Group captive vs third-party PPA: which costs less?

When a business buys solar power from a plant elsewhere in its state, it has two main ways to structure the deal: co-own the plant (group captive) or simply buy the power (third-party PPA). On the same solar price, the structure can move your final cost by more than the price itself. This guide explains both, with a worked example and the questions to ask before you sign.

The short answer

Group captive is cheaper per unit because captive consumers don’t pay the cross-subsidy surcharge or the additional surcharge. A third-party PPA needs no investment but carries every grid fee. Published analysis puts the gap at ₹1.50 to ₹2.00 a unit in favour of group captive.

What decides your final cost

Open access solar reaches you through the grid, so several fees sit between the offer price and your bill:

• The solar price in the PPA
• Wheeling and transmission charges for carrying the power
• Cross-subsidy surcharge and additional surcharge, which group captive avoids
• Losses on the way and deductions for banked power

Together these make up your landed cost, the only number worth comparing with your current bill.

How group captive works

Under the Electricity Rules 2005, a group of consumers that owns at least 26% of a plant and uses at least 51% of its output is treated as captive. Captive and group captive consumers are exempt from the two surcharges under Section 42(2) of the Electricity Act 2003.

The 26% equity

The developer sets up a special purpose company (SPV) that owns the plant. You buy shares in it, alone or with other buyers, so that together you hold at least 26%. The developer holds the rest and runs the plant.

The 51% consumption rule

The captive owners must together use at least 51% of the plant’s power in each year. If your use drops, for example after a plant shutdown, you can lose captive status for that year and owe the surcharges.

How a third-party PPA works

A developer funds, builds, owns and maintains the plant. You sign a long-term PPA, usually 15 to 25 years, and pay per unit with nothing upfront. The trade-off is that you pay every fee in the stack, including the cross-subsidy surcharge, which is usually the largest and the most likely to change.

Side by side

A worked example

A factory in Karnataka uses 2 lakh units a month and pays ₹8.50 a unit. A developer offers solar at ₹3.75 a unit. Using Karnataka’s published fees of ₹0.29 wheeling, ₹0.60 cross-subsidy surcharge and ₹0.40 additional surcharge:

The structure alone is worth about ₹24 lakh a year to this factory. Against that, it must fund its share of the SPV equity, which depends on the plant’s size and cost, so ask the developer for the exact amount.

State exceptions to check

Rules also change through court rulings and new commission orders. Check the latest order for your state and connection voltage, and see what we have verified on our state pages.

Which one fits you

Choose group captive if

• Your load is large and steady enough to stay above the 51% rule for years
• You have capital to invest in the SPV
• You are in a state that exempts captive users from both surcharges

Choose a third-party PPA if

• You want no capital tied up in the plant
• Your load may fall, move or change
• You value simplicity over the last rupee of saving

Questions to ask the developer

1. What is my landed cost per unit, with every fee listed?
2. Who pays if the state raises the surcharges or wheeling charges?
3. How much equity do I need for my share, and can I sell it later?
4. What happens if my consumption falls below the 51% rule?
5. How are banked units and losses handled in the contract?

Frequently asked questions