Introduction
India’s commitment to generating 500 GW of renewable energy by 2030 hinges not only on technology and infrastructure — but also on financial mechanisms that make solar projects viable at scale.
At the heart of this transformation is the Power Purchase Agreement (PPA) — a long-term electricity sales contract that ensures price certainty, revenue predictability, and reduced investment risk.
Whether you’re a solar developer, a corporate energy buyer, or an infrastructure investor, understanding how PPAs work is essential to unlocking long-term value.
What Is a Power Purchase Agreement?
A Power Purchase Agreement (PPA) is a legally binding contract between a power producer and an electricity buyer — typically signed for 15 to 25 years.
In India, PPAs are commonly structured between:
- DISCOMs (State Distribution Companies)
- Corporate/Industrial Buyers
- Large Institutions or Government Entities
In plain terms, a PPA guarantees that electricity generated will have a buyer — at a pre-agreed tariff — for a fixed duration.
Types of PPAs in the Indian Market
1. Utility-Scale PPAs
- Signed between solar developers and state DISCOMs
- Project size: 50 MW to 500+ MW
- Tariffs discovered via reverse bidding
- Popular under SECI and NTPC tenders
2. Corporate or Industrial PPAs
- Direct contracts with factories, IT parks, or data centers
- Growing due to RE100 commitments and open access regulations
- Structured as captive, group captive, or third-party PPAs
3. On-Site (Behind-the-Meter) PPAs
- Solar systems installed at consumer premises (roof or ground)
- Buyer pays only for consumed power, no upfront investment
- Ideal for MSMEs, schools, hospitals, warehouses
5 Financial Benefits of PPAs in India
1. Predictable Revenue for Developers & IPPs
- Fixed tariffs ensure stable income over 15–25 years
- Makes cash flow more bankable, enabling lower-cost financing
2. Cost Savings for Corporate Buyers
- PPA rates are 20–40% cheaper than grid electricity (₹4–5/unit vs ₹7–10/unit)
- Leads to significant opex reduction without capex burden
3. Risk Reduction for Both Parties
- Shields developers from market volatility
- Shields buyers from grid tariff inflation and energy cost shocks
4. Easier Project Financing
- Banks prefer PPA-backed projects due to guaranteed cash flows
- Boosts investor confidence, especially for large-scale projects
5. ESG Alignment & Reputation Boost
- Corporates meet sustainability mandates cost-effectively
- Contributes to net-zero goals, improving ESG ratings and investor perception
Real-World Case Studies
Case 1: Corporate PPA – 50 MW Plant in Karnataka
- Buyer: Large FMCG manufacturer
- Tariff: ₹4.2/unit for 20 years
- Grid Rate: ₹7.5/unit
- Savings: ₹15 crore/year
- Developer Revenue: ₹50+ crore over term
- Model: Group captive, open access
Case 2: DISCOM PPA – 100 MW Project in Rajasthan
- Buyer: Rajasthan DISCOM
- Tariff: ₹2.8/unit (25-year term)
- Funding: Secured via foreign institutional investors
- Impact: Enabled 100 MW capacity addition under SECI tender
Why PPAs Are Gaining Traction in India
| Reason | Impact |
|---|---|
| Rising Grid Tariffs | PPAs offer cheaper alternatives |
| Open Access Reforms | Enable direct power purchase across states |
| Renewable Procurement Mandates | Corporates push for 100% green energy goals |
| Investor Preference | PPAs reduce volatility and improve IRR |
| Government Backing | SECI, MNRE, and state policies favor PPAs |
Who Should Consider Signing PPAs?
- Solar Developers: To ensure project bankability and cash flow security
- Corporates & Industries: To reduce electricity costs and meet sustainability goals
- Institutional Investors: To fund revenue-stable green infrastructure
- DISCOMs: To fulfill RPOs (Renewable Purchase Obligations)