Structuring a Renewable Power Purchase Agreement in India
What Businesses Need to Know?
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What a Renewable PPA Is, and Why It Exists?
A power purchase agreement, or PPA, is a contract between an electricity generator and a buyer, known as the offtaker, that fixes the tariff, tenure, and delivery terms for the power supplied over an agreed period. In the renewable context, the generator is typically a solar or wind developer, and the offtaker is the business consuming the power.
In India, a business does not have to buy all its power from the local distribution company, or discom. Section 42 of the Electricity Act, 2003 gives large consumers the right to open access, meaning they can buy power directly from a generator of their choice and use the discom's wires to receive it, paying wheeling and transmission charges for that service. Section 9 of the same Act separately allows a consumer to set up or invest in a captive generating plant built specifically to serve its own consumption.
These two legal foundations, open access and captive generation, are what every corporate renewable PPA structure in India is ultimately built on.
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The Three Ways Businesses Structure Renewable PPAs
Open access PPAs
Under an open access PPA, a business signs directly with a solar or wind developer and receives power over the grid, without owning any part of the generating plant. Eligibility got significantly easier after the Ministry of Power's Green Open Access Rules, 2022 reduced the minimum consumer load required to access this route from 1 MW to 100 kW. The delivered cost includes the PPA tariff plus transmission and wheeling charges, and typically a cross-subsidy surcharge paid to the local discom to compensate for the load moving away from it.
Group captive PPAs
A group captive structure lets a business, or a group of businesses, jointly own a generating plant and consume its output. To qualify as captive under Rule 3 of the Electricity Rules, 2005, captive users must together hold at least 26% ownership in the plant and consume at least 51% of the electricity it generates, measured annually. For an association of users, consumption must also track ownership proportionally, within a permitted variation, so that the ratio of consumption to shareholding stays close to the statutory benchmark. Qualifying as captive exempts the business from the cross-subsidy surcharge that applies to standard open access.
Virtual PPAs
A virtual PPA is a financial contract rather than a physical supply arrangement. Under guidelines issued by the Central Electricity Regulatory Commission, a business can lock in a fixed price with a renewable generator while continuing to draw its actual power from its existing source, whether that is the discom, a captive plant, or open access. The generator sells the physical power on the open market, and the two parties settle the difference between the agreed contract price and the market price. The associated renewable energy certificates transfer to the buyer, who can use them toward its renewable consumption obligation.
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What to Check Before You Sign?
Match the structure to how much control you actually need
Open access suits a business that wants renewable power without any capital investment or ownership stake. Group captive suits a business willing to hold at least a 26% stake in exchange for long-term price certainty and a cross-subsidy surcharge exemption. Decide which trade-off fits before comparing tariffs.
Verify the captive consumption math before signing, not after
For a group captive structure, confirm that your consumption share stays within the permitted variation of your ownership share as set out in Rule 3. Falling outside that range on an annual basis can put the plant's captive status, and its surcharge exemption, at risk.
Add every surcharge to the tariff before comparing options
A quoted PPA tariff is not the delivered cost. Transmission charges, wheeling charges, and, where applicable, the cross-subsidy surcharge, all sit on top of it. Businesses that compare bare tariffs across structures often miss this gap.
Check the PPA term against future RCO targets, not just this year's
Renewable Consumption Obligations rise every year through 2029-30 under the Ministry of Power's notification. A PPA volume that comfortably meets this year's obligation may fall short a few years into the contract term.
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Conclusion
Structuring a renewable PPA in India is less about choosing the lowest tariff and more about choosing the right legal route for how a business wants to own, consume, and account for its power.
As Renewable Consumption Obligations continue to rise through the decade, businesses that understand the mechanics behind open access, group captive, and virtual PPA structures will be better placed to lock in terms that hold up over the full life of the contract.
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Frequently Asked Questions
What is a renewable power purchase agreement?
A contract that fixes the tariff, tenure, and delivery terms between a renewable energy generator and the business buying its power.
What is the minimum ownership required for a group captive PPA?
At least 26% ownership and at least 51% consumption of the plant's annual output, under Rule 3 of the Electricity Rules, 2005.
What changed under the Green Open Access Rules, 2022?
The minimum consumer load required to access open access renewable power was reduced from 1 MW to 100 kW.
What is a virtual power purchase agreement?
A financial contract that settles on the difference between an agreed price and the market price, without requiring physical delivery of power, under CERC's guidelines for virtual PPAs.
Who regulates renewable PPA disputes in India?
CERC for inter-state matters and the relevant state SERC for intra-state matters, with appeals heard by APTEL under Section 111 of the Electricity Act, 2003.
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