HOW DOES SOLAR PPA WORK?

A Solar Power Purchase Agreement or a Solar PPA is a very popular model for businesses to switch to solar. In India, it accounted for over 70-80% of all industrial rooftop solar projects since 2016.

Companies have found PPAs to be a much better model to shift to solar as it helps them reap the benefits of clean and cheaper power without having to worry about any potential downsides. This has led to a boom in the number of installations in this model in the past few years.

When switching to solar through a PPA, the consumer does not have to bear the high upfront investment required for solar projects. This investment is borne by a third party investor. Furthermore, the investor takes the guarantees of the energy that the system will generate and agrees to supply the same to the consumer. The investor and the consumer sign a Power Purchase Agreement that outlines the price at which this sale of electricity will take place.

WORKING OF SOLAR PPA

Benefits of Solar PPA

  • Zero Investment: Consumers don’t have to spend anything on the capital cost of the plant. They also don’t need to pay for the maintenance of the plant.
  • High Savings: The difference between the grid tariff and the solar tariff available through PPA is very high. Most consumers are now able to save over Rs. 3-4 per kWh of power. This means that they end up saving over 40% of their bills through a PPA.
  • Maintenance: Since the returns of an investor are directly dependent on the number of units that the plants generate, most investors are very proactive in the maintenance of the system and ensure very high uptime. This means that a consumer can derive more benefits out of the system.
  • Ease of Switch: Switching to solar through a PPA is comparatively easier as opposed to the CAPEX model, as it ensures that you have experts looking after the project. Hence, several decisions that you would have to make are now delegated to experts who have better knowledge and experience to make these decisions.
  • Guarantees and Warranties: If there is any lapse in the quality of the plant, then the investor would proactively enforce the guarantees and warranties promised for the plant by the manufacturers.

Factors Determining PPA Tariffs

Most investors today offer a customized plan to every customer through a solar PPA. The tariff that you would be offered depends on the following parameters:

  • System Costs (taking into account anything additional that needs to be provided)
  • Actual on-site generation
  • Dusting and pollution on site
  • Financing available to the investor
  • Tenure of the PPA 
  • Escalation of the tariff
  • Operations and Maintenance costs

To read more in detail about how the pricing for a PPA is calculated, please read this article.

With increasing trust in the future of renewable energy, more companies are today offering such innovative and consumer-centric solutions than ever before. It is, therefore, a great time for all prospective consumers to shift to solar power.


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