Executive Summary
Power Purchase Agreements (PPAs) are the backbone of India's electricity sector, governing relationships between generators and distribution companies:
- Definition: Long-term contracts for electricity sale/purchase
- Parties: Generators, DISCOMs, trading licensees
- Regulatory approval: SERC tariff adoption required
- Key terms: Capacity charges, energy charges, deemed generation
- Duration: Typically 25 years
- Disputes: Resolved through regulatory commissions and APTEL
This guide examines PPA structures, regulatory requirements, and dispute resolution.
1. Statutory Framework
Electricity Act, 2003 Provisions
| Section |
Subject |
| Section 62 |
Tariff determination by Commission |
| Section 63 |
Tariff through competitive bidding |
| Section 86(1)(b) |
Regulation of purchase and procurement |
2. Types of PPAs
Based on Procurement Method
| Type |
Characteristics |
| Cost-plus (Section 62) |
Tariff determined by Commission |
| Competitive bidding (Section 63) |
Tariff discovered through bid |
| Bilateral |
Negotiated terms |
Based on Power Source
| Source |
Typical Features |
| Thermal |
Two-part tariff, fuel cost pass-through |
| Hydro |
Capacity charges, free power to state |
| Solar |
Levelized tariff, generation-based |
| Wind |
Variable generation, forecasting |
3. Key PPA Terms
Two-Part Tariff Structure
| Component |
Purpose |
| Capacity charge |
Fixed cost recovery |
| Energy charge |
Variable cost recovery |
| Incentive |
Performance bonus |
| Penalty |
Under-performance |
Payment Security Mechanism
| Mechanism |
Description |
| Letter of credit |
Revolving LC |
| Escrow account |
Revenue deposit |
| State guarantee |
Government backing |
Change in Law
| Category |
Treatment |
| Tax changes |
Pass-through |
| Environmental norms |
Cost adjustment |
| Policy changes |
Restoration of position |
4. Regulatory Approval
Tariff Adoption Process
| Step |
Action |
| Filing |
Petition by procurer |
| Scrutiny |
Commission examination |
| Hearing |
Stakeholder views |
| Order |
Adoption or modification |
5. PPA Disputes
Common Disputes
| Issue |
Nature |
| Deemed generation |
Compensation claims |
| Change in law |
Tariff adjustment |
| Payment delays |
Interest, LC encashment |
| Termination |
Validity, consequences |
Dispute Resolution Forum
| Forum |
Jurisdiction |
| SERC |
Tariff, regulatory issues |
| Arbitration |
Contractual disputes |
| APTEL |
Appeals from SERC |
6. Compliance Checklist
For Generators
For Procurers
7. Key Takeaways
- Two Routes: Section 62 (cost-plus) and Section 63 (competitive bidding).
- Regulatory Adoption: Essential for tariff enforceability.
- Payment Security: LCs and escrow now mandatory.
- Change in Law: Document and claim timely.
- Forum Selection: SERC for regulatory, arbitration for contractual.
Conclusion
Power Purchase Agreements require careful drafting, regulatory navigation, and ongoing compliance. Both generators and procurers must understand the regulatory framework and maintain robust documentation.
