How Solar PPAs & RESCOs Work in India

Solar power is booming in India, but the upfront cost of installing panels can be daunting. What if you could go solar with zero upfront investment?

This is precisely what Solar Power Purchase Agreements (PPAs) and the RESCO model offer. Under these models, a developer sets up a solar power system at little to no cost for the user, who then pays only for the electricity generated.

We’ll break down how solar PPAs and RESCOs work in India – from financial and policy basics to technical workings – with a focus on the benefits for businesses and landowners.

What is a Solar PPA?

A Solar Power Purchase Agreement (PPA) is a financial contract between two parties: a power producer (developer) and a power consumer (usually a business).

In a solar PPA, the developer arranges the design, permitting, financing, and installation of a solar energy system on the customer’s property (or at a solar farm) at little to no upfront cost to the customer. Once the system is running, the developer sells the electricity to the customer at an agreed rate per kWh, which is typically lower than the local utility’s grid tariff.

PPAs are long-term agreements, usually ranging from about 10 to 25 years. During this period, the developer owns and operates the solar system and is responsible for all maintenance and performance.

At the end of the PPA term, typically a few options are available: the contract can be extended, the customer can purchase the solar system, or the developer can remove the system as per the agreement.

This flexibility ensures that the customer isn’t locked in forever. After, say, 20–25 years, when the panels may have aged, the customer can decide the next steps.

Understanding the RESCO Model

RESCO stands for Renewable Energy Service Company. In practical terms, a RESCO model involves the implementation of a solar PPA, where a third-party company (the RESCO or developer) owns and operates the solar power project, selling the energy to the consumer.

It’s often referred to as the OPEX model (operational expenditure model) because the consumer incurs only an operating expense (the periodic payment for electricity) instead of a capital expense.

The RESCO model is essentially a zero-investment approach for the consumer: you get a solar plant installed, and you pay only for the energy it produces, typically at a rate lower than your normal electricity tariff.

In contrast, if you opted for a traditional CAPEX (EPC) model, you would purchase the solar system outright with a significant upfront investment and own it yourself.

Under a RESCO arrangement, the roles are clearly defined. The RESCO company develops, installs, finances, operates, and owns the solar power project, even if it’s on your roof or land. The customer provides the space (either roof area or ground space) and then purchases the electricity generated on-site.

Since RESCO owns the equipment, it also handles all operations and maintenance throughout the project’s life. A long-term PPA is signed to formalize this arrangement, usually with terms about the tariff, duration, responsibilities, and what happens with any excess generation.

Often, these contracts are structured as BOOT (Build, Own, Operate, Transfer), meaning the RESCO will build, own, and operate the solar plant for the duration of the contract, then transfer ownership of the system to the customer at the end of the term. In a BOOT model, after transfer, the customer might continue to hire the RESCO (or another vendor) for maintenance, or manage it on their own.

Another point is that RESCO projects often align with government initiatives. The Indian government and various state agencies have been promoting rooftop solar through RESCO models, especially on government buildings and institutions. They frequently issue tenders inviting developers to install solar systems on public buildings under long-term PPAs, sometimes providing subsidies or viability gap funding to make the projects viable. These tenders typically span 10 to 25-year contracts for the PPA.

Therefore, the RESCO model isn’t just a private business idea – it’s also part of the policy toolkit aimed at increasing solar adoption in India.

How Do Solar PPAs Work? (On-Site vs. Off-Site)

Solar PPAs in India generally come in two flavors: on-site (often rooftop) PPAs under the RESCO model, and off-site PPAs through the open access route. Let’s explore how each works in practice:

On-Site (Rooftop or Premise) PPA

In an on-site PPA, the solar system is installed at the consumer’s location – for example, on the rooftop of a factory, the premises of an office, or unused land at an institution. The key feature is that the power is generated and consumed in the same location (behind the meter).

The RESCO developer will set up the solar panels, inverters, and other equipment on your roof or campus. This solar plant is then synchronized with your internal electrical system.

During daylight hours, your operations will utilize solar power first, and any shortfall will be automatically drawn from the grid as usual. If your solar system produces more than you need at a given moment, that surplus can flow back to the grid if you have a net metering arrangement in place.

The RESCO will usually set up a remote monitoring system to track performance and ensure everything runs optimally. They handle maintenance tasks, such as cleaning the panels and repairing any faults, as part of their service.

From a financial and billing perspective, you’ll typically have a separate meter (a solar export/import meter or a generation meter) to record how much solar energy was generated and used. Every month, the RESCO will bill you for the solar units you consumed at the rate agreed in the PPA.

You’ll still receive your normal electricity bill from the DISCOM (utility) for any grid units you consume, but that will be significantly reduced due to solar energy.

Off-Site (Open Access) PPA

What if you want solar power but can’t install enough panels at your location? Perhaps you lack sufficient roof space, or maybe you’re a company with operations in a city high-rise where rooftop solar can’t meet your huge energy needs. This is where open-access solar PPAs come into play. In an off-site PPA, the solar plant is located elsewhere – perhaps a sunny plot of land in a rural area or a large solar farm in another district – and the power is transmitted through the public grid to your facility. You still sign a PPA with a solar power developer, but instead of the system being on your roof, it’s injected into the grid at the solar farm’s location, and you receive an equivalent amount of energy at your end through the utility. Essentially, the grid is acting as the delivery medium for your solar power.

Open-access solar PPAs in India are governed by special regulations. Under the Electricity Act, 2003, large power consumers (typically those with over 1 MW of connected load) are allowed to buy electricity directly from generators through open access, rather than solely from the local DISCOM. This means if your factory has a sanctioned load above 1 MW, you can choose to source power from a solar farm developer who might be hundreds of kilometers away, provided the infrastructure can wheel that power to you. You would enter into a long-term PPA (often 10–15 years or more) with the solar power producer, just as in the on-site case. The tariff for open access solar is usually significantly lower than the commercial tariff charged by DISCOMs, so the savings can be substantial. Many industries opt for open access PPAs to slash their energy costs and meet sustainability targets at the same time.

The working of an off-site PPA involves a few additional components: because the power goes through the public grid, open access charges and losses come into play. The consumer has to pay the state utility certain fees for using the network – these can include transmission charges, wheeling charges (for using distribution lines), and sometimes cross-subsidy surcharges and other fees mandated by regulators. Even with these charges, the all-in cost of solar via open access often remains cheaper than buying solely from the grid, especially in states where industrial tariffs are high. The government has been making policy moves to reduce some of these open-access charges to encourage more renewable energy use.

Financial Benefits for Businesses

 Solar PPAs and RESCO models offer several key advantages for commercial and industrial consumers:

• Lower Electricity Bills: Solar tariffs under PPAs are typically 20–50% cheaper than grid tariffs, leading to significant monthly savings.
• Zero Investment: Businesses avoid capital costs and loans. The RESCO handles all expenses for installation and equipment.
• Stable Pricing: PPAs offer fixed or slightly escalating tariffs for 15–25 years, protecting against rising grid rates.
• Hassle-Free Maintenance: RESCO developers maintain the system, often with 24/7 monitoring and performance guarantees.
• Green Compliance: Helps meet ESG and sustainability targets with real renewable energy use, not just certificates.

Key Considerations:

• Long-Term Contract: Businesses must commit to buying solar power for 10–25 years.
• Credit Check: RESCOs prefer financially stable clients. Startups may need to provide guarantees.
• No Asset Ownership: The developer claims tax benefits, such as depreciation. You save through a lower tariff.
• Adaptability: Electricity markets evolve. Businesses may want flexibility to mix PPA and other energy sources.

Opportunities for Land Owners

Solar PPAs and RESCO models can also benefit landowners with unused space:

• Earn Steady Rent: Lease your land or roof to a RESCO developer. You earn a fixed annual income while the developer sets up and operates a solar plant.
• No Effort, No Investment: Developers manage everything from permits to operations. You just sign the agreement and receive rent.
• Long-Term Assurance: Lease terms often last 25–30 years, offering stable income. Contracts usually include annual rent escalation.
• Increase Property Value: Your land becomes income-generating and grid-connected, increasing its long-term utility and value.
• Regulatory Support: Developers typically handle land conversion, approvals, and compliance, minimizing your workload.
• Community Benefits: Large solar projects can bring local jobs and infrastructure improvements.
• Flexibility: If you need power too, you can be both the landlord and power buyer. Alternatively, you can lease your land for third-party supply.

Conclusion

Solar PPAs and RESCO models have revolutionized how India is adopting clean energy. They remove the biggest barrier – the high upfront cost – and replace it with a simple pay-as-you-go model for solar power. For businesses, this means access to cheaper electricity and a greener footprint without tying up capital or resources. For land and building owners, it opens up a new avenue to earn a steady income by partnering with solar providers. On the technical front, these arrangements are tried-and-tested. Whether the panels are on your roof feeding your facility, or in a solar farm sending power through the grid, the process is well-regulated and supported by policy (with continual improvements to make it smoother).

Frequently Asked Questions (FAQs)