What Is a Power Purchase Agreement? How PPAs Work Under Indian Electricity Regulation

Most explanations of a power purchase agreement available online were written for Germany, Switzerland, Australia or the United States. They describe subsidy regimes, market rules and counterparties that do not exist here. If you are an Indian business deciding how to contract for electricity, very little of it transfers.

This page explains what a PPA is under Indian regulation: who the parties are, how the price is arrived at, how long it runs, and which clauses decide whether the cost certainty you were promised is real. It stops at the contract. It does not tell you which route to choose, or what your electricity should cost.

What is a power purchase agreement, and is it defined in Indian law?

That absence surprises people, so it is worth being precise. The Electricity Act, 2003 does not define the instrument. It does something more useful: it makes the instrument work, and in one place it regulates it. Section 86(1)(b) requires the State Commission to regulate the electricity purchase and procurement process of distribution licensees “including the price at which electricity shall be procured from the generating companies or licensees or from other sources through agreements for purchase of power for distribution and supply within the State”.

“Agreements for purchase of power” is as close as the statute comes, and it sits there for a reason. A PPA signed by a distribution licensee is not a purely private contract — it is a regulated instrument, and a commission has a statutory say in it. A PPA signed by a private buyer with a generator under open access is a private contract, subject to the regulations that govern use of the network.

The provisions that give a PPA effect sit elsewhere in the Act. Section 10(2) allows a generating company to supply electricity to any licensee, and to any consumer subject to the open access regulations. Section 9(1) allows a person to construct, maintain or operate a captive generating plant. Section 42(2) requires the State Commission to introduce open access. Between them, those provisions carry the main routes by which an Indian business can contract for electricity from someone other than its distribution licensee. Market purchase rests elsewhere — on the trading licence provisions and the Commission's power market regulations.

Who are the parties to a power purchase agreement in India?

Five kinds of entity sign PPAs in India, and the shape of the contract changes with the counterparty.

• A generating company — defined in the Act as any company, body corporate, association or body of individuals that owns, operates or maintains a generating station. In the renewable sector this is usually an independent power producer.
• A distribution licensee, buying to supply its own consumers. This is the PPA that Section 86(1)(b) regulates.
• A captive user, under Section 9, consuming electricity from a plant it part-owns.
• An open access consumer, buying directly from a generator and paying to use the network to receive the electricity.
• A trading licensee — the Act defines “trading” as the purchase of electricity for resale.

There is a further arrangement that trips people up, and it is the common one in India's large renewable tenders. Under the Ministry of Power's competitive bidding guidelines, a central agency such as the Solar Energy Corporation of India or NTPC can act as an intermediary procurer. It is not the end buyer. It signs a PPA with the generator and, separately, a power sale agreement with the distribution licensee that will actually take the electricity.

The guidelines require the PPA's change-in-law provisions to be provided for “on back-to-back basis, in the PSA”. So one transaction produces two contracts that have to mirror each other. Since an amendment to the bidding guidelines communicated in June 2025, where the end buyer is a distribution licensee it must apply to its commission for approval of the power sale agreement within 30 days of signing, if that approval has not already been obtained. If you are reading a tender document and cannot work out who your counterparty is, this structure is usually why.

For how these roles fit together across generation, transmission and distribution, see our explainer on who generates electricity and who delivers it.

How is the price in a PPA arrived at — Section 62 or Section 63?

This is the distinction most commonly got wrong, published commentary included, and it is worth ninety seconds.

Section 63 is a single sentence: notwithstanding Section 62, the Appropriate Commission shall adopt the tariff if it has been determined through a transparent process of bidding in accordance with Central Government guidelines. The operative verb is “adopt”, not “determine”. Section 63 operates as a carve-out from Section 62 rather than a parallel track, and in practice the two do not overlap — the CERC tariff regulations notified in March 2024 expressly do not apply to generating stations whose tariff was discovered through competitive bidding and adopted under Section 63.

Why a buyer should care. Under Section 62 the price can be revisited by the Commission through the tariff process. Under Section 63 the price is the bid, and the Commission's job is to check the process rather than the number. Those are different risk profiles, and they sit behind different contracts. For how the bidding side has been moving, see our review of how utility-scale tenders have been structured.

One clarification, because it is a live error in circulation: Section 63 is not a central-only provision. The “Appropriate Commission” is the Central Commission for inter-state composite schemes and the State Commission for intra-state procurement.

How long does a power purchase agreement run in India?

Twenty years is the prescribed default. Twenty-five is the common outcome.

The Ministry of Power's current bidding guidelines for solar, issued in July 2023, prescribe a PPA for a period of 20 years from the scheduled commencement-of-supply date, and add that it “may, however, also be fixed for a longer period such as 25 years”. The wind-solar hybrid guidelines of August 2023 and the firm and dispatchable guidelines of June 2023 take the same shape: 20 years, extendable to 25.

In practice, tariff adoption orders routinely record 25-year terms. Longer terms are possible but need the Commission's approval as a deviation — the Odisha commission considered a 30-year solar PPA where the underlying land lease ran that long, in Case No. 47 of 2025.

Which procurement route does your PPA sit in?

“PPA” describes an instrument, not a route. Six quite different arrangements are in use, and they differ even in whether there is a PPA at all — which is exactly what decides what you pay for and what you are exposed to.

Three notes on that table. First, where a route crosses state boundaries, inter-state transmission charges enter the landed cost, and those charges are subject to a waiver that is phasing down on a schedule keyed to a project's commissioning date. That deserves its own explainer rather than a line here.

Second, none of these routes automatically gives you a green claim you can report. The electricity and the environmental attribute are separable, and which instruments actually carry a claim is a separate question with a separate answer — we have set out what a green claim is worth, and which instruments carry it in full.

Third, the ground under the captive routes moved in March 2026, when the 2026 Electricity Amendment Rules changed how the ownership and consumption tests are applied where several users share one plant. The mechanics are worked through in a companion post. They change the conditions attached to a route, not what a power purchase agreement is.

Which clauses decide whether the cost is actually certain?

A PPA is only as good as the clauses that survive a bad year. These are the ones that decide whether the contracted price is the price you end up paying.

Two points of Indian jurisprudence are worth carrying into any negotiation, because they mark the outer edges of these clauses.

On force majeure, the Supreme Court held in 2017 that a rise in the price of imported coal was not force majeure where the contract excluded mere price fluctuation, and that relief had to come from the contract's own change-in-law clause rather than from a generalised compensatory tariff. A force majeure clause is not a commercial hardship clause.

On change in law, the Supreme Court held in August 2022 that compensation is restitutionary — the purpose is to restore the affected party to the same economic position as if the change had not occurred, with carrying cost running from the date of the event. That is a real protection, and it is only as wide as the definition of “change in law” you sign.

Where the contracted supply has to be firm rather than variable, the shape of the obligation changes again and storage usually enters the structure. We have explained firm and dispatchable renewable energy and battery energy storage separately.

What is a virtual PPA, and can you sign one in India yet?

A virtual power purchase agreement is not a PPA with a different delivery route. There is no physical delivery to the buyer and no open access. The generator injects electricity into the grid and sells it at the market price. The buyer and the generator then settle the difference between that market price and an agreed strike price between themselves. The buyer carries on taking its actual electricity from its distribution licensee.

India now has a framework for this. The Central Electricity Regulatory Commission issued Guidelines for Virtual Power Purchase Agreements on 24 December 2025, under the Power Market Regulations, 2021. They were published in the Gazette on 28 January 2026, and a Statement of Reasons followed on 27 April 2026. The guidelines set a minimum tenure of one year, structure the contract as a bilateral, non-tradable over-the-counter arrangement, and provide that renewable energy certificates issued against the contracted capacity transfer to the buyer for compliance use rather than for resale.

What should a buyer check before signing?

A power purchase agreement is read in a particular order, and reading it out of order is how buyers end up surprised by a bill they thought they had fixed. Four checks, in sequence.

1. Establish which route the contract sits in. Six are set out in the table above, and they are not variants of one another. The route decides which regulatory charges land on top of the contracted price, and no clause inside the agreement will tell you which they are.
2. Confirm how the price was arrived at — determined by the Commission under Section 62, adopted under Section 63 after a competitive bid, negotiated bilaterally, or simply set by the market in an exchange purchase. That is what fixes who is able to revisit the price later, and on what grounds.
3. Work through the certainty clauses rather than the headline number. Term, escalation or indexation, change in law, curtailment and deemed generation, the generation or capacity utilisation factor guarantee, and payment security. A contracted price with an open indexation clause is not a fixed cost, and a fixed cost with no payment security is not a settled one.
4. Separate the electricity from the claim. A power purchase agreement moves electricity. Whether it also moves the environmental attribute depends on what the contract says about certificates, and that should be settled in the drafting rather than assumed at reporting time.

All four are questions about the contract and the route it sits in, rather than about the generating technology behind it. Answered in that order, they are what turn a contracted price into a cost a business can actually budget against — which is the only reason to sign a twenty-year agreement in the first place.

Frequently asked questions

What is the full form of PPA?

PPA stands for power purchase agreement. In the Indian electricity sector it means a bilateral contract under which a generator sells electricity to a buyer at an agreed price for an agreed period. The same three letters mean other things in other industries, which is why search results for the acronym are such a mixed bag.

Is a PPA the same as an open access agreement?

No, and you will usually need both. The PPA is the commercial contract with the generator. Separately, an open access consumer executes a transmission or wheeling agreement with the licensee whose network carries the electricity. State green open access regulations require both. A related point worth knowing, because it is often assumed the other way round: at least one state's regulations expressly allow a consumer to hold power purchase agreements with more than one person, within the quantum of open access granted or sought.

Does a PPA need regulatory approval?

It depends who signs it. A distribution licensee's procurement is regulated under Section 86(1)(b), and tariffs are either determined under Section 62 or adopted under Section 63. Where a central agency acts as intermediary procurer and the end buyer is a distribution licensee, that licensee must file the power sale agreement for the Commission's approval within 30 days of signing, unless approval has already been obtained. A private bilateral contract under open access needs no tariff approval, though the open access itself requires the network operator's consent.

What tenure should a corporate buyer expect?

In utility-scale tendered projects, 20 to 25 years. Bilateral corporate contracts are negotiated and can be shorter. A virtual PPA under the CERC guidelines has a minimum tenure of one year.

Can a PPA price change during the term?

Only through a mechanism written into it. The usual ones are a contractual escalation or indexation, and a change-in-law adjustment. Neither is automatic, and both depend on the drafting.