Table of contents
- Understanding PPA types
- Detailed explanation of PPA models
- Indian context and examples
- Practical applications
- How Neufin can help?
- Related terms
- FAQs
- Additional resources
Understanding PPA types
Power purchase agreements come in various forms, each designed to meet specific business needs and regulatory requirements. The four main types of PPAs available for businesses are physical PPAs, virtual PPAs, synthetic PPAs, and sleeved PPAs. Each model offers distinct advantages and considerations for both power generators and consumers.
Detailed explanation of PPA models
- Physical PPAs: These agreements involve direct delivery of electricity from the generator to the consumer. The power flows through a physical connection, and the pricing is typically fixed for the contract duration.
- Virtual PPAs: Also known as financial PPAs, these contracts don’t involve physical power delivery. Instead, they’re financial instruments where the buyer agrees to pay a fixed price, and the difference between market and fixed prices is settled financially.
- Synthetic PPAs: Similar to virtual PPAs but with additional hedging mechanisms. They provide price certainty while allowing both parties to operate independently in their respective power markets.
- Sleeved PPAs: These involve a third-party utility that “sleeves” or facilitates the power delivery between the generator and end-user, handling balancing and transmission requirements.
Indian context and examples
In India, PPA implementation is governed by the Electricity Act, 2003, and subsequent regulations by the Central Electricity Regulatory Commission (CERC). States like Gujarat and Maharashtra have emerged as leaders in PPA adoption, particularly in renewable energy sectors.
Example: The Solar Energy Corporation of India (SECI) frequently arranges PPAs between solar power generators and state distribution companies, with rates as low as ₹2.36 per kWh in recent auctions.
Practical applications
Businesses can leverage different PPA types based on their specific needs:
- Manufacturing units often prefer physical PPAs for stable power supply
- Corporate offices may opt for virtual PPAs to meet sustainability goals
- Multi-location businesses might choose sleeved PPAs for simplified management
- Risk-averse companies typically select synthetic PPAs for price stability
How Neufin can help?
Neufin helps you choose the right type of power purchase agreement (PPA) as per your company needs. We provide the fastest way for companies to buy renewable energy in India. Companies choose Neufin because we provide –
- Guaranteed cost savings – Lower your electricity bills without operational headaches.
- End-to-end execution – From feasibility to power delivery, we handle everything.
- Zero upfront investment options – Easy and flexible financing through Neufin Capital
Related terms
- Renewable energy certificates
- Grid parity
- Wheeling charges
- Energy trading
Frequently Asked Questions (FAQs)
What is the minimum duration for a PPA contract in India?
In India, PPA contracts typically range from 10-25 years, with most renewable energy PPAs having a minimum duration of 15 years.
Can businesses switch between different PPA types?
Yes, businesses can switch PPA types upon contract completion or through mutual agreement, subject to regulatory approvals.
What are the key financial benefits of PPAs?
PPAs offer predictable electricity costs, potential savings compared to market rates, and protection against price volatility.
Additional resources
- CERC guidelines on power purchase agreements
- Ministry of Power regulations
- State electricity regulatory commission websites
Last updated: January 2024
Disclaimer: This information is for general guidance and may not reflect current market conditions or regulations. Consult with energy experts for specific advice.
