Risk & Contracts
The headline tariff is just the beginning. Real procurement success depends on understanding PPA risks, banking rules, and IRR assumptions.
PPA Clause Risks
Critical contract clauses that can make or break your renewable energy deal.
Tariff Escalation
Annual escalation of 2-3% can erode savings over 15-25 year contracts.
Uncapped escalation or indexing to inflation
Fixed tariff or capped at 1%/year
Negotiate fixed tariff for first 5 years, then capped escalation
Deemed Generation
You pay for power even if you can't consume it (e.g., plant shutdown).
Strict deemed generation with no flexibility
Take-or-pay with 80-85% floor only
Negotiate minimum offtake vs deemed generation balance
Change in Law
CSS/wheeling charge changes can significantly impact landed cost.
No pass-through mechanism
Clear pass-through for regulatory changes
Ensure 50-50 or full pass-through for regulatory changes
Termination Rights
Exit penalties can trap you in unfavorable contracts.
Heavy penalties or no exit option
Reasonable notice period + fair buyout formula
Build in review points at year 5, 10 with defined exit terms
Performance Guarantee
Generation shortfalls should have consequences for the developer.
No generation guarantee or weak penalties
CUF guarantee with compensation for shortfall
Insist on 85-90% availability guarantee with penalty mechanism
Force Majeure
Extended force majeure can leave you without power or recourse.
Unlimited force majeure period
Capped at 6-12 months with termination option
Ensure termination right if FM exceeds reasonable period
Banking & CSS Risks
State-specific rules that significantly impact your actual landed cost.
Banking Losses
Power banked with the grid incurs 2-5% transmission losses depending on state.
Banking Period
Most states allow monthly or annual banking. Mismatch = deemed generation payments.
CSS Volatility
Cross-subsidy surcharge changes annually, sometimes with 20%+ swings.
Captive Status Risk
Group captive requires maintaining 26% equity + 51% consumption annually.
IRR Assumptions Checklist
Developer proposals often look great until scrutinized. Use this checklist to stress-test IRR models.
| Assumption | Typical Range | Verification |
|---|---|---|
1 Realistic grid tariff escalation (4-5%/year) | 3-5% | Verify with SERC orders |
2 All OA charges included (transmission, wheeling, CSS) | ₹1.5-3.0/kWh | State-specific actuals |
3 Banking losses factored | 2-5% | Per state policy |
4 Actual CUF assumptions | Solar 19-22%, Wind 25-35% | Site-specific data |
5 O&M cost escalation | 3-5%/year | Industry benchmarks |
6 Module degradation | 0.5-0.7%/year | Manufacturer specs |
7 Working capital requirements | 2-3 months receivables | Cash flow model |
8 Insurance and taxes | 0.5-1% of capex/year | Include all costs |
9 End-of-life value | 5-10% of capex | Conservative assumption |
10 Refinancing assumptions | If applicable | Market rates + 1% |
Common IRR inflation tactics
- • Overly optimistic grid tariff escalation (7-8% vs actual 4-5%)
- • Ignoring or underestimating CSS in landed cost
- • Unrealistic CUF assumptions without site-specific data
- • Excluding working capital and insurance costs
- • Assuming refinancing at favorable rates