A power purchase agreement (PPA) is the contract that fixes the price you pay for each unit of solar power and how long the deal runs. In a third-party PPA, a developer funds, builds, owns and maintains the plant, and you only buy the power.
What the contract covers
- The price per unit, fixed or rising by a set amount each year
- The term, usually 15 to 25 years for commercial and industrial solar
- Who pays which grid fees, and what happens if a state changes them
- Minimum purchase commitments and penalties for exiting early
How it compares with group captive
| Third-party PPA | Group captive | |
|---|---|---|
| Your investment | None | 26% equity in the plant |
| Cross-subsidy and additional surcharge | You pay both | Exempt in most states |
| Typical landed cost | Higher | ₹1.50 to ₹2.00 a unit lower |
| Best for | Buyers who want no capital tied up | Large, steady loads with capital to invest |
Example
A cold-storage company signs a 20-year PPA at ₹3.90 a unit with no upfront cost. In a state with high surcharges its landed cost is about ₹6.40, still well below its ₹9 grid price. A group captive deal would cut that further, but it would have to invest in the plant.
What to check before you sign
Ask for the landed cost, not just the PPA price, and check who bears the risk if the state raises its surcharges. That clause decides whether your saving holds for the full term.
Related: group captive, landed cost.
Sources
Figures last checked on 26 September 2026.