Understanding PPA structures in India: group captive, third-party, and open access explained

A Power Purchase Agreement (PPA) is a long-term contract between a renewable energy generator and an off-taker (buyer), specifying the price, volume, delivery point, and duration of electricity supply. In India, PPAs are the primary instrument through which C&I consumers access renewable energy outside the grid tariff regime.

The Indian market currently supports three distinct PPA structures for C&I consumers: group captive, third-party open access, and rooftop captive. Each pathway sits within a different regulatory framework, carries different financial risks, and suits different load profiles.

How SPVs Work

Under the Electricity Act 2003 and Central Electricity Regulatory Commission (CERC) guidelines, a "captive generating plant" qualifies for key exemptions — including relief from Open Access charges and cross-subsidy surcharges — provided the off-taker holds at least 26% equity in the generating SPV and consumes at least 51% of the plant's output.

In a group captive arrangement, multiple C&I consumers jointly invest in a Special Purpose Vehicle (SPV) that owns and operates the renewable energy plant. Each consumer holds equity proportional to their contracted share of generation. The SPV sells power to its equity holders, which are treated as captive consumers under the law.

The 26% minimum equity requirement is non-negotiable. State Electricity Regulatory Commission (SERC) audits have disqualified projects where equity was held through nominee arrangements or where the off-taker's balance sheet could not substantiate the investment. Lenders and developers have developed standardised SPV structures, but consumers must maintain their equity holding for the duration of the PPA — typically 25 years.

Group captive is the most tariff-advantaged structure in most Indian states. By satisfying captive status, off-takers avoid:

• Cross-Subsidy Surcharge (CSS), which ranges from ₹0.50–₹2.50/kWh depending on state and voltage level
• Additional Surcharge on open access transactions
• State transmission charges in some states where captive exemptions apply

The effective delivered cost under group captive is typically ₹0.80–₹1.50/kWh lower than equivalent third-party open access in high-CSS states like Maharashtra and Tamil Nadu.

SERC Rules

Each SERC interprets the captive framework differently. Karnataka (KERC) and Tamil Nadu (TNERC) have well-settled rules, but amendments to banking limits, DSM treatment, and surplus energy disposal vary year-on-year. Consumers must model regulatory risk — particularly the risk of CSS being applied retrospectively.

In a third-party PPA, an Independent Power Producer (IPP) sells power directly to a C&I consumer through the state's open access network. The consumer pays the IPP a contracted rate and separately pays open access charges — transmission, wheeling, scheduling, and any applicable surcharges — to the DISCOM.

Open Access Charges and Banking

Third-party open access consumers must navigate:

• Transmission charges: payable to the state transmission utility (STU) for using the intrastate grid
• Wheeling charges: paid to the DISCOM for last-mile delivery
• Cross-Subsidy Surcharge (CSS): the most variable and politically sensitive charge — levied to compensate the DISCOM for revenue lost when industrial consumers exit the regulated tariff
• Scheduling charges: for submitting and deviating from daily injection/drawl schedules
• Banking: most states allow monthly or annual banking of surplus renewable units, but caps, lapse rules, and seasonal restrictions differ significantly

The total open access charge burden in high-CSS states can erode the cost advantage of renewable energy to near zero at lower load factors.

Rooftop captive generation — solar panels installed on a consumer's own premises — qualifies as captive generation without any equity SPV requirement. Power generated on-site is consumed directly, bypassing the DISCOM network entirely. No wheeling, transmission, or CSS charges apply to on-site units.

For consumers with adequate roof space and reasonable load profiles (daytime-heavy operations), rooftop captive is the simplest and fastest path to cost reduction.

No Open Access Charges

The economics are straightforward: the consumer replaces grid units — priced at the full industrial tariff including all surcharges — with solar units at the plant-level LCoE, which typically ranges from ₹3.50–₹5.50/kWh depending on system size and state.

Limited by Roof Space

The constraint is physical. A 1 MW rooftop solar system requires approximately 5,000–6,000 sq metres of shadow-free roof. For large consumers requiring 10+ MW of contracted capacity, rooftop alone cannot meet RE targets. BESS integration can extend effective utilisation but cannot substitute for generation capacity.

How to Choose

The right structure depends on four variables:

1. 01Load factor: High, consistent load profiles (above 75%) favour third-party or group captive with wind hybrid. Low or variable loads increase DSM exposure under open access and strengthen the case for on-site BESS.
2. 02State regulations: CSS levels, banking caps, and captive exemption stability are the most consequential variables. In Tamil Nadu and Maharashtra, group captive delivers 30–40% better economics than third-party. In Telangana and Andhra Pradesh, the gap is narrower.
3. 03Capex appetite: Group captive requires equity investment in the SPV — typically 10–20% of plant capex. Rooftop captive requires direct capex (or OPEX under a RESCO model). Third-party PPA carries no upfront capex.
4. 04Timeline: Rooftop captive can be commissioned in 3–6 months. Group captive and third-party open access require 12–24 months including site identification, SERC approvals, and long-lead equipment procurement.

Any rigorous procurement process should model all three pathways at 15-minute resolution before committing to a structure. Annual-average comparisons systematically underestimate open access charge exposure and BESS sizing requirements.