Power Purchase Agreement

What is a Power Purchase Agreement

A Power Purchase Agreement (PPA) is a long-term, contractual sale-of-electricity arrangement between a power generator and a buyer (offtaker). For Indian solar, the standard form is a 25-year contract between a solar developer and either a DISCOM (through SECI or state agency tenders) or a corporate buyer (open access or rooftop RESCO).

A PPA specifies the tariff, contract duration, expected generation profile, curtailment compensation, payment security, force majeure, change-in-law treatment and dispute resolution. The PPA is the foundation document for project financing: lenders model expected revenue against PPA terms.

For Indian solar PPAs in 2026, utility-scale tariffs sit at ₹2.40 to ₹3.00 per kWh, discovered through reverse auctions under SECI and CPSU tenders. C&I open access PPAs and rooftop RESCO PPAs, covered in the RESCO model guide for C&I buyers, typically sit at a 10 to 30 percent discount to retail tariffs.

PPA explained simply

A solar developer wants to build a solar plant but needs certainty about who will buy the electricity. A buyer wants long-term renewable energy at a fixed price. They sign a contract: developer guarantees to supply electricity, buyer guarantees to take it at a fixed rate, for 25 years. With this contract, banks finance the plant.

Why PPAs matter

Project bankability. Lenders model debt service against PPA revenue.

Risk allocation. Tariff risk, curtailment risk, force majeure all defined contractually.

Long-term certainty for both parties. Developer knows revenue. Buyer knows cost.

Tariff discovery. PPA prices reveal current solar economics.

Foundation for renewable build-out. India’s 200+ GW of renewable capacity rests on PPAs.

How a PPA works

1. Tender or bilateral negotiation establishes tariff and terms.
2. Developer wins tender or negotiation.
3. PPA executed with buyer.
4. Project financial close with lenders, using PPA as core revenue document, often supported by a solar financial modelling tool to stress-test cash flow.
5. Construction begins, typically executed by a commercial solar EPC contractor for C&I and utility sites.
6. Commercial operation date (COD) reached.
7. Buyer pays for energy delivered, billed monthly per PPA tariff.
8. Performance metrics monitored against PPA terms.
9. Disputes resolved through PPA mechanism and ultimately CERC or SERC.

Technical deep dive

Standard PPA components

Indian PPA tariff history

PPA types in India

Payment security mechanism

Letter of credit (typically 1-month equivalent revenue) and revolving escrow. The Late Payment Surcharge Rules 2022 provide additional remedies for payment delay.

Real-world applications

SECI utility solar tenders.

State CPSU solar parks.

C&I open access solar procurement.

Rooftop RESCO contracts.

Captive solar plants under group captive structures.

Solar plus storage hybrid tenders.

Advantages

Long-term price certainty.

Bankability for project finance.

Standardised structures.

Defined risk allocation.

Limitations

25-year price lock can disadvantage either party as markets change.

DISCOM payment delays in financially weak states.

Regulatory risk on retrospective tariff revision.

Curtailment risk in high-renewable feeders.

Force majeure interpretation disputes.

Common problems

Late payment from DISCOMs. Several state DISCOMs delay solar PPA payments by 90 to 240 days.

Curtailment without full compensation under some PPAs.

Change-in-law disputes around GST and customs duty.

Retrospective tariff revision attempts.

DISCOM unwillingness to off-take when retail demand falls.

Force majeure claims during COVID, cyclones and other events.

Best practices

Negotiate a strong payment security mechanism.

Document curtailment compensation clearly.

Include change-in-law clause with quantification mechanism.

Maintain detailed generation logs.

Track payment timelines and invoke late payment surcharge promptly.

Plan for renewal or extension as plant approaches PPA term end.

Comparison: PPA vs alternatives

Choosing between these depends heavily on state rules; the net metering versus gross metering comparison walks through which fits which customer profile, and the complete guide to net metering in India covers state-by-state application.

Indian market context

SECI has tendered over 50 GW of solar capacity under standardised PPA frameworks.

State agency tenders (Gujarat Urja Vikas Nigam, Solar Energy Corporation of Karnataka) operate parallel PPA frameworks.

Open access C&I PPAs are growing in Karnataka, Maharashtra, Tamil Nadu and Andhra Pradesh.

The Late Payment Surcharge Rules 2022 created a mechanism for DISCOMs to clear outstanding dues with escalating penalties.

Group captive solar under Section 9 of Electricity Act 2003 allows C&I customers to take equity in solar plants and procure power without DISCOM surcharges.

Standards and certifications

Common mistakes

Signing PPA without strong payment security.

Underestimating curtailment risk in PPA financial model.

Vague force majeure definitions.

Skipping change-in-law mechanism.

Inadequate documentation of generation logs.

Not invoking late payment surcharge promptly.

Treating PPA as static document, missing scope for amendments.

Key takeaways

A PPA is the contractual foundation for any utility-scale Indian solar project. Standardised structures from SECI cover most utility deployment. Open access PPAs are growing for C&I customers. Rooftop RESCO PPAs serve C&I rooftop. Tariff certainty, payment security, curtailment treatment and change-in-law mechanism are the key contractual elements. Indian solar PPA tariffs have fallen from above ₹17 in 2010 to below ₹3 in 2024.

Further reading

For how Power Purchase Agreement plays out in real projects, these guides go deeper:

• Solar RESCO Model India: Guide for C&I Buyers
• Zero Cost Solar India: RESCO & OPEX Models
• LCOE of Solar in India: ₹4.8/kWh for a 50 kW C&I Plant
• Solar CAPEX vs OPEX: The C&I Buyer Decision Guide

Sources

• Electricity Act 2003, Government of India.
• CERC Tariff Regulations 2024.
• SECI Standard PPA Template and tender documents.
• State SERC PPA templates.
• Late Payment Surcharge Rules 2022, Ministry of Power.
• Open Access Regulations under state SERCs.
• SECI Annual Reports on tendered capacity.
• IEA India Energy Outlook 2024.
• IRENA Renewable Energy Auctions: Status and Trends Beyond Price.