Power Purchase Agreement
A Power Purchase Agreement (PPA) is a legally enforceable, long-term contract between an electricity generator (seller) and a buyer (discom or corporation), to purchase electricity at a pre-agreed price for a fixed period.
It defines how much electricity will be supplied, at what cost, and for how long.
Why is Power Purchase Agreement important ?
The importance of power purchase agreements lies in:
- Price stability: Locks in electricity prices and protects buyers from market volatility.
- Lower upfront cost: Allows access to renewable or conventional power without major capital expenditure.
- Energy security: Ensures reliable, long-term electricity supply.
- Risk reduction: Transfers project development and performance risks to the power producer.
- Supports sustainability goals: Enables businesses to meet clean-energy and decarbonization targets.
Whate are uses of Power Purchase Agreement ?
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Large corporations sourcing renewable energy to meet sustainability targets
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Industrial facilities locking in stable electricity prices for long-term planning
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Government-led renewable energy procurement programs
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Utilities purchasing power from solar or wind farms
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Enabling financing for solar and wind projects through guaranteed revenue
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Supporting hybrid renewable systems that combine solar, wind, and storage
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Allowing businesses to participate in virtual PPAs to offset carbon emissions
What are Key Aspects of Solar PPAs in India ?
Structure: Typically, the solar developer (SPD) retains ownership of the system, handles maintenance, and sells electricity to the buying entity.
Tariff: The fixed tariff is usually cheaper than commercial/industrial grid rates (roughly Rs3.00/unit for some rooftop models, though this varies).
What are Key Considerations in a PPA Document ?
Deemed Generation: Ensures the buyer pays for electricity even if they cannot offtake 100% of the generated power.
Metering: Specifies the installation of meters for measuring energy, usually done with joint meter reading reports.
Termination: Defines penalties and conditions for default by either party.
What are Types of Power Purchase Agreements ?
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On-site PPA: Power is generated at the consumer’s location (e.g., rooftop or ground-mounted solar).
- Off-site PPA: Electricity is generated elsewhere and supplied through the grid.
- Physical PPA: Buyer receives actual electricity through transmission lines.
- Virtual (Financial) PPA: A financial contract where the buyer pays or receives the difference between market price and PPA price, without physical power delivery.
- Utility PPA: A power distribution company buys electricity from a generator under long-term contracts.
Is there any sampe copy of Power Purchase Agreement ?
Yes, you may have a look at SECI (Solar Energy Corporation of India Ltd) drafted sample copy of Power Purchase Agreement over here.
