarantees for bid security and performance security in power procurement. According to Energetica India's report of 8 April 2026, the ministry directed all states, union territories and procuring utilities to include ISBs in their bidding documents.
The directive covers long-term, medium-term and short-term power procurement as well as battery energy storage system (BESS) tenders. ISB provisions were already part of the Standard Bidding Guidelines for renewable energy (solar, wind, hybrid and FDRE), pumped storage and transmission projects. The April directive extends the same treatment to the rest of the power procurement framework.
The ministry's stated rationale is that ISBs give the same financial security as bank guarantees while reducing credit exposure and liquidity constraints for developers. It expects the biggest benefit in capital-intensive segments such as renewables and BESS.
The legal foundation: GFR 2017 and IRDAI rules
The power sector move builds on two earlier reforms.
1. The General Financial Rules. By Office Memorandum F.1/1/2022-PPD dated 2 February 2022, the Department of Expenditure amended Rule 170(i) (bid security) and Rule 171(i) (performance security) of the GFR, 2017. The amendment added insurance surety bonds to the list of accepted instruments, alongside bank guarantees, fixed deposit receipts and demand drafts.
2. The IRDAI surety framework. The IRDAI (Surety Insurance Contracts) Guidelines came into effect on 1 April 2022. In May 2023, IRDAI removed the cap that limited an insurer's exposure to 30% of the contract value. It also cut the solvency requirement for surety business to 1.5 times the control level, according to Business Standard. Both changes were meant to bring more insurers into the market.
For a refresher on the regulator's framework, see our explainer on the IRDAI surety bond reform.
How it already works in transmission tenders
Transmission offers a working template. Under a Ministry of Power amendment dated 5 June 2025, the Standard Bidding Documents for inter-state transmission accept three forms of security: bank guarantees, ISBs issued by IRDAI-approved insurers, and Payment on Order Instruments from IREDA, PFC or REC. Before that amendment, only an unconditional, irrevocable bank guarantee was accepted.
| Security | Amount (transmission SBD) | When submitted | Accepted forms |
|---|---|---|---|
| Bid bond | 2% of estimated capital cost or total payments | With the technical bid | Bank guarantee, ISB, POI |
| Contract performance guarantee | 5% of capital cost or payment amount | Within 10 days of the Letter of Intent | Bank guarantee, ISB, POI |
Source: SolarQuarter, 10 June 2025.
The security amounts did not change. Only the menu of instruments got longer. The same is likely to hold as utilities update other power tenders. Always confirm the exact percentages in the tender you are bidding on.
Why this matters for power developers
Power projects are capital-heavy and bid-intensive. A developer chasing several solar, hybrid or BESS tenders at once can tie up a large share of its non-fund-based bank limits in bid bonds alone, before it wins anything. Every guarantee also uses up bank exposure that could otherwise fund working capital or construction.
An insurance surety bond is issued by a general insurer against a premium. It does not use bank credit limits. The upshot:
- Bank limits stay free for project finance, LCs for equipment imports and working capital.
- Less or no margin money. When NHAI accepted its first insurance surety bond in November 2023, it was issued at 0.25% and removed the margin money requirement, according to Indian Infrastructure. Pricing for power tenders will depend on each bidder's risk profile.
- More bids in parallel. Mid-sized IPPs and EPC contractors can compete in more tenders without hitting their guarantee ceiling.
For a full cost comparison, read Surety Bond vs Bank Guarantee: A Complete Cost Comparison for Indian Contractors.
Momentum across infrastructure
Power is joining a wider shift. Indian Infrastructure reports that industry estimates put issuance at over 3,300 surety bonds worth more than Rs 290 billion. By July 2025, twelve insurers had issued bonds worth Rs 103.69 billion for NHAI contracts. The same report names NTPC, SJVN, NHPC and GAIL among the energy CPSEs that have adopted the instrument.
<Callout> These market figures are industry estimates reported by trade media, not official statistics. Treat them as directional. </Callout>Gaps that remain
The directive does not fix everything. Indian Infrastructure flags several open issues:
- Uneven acceptance. Whether an ISB is accepted can depend on how an individual office reads the rules, not on a uniform procedure.
- Non-standard wording. Default triggers, notice periods and release terms vary between bonds, which can stall underwriting and cause disputes.
- Recourse and data. Insurers lack a bank's on-demand recourse against a defaulting contractor, and credit data is not shared systematically between banks and insurers. The article notes that in April 2026 the RBI and IRDAI acknowledged that credit information companies do not properly capture surety bonds.
For bidders, the practical answer is preparation. Read the security clause in each RFP, check that the format matches the utility's annexure, and work with an insurer or broker who knows the power sector's formats.
How to use an insurance surety bond in your next power tender
- Check the RFP. Confirm the tender lists insurance surety bonds as accepted bid or performance security, and note the prescribed format.
- Get underwritten early. Insurers will look at your financials, order book and project track record. Starting before the bid deadline avoids last-minute delays.
- Match the format. Make sure the bond wording, beneficiary, validity and claim period exactly match the tender annexure.
- Confirm the insurer is IRDAI-registered and authorised to write surety business.
- Track validity. Performance security often has to stay valid beyond the scheduled commercial operation date, so plan extensions in advance.
New to the product? Start with What is a Surety Bond? A Plain-English Guide for Indian Businesses, or see Performance Bond in India: Meaning, Benefits, and How It Works.
Frequently asked questions
Can I submit an insurance surety bond instead of a bank guarantee in a power tender?
Yes, if the tender allows it. Since April 2026, the Ministry of Power has asked states, UTs and procuring utilities to accept insurance surety bonds for bid and performance security, and renewable, pumped storage and transmission bidding guidelines already allow them. Always confirm in the specific RFP.
Which power procurement tenders does the 2026 directive cover?
Long-term, medium-term and short-term power procurement, plus battery energy storage system (BESS) tenders. Renewable energy (solar, wind, hybrid, FDRE), pumped storage and transmission guidelines already included ISB provisions.
Does the bid security amount change if I use a surety bond?
No. The instrument changes, not the amount. In inter-state transmission tenders, for example, the bid bond remains 2% of the estimated capital cost and the contract performance guarantee 5%.
Who can issue an insurance surety bond in India?
General insurers registered with IRDAI that write surety business under the IRDAI (Surety Insurance Contracts) Guidelines, 2022.
Does a surety bond use my bank credit limits?
No. A surety bond is an insurance contract issued against a premium, so it does not use your non-fund-based bank limits. That leaves those limits free for project finance and working capital.
