Quick Facts
What a PPA is
A Power Purchase Agreement (PPA) is a long-term contract between a power generator and an electricity buyer that fixes the tariff, quantity, term, and other commercial conditions of electricity supply. For solar, PPAs typically run 15 to 25 years at a fixed per-kWh tariff. The PPA is the foundational document that gives the solar project its revenue certainty and supports project finance.
Without a PPA, a solar project would have to sell its power into the wholesale market at variable spot prices, with no revenue certainty. Banks would be unwilling to finance such a project. The PPA solves this by providing a predictable revenue stream that supports debt service for 12 to 18 years and equity returns for 25 years.
PPAs in Indian solar fall into four broad categories: utility-scale (developer to DISCOM or SECI), RESCO rooftop (developer to C&I customer), open access (developer to C&I customer through grid wheeling), and group captive (developer to consortium of co-owning consumers).
Structure of a solar PPA
A standard solar PPA has the following major sections.
Recitals: Background to the contract, parties involved, and purpose.
Definitions: Precise meanings of technical and commercial terms used.
Plant description: Solar plant capacity, technology, location, expected commissioning date.
Tariff: Per-kWh price, fixed or with escalation. The most commercially sensitive provision.
PPA term: Duration of the contract, typically 15 to 25 years.
Take-or-pay or minimum offtake: Buyer’s obligation to consume a minimum quantity.
Performance guarantees: Plant availability targets and penalties for shortfall.
Force majeure: Events beyond control that excuse non-performance.
Change in law: Compensation for regulatory changes affecting economics.
Curtailment: Provisions for grid-side curtailment of solar output.
Metering and billing: How energy is measured and billed, including dispute resolution.
Payment terms: When and how payments are made, security mechanisms (bank guarantee, LC, escrow).
Termination: Conditions and procedures for ending the contract.
End of PPA: What happens at the end of term (asset transfer, removal, continuation).
Dispute resolution: Arbitration, regulatory adjudication, governing law.
A typical solar PPA runs 50 to 200 pages with comprehensive provisions. Standardisation has improved through MNRE model PPAs and SECI tender documentation.
Types of solar PPAs in India
| PPA Type | Generator | Buyer | Typical Tariff (Rs/kWh) | Term |
|---|---|---|---|---|
| Utility-scale (SECI auction) | Solar developer | SECI/DISCOM | 2.20 to 2.70 | 25 years |
| Rooftop OPEX/RESCO | RESCO developer | C&I customer | 3.50 to 5.50 | 15 to 25 years |
| Open access | Independent developer | C&I customer | 3.50 to 4.50 (before charges) | 15 to 25 years |
| Group captive | Co-owned developer | Co-owning consortium | 3.00 to 4.00 (before charges) | 15 to 25 years |
| Net metering surplus | Residential rooftop | DISCOM | APPC rate at year-end | Through plant life |
The economics, contract terms, and regulatory framework differ across these PPA types.
Utility-scale PPAs (SECI tenders)
Most large solar projects in India are sold to SECI (Solar Energy Corporation of India) through reverse auctions. SECI then onsells the power to DISCOMs through back-to-back PPAs.
Key features of SECI PPAs:
Discovered tariff: Through competitive reverse auction.
Term: 25 years.
Fixed tariff for full term.
Strong performance guarantees with penalty mechanism.
Lender-friendly terms supporting bankability.
CERC-approved provisions on change in law and force majeure.
Long-stop dates for commissioning with penalty for delays.
Detailed metering, billing, and dispute resolution mechanisms.
SECI is the offtaker of choice for utility-scale projects because of its strong sovereign-backed credit. State DISCOMs are weaker offtakers, leading to risk premiums in direct DISCOM PPAs.
Rooftop OPEX PPAs
For C&I rooftop solar under RESCO/OPEX, the PPA structure includes:
System owned by RESCO, installed at customer site.
Tariff: Fixed Rs 3.50 to Rs 5.50 per kWh depending on customer profile.
Term: 15 to 25 years.
Site access agreement covering rooftop rights.
Minimum offtake clause.
Buyout option, typically available after year 5 to 7.
Performance guarantees.
End-of-term asset transfer to customer.
Rooftop PPAs are typically simpler than utility-scale PPAs but still 30 to 100 pages.
Open-access PPAs
For C&I open access:
Solar plant located at developer’s site (not customer’s premises).
Power wheeled through grid to customer.
Tariff: Negotiated, typically Rs 3.50 to Rs 4.50 per kWh before adding open-access charges.
Buyer additionally pays transmission, wheeling, CSS, and other charges to grid operators and DISCOM.
Term: 15 to 25 years.
Banking provisions, where allowed.
Bilateral PPA structure (no SECI intermediary).
Often combined with RPO compliance benefits for the buyer.
Group captive PPAs
For group captive:
Buyer holds at least 26% equity in the generating company.
PPA structure between buyer and generating company.
Tariff: Cost-plus structure or fixed-rate based on financing.
Buyer is exempt from cross-subsidy surcharge.
Other open-access charges still apply.
The equity stake gives the buyer access to the captive treatment.
Common mistakes in PPA negotiation
Focusing only on the tariff. Other clauses (take-or-pay, performance guarantees, termination, force majeure) materially affect long-term economics.
Underestimating change-in-law impact. Indian regulations evolve; the change-in-law clause is the protection against this.
Mismatching PPA term with the asset’s useful life. A 15-year PPA on a 25-year plant leaves residual asset risk on the developer.
Not negotiating buyout option in RESCO PPAs. The option has value even if never exercised.
Skipping due diligence on the developer’s financial strength. PPA enforcement against a defaulted developer is messy.
Ignoring credit security mechanisms (bank guarantee, LC, escrow) that protect against payment defaults.
Overlooking dispute resolution mechanisms. Arbitration versus SERC adjudication can take very different times.
Best practices
Engage experienced solar lawyers for PPA review. The standard documents include subtle provisions with material impact.
Use SECI or MNRE model PPAs as starting templates, adapting to specific circumstances.
Include all key clauses: tariff, term, performance, force majeure, change in law, termination, dispute resolution, asset transfer.
Verify the counterparty’s financial strength and track record.
Document all PPA-related approvals (DISCOM, SLDC, MNRE, ALMM compliance) carefully.
For long-term PPAs, build sensitivity analyses on key variables (tariff escalation, performance, regulatory changes).
For buyers, ensure the PPA aligns with own operational and financial plans for the next 25 years.
Standards and references
PPAs operate under the Electricity Act 2003 and supplementary regulations. MNRE issues model PPAs for various scheme structures. SECI maintains its standard PPA documents for utility-scale tenders. State SERCs approve intra-state PPAs and adjudicate disputes. CERC handles inter-state PPA matters.
Related glossary terms
- OPEX Model
- CAPEX Model
- RESCO Model
- Group Captive
- Open Access Solar
- Feed-in Tariff
- DISCOM
- SERC
- CERC
- IRR
Key takeaways
A Power Purchase Agreement (PPA) is a long-term contract between a power generator and an electricity buyer that fixes the tariff, term, and commercial conditions for electricity supply over 15 to 25 years. PPAs are the foundation of Indian solar project financing. The four main types in India are utility-scale (SECI), RESCO rooftop, open access, and group captive, each with distinct tariff structures and regulatory frameworks. Key PPA clauses beyond tariff include take-or-pay, performance guarantees, force majeure, change in law, and termination. Experienced legal and financial advisors are essential for PPA negotiation and execution.