Why Waste a Good Crisis: Breaking the Logjam

Let’s start with a look at one of our immediate neighbours, Pakistan. It has no grand energy strategy, its grid is creaking, its utilities are broke. Yet, between 2021 and early 2026, Pakistan avoided over $12 billion in oil and gas imports, not through policy, but because households and businesses, fleeing the grid, installed rooftop solar at a furious pace. As the Iran war shut the Strait of Hormuz, distributed solar acted as an insurance policy.

India’s gas pipeline push is the opposite of this story. But there is a deeper problem that neither the pipeline push nor the Pakistan model helps solve.

India has 45-55 gigawatts of awarded renewable capacity sitting without signed power purchase agreements. The generation infrastructure is ready, the grid connectivity is secured, the investors are waiting for operation to start. But the final signature from the off-taker, the one that turns an awarded project into a bankable asset, shows no sign of being inked.

This is not a technology failure but an institutional one.

Why the Traditional PPA Model Broke
The PPA is the workhorse of energy finance. It is the contract that turns a project from a concept into something a bank will lend against. By guaranteeing a long-term revenue stream—typically 10 to 25 years—it gives lenders the predictable cash flows they need to service debt. It insulates developers from wholesale market volatility. It basically makes the unbankable bankable.

For a decade, this model worked. Generators got revenue certainty. Buyers got stable prices. Lenders got predictable returns. In many liberalised and emerging market electricity sectors including India, the PPA became the bedrock of bankability for power generation projects, and especially for nascent renewable energy where high upfront costs demand long-term revenue certainty.

Then the assumptions underlying it began to crack.

In India, solar capacity grew at 24% CAGR over five years; transmission grew at just 6.5%. However, outstanding discom debt rose to ₹7.42 trillion. The result: between April and September 2025, India auctioned just 3.4 GW of new renewable capacity, an 82% drop from the year before.

The PPA model assumed two things that are no longer true. First, that the buyer, typically a state discom, would remain creditworthy. Second, that a 20-year fixed price would remain viable in a market where technology costs are falling and wholesale prices are volatile.

Both assumptions have failed from both sides of the contract.

On the buyer’s side, most discoms, drowning in debt, have been burned before. In the thermal power sector, they had signed long-term PPAs at high tariffs only to see costs crash, leaving them locked into expensive power for decades. The memory of that mistake makes them deeply wary of locking in any long-term rate, even a low one, when technology costs are still falling.

On the generator’s side, falling costs are not a deterrent; they are an opportunity. The hesitation belongs to the off-taker, who fears being locked into today’s prices when tomorrow’s will be lower. But the generator also faces a risk: locking in a rate that will soon look uncompetitive to the off-taker, who may then seek to renegotiate or default.

The renewable sector in India is propelled by reverse auctions. Competitive bidding was once celebrated as the perfect mechanism for driving down renewable tariffs. The logic was that auctions would reveal the true cost of generation and deliver power at the lowest possible price. But that logic assumed a functioning market with creditworthy buyers and stable costs. Neither holds today.

The reverse auction may have outlived its utility. Reverse auctions have driven tariffs to unsustainably low levels: below ₹2.50 per kilowatt-hour in some cases. Developers bid aggressively to win, but by the time the PPA is ready for signature, costs have risen and the bid is no longer viable.

Profitability concerns, not technology costs, start to matter when reverse auctions by design compress margins to the point where developers cannot earn sustainable returns. When tariffs fall below ₹2.50 per kilowatt-hour, the winner’s curse kicks in: the project becomes unbankable the moment the contract is signed. Developers bid to win, assuming costs will continue to fall. But land prices rise. Module costs fluctuate. Transmission delays mount. The gap between the auction tariff and the actual cost of delivery widens.

Added to this, the grid itself has become a bottleneck. Developers secure transmission connectivity based on Letters of Award, before PPAs are signed. But when PPAs stall, as they have for over 45 GW of capacity, that connectivity sits idle, blocking transmission bays needed for new projects. The Central Electricity Regulatory Commission has proposed revoking connectivity if PPAs remain unsigned for more than 12 months, but industry argues this would penalise developers for delays caused by discoms and transmission agencies. The causality runs both ways: PPAs are delayed because connectivity is uncertain, and connectivity is blocked because PPAs are unsigned.

The market is already adjusting. Since 2025, India’s renewable sector has seen around USD 5 billion in M&A transactions involving 13 GW of assets, as capital tightens and earlier aggressive underwriting becomes unsustainable. Consolidation is accelerating. But consolidation is not a solution to the PPA backlog, it is a symptom of distress.

This is not just an Indian problem. European PPA signings dropped 35% in 2025. The EU’s energy regulator launched a consultation in March 2026 to assess barriers, exactly the questions India needs to answer. The difference is that Europe has deeper capital markets and a unified electricity market. India has neither.

The Innovation Toolkit
The solution is not to abandon PPAs, as off-take contracts are seen as prized de-risking tools by lenders, but to redesign them. Four innovations are already being deployed elsewhere and offer solutions.

I. Two-sided Contracts for Difference. Like a take-or-pay contract, a two-sided CfD provides revenue certainty for the generator. But where take-or-pay obligates the buyer to pay for power they may not need (a feature that has created massive fiscal liabilities in countries like Pakistan and Bangladesh), the CfD works differently. Generator and buyer agree on a strike price. The generator sells its power into the wholesale market. The buyer buys its power from the wholesale market. If the market price falls below the strike price, the buyer pays the difference to the generator. If the market price rises above the strike price, the generator pays the difference back to the buyer. No physical delivery is required. The CfD simply settles the difference between two prices. It is risk-sharing, not risk-shifting.

The two-sided CfD is analogous to inflation indexing in one sense: both adjust payments away from a fixed base to reflect changing conditions. But where inflation indexing protects only the generator’s real revenue, the two-sided CfD shares market risk and market reward between generator and buyer. In 2004, the EU’s Electricity Market Design Regulation made two-way CfDs the default mechanism for public support for new renewable projects.

India’s regulatory framework has not yet adopted them at scale.

II. Revenue-sharing mechanisms. A variation on the two-sided CfD, revenue-sharing contracts link the generator’s returns to the buyer’s actual consumption patterns. When renewable generation is abundant and prices are low, the generator earns less. When generation is scarce and prices are high, it earns more. Studies suggest shifting to such contracts could deliver 5-8% annual savings for discoms.

III. Financially settled contracts and exchange-traded futures. Traditional PPAs require physical delivery: transmission scheduling, balancing responsibility, curtailment risk. Financially settled contracts decouple the financial obligation from physical delivery. India’s electricity futures market, launched in 2025, created the infrastructure for this. The infrastructure exists but the regulatory push is missing.

IV. Virtual Power Purchase Agreements (VPPAs). India is currently finalising guidelines for VPPAs, which are financial CfDs where the buyer receives renewable energy certificates but no physical electrons, with the minimum term set at one year. An estimate is that this could unlock financing for over 40 GW of stranded projects. Elsewhere, 80% of corporate renewable procurement in the US now uses virtual structures.

Beyond these four, a fifth innovation - transferable PPAs - has emerged from Brazil and deserves separate attention, as Brazil has developed a level of PPA sophistication that India has not yet matched. In a landmark 2024 transaction, a strategic buyer acquired a large capacity contract from a financial investor. The PPA was transferable, not tied to a specific project, and the buyer moved it to a different site. This creates liquidity and concentrates counterparty risk with creditworthy players. India would need a legal framework for PPA transferability, capital markets willing to hold PPAs as assets, and a class of strategic buyers who see value in acquiring contracts.

The Distribution Bypass
There is another path that does not need to wait for PPA reform. Pakistan’s experience offers a template: households and businesses installed rooftop solar because it became cheaper than grid power. The results were a sharp drop in oil and gas imports.

What made this replicable? Price, availability, and simplicity. Consumers did not need permits, PPAs, or discom approval. They installed and connected.

India can scale this, as several states have already mandated rooftop solar for new buildings. Net metering policies exist. Financing mechanisms can be scaled. But the political economy question is whether policymakers will facilitate consumers or continue to protect discoms at the expense of the transition. The challenge is regulatory, as many states have capped net metering to protect discom revenues.

The EU Parallel: Regulators Playing Catch-Up
Regulatory lags in the sector are being witnessed in many countries, with even advanced markets struggling. European PPA signings dropped sharply in 2025, and the EU’s energy regulator launched a consultation in March 2026 on public guarantees, trading platforms, and tax incentives, the same issues India needs to consider.

The lesson is that even sophisticated markets are still learning. If even the EU, which has a unified framework and deep capital pools, is struggling, India’s task is definitely going to be more difficult. While the EU’s struggles also offer a template that India could adopt, the difference is that the EU has the capacity to implement reforms across 27 countries, while each of India’s states has its own sector regulator and political incentives, theoretically at least. Nevertheless, the direction in which to move is clear. While the EU is moving toward standardisation and market-based mechanisms, India is still debating whether to move at all.

The Political Economy

These innovations are technically feasible, but the status quo benefits powerful players. Coal-fired generators have long-term PPAs with discoms. State utilities have political protection. The gas pipeline bureaucracy has a vested interest.

Discom reform is the hardest problem. State governments are reluctant to raise tariffs or cut subsidies. They are reluctant to cede control to central regulators. The result is a steady drift toward insolvency.

The crisis creates an opening. When systems are failing, the cost of reform is lower. The question is whether policymakers will seize it.

The Way Forward

A realistic path exists but it requires pilot projects, state-level experimentation, and regulatory clarity:

First, pilot a few two-sided CfDs: Small-scale pilots with transparent terms and monitored outcomes.

Second, finalise VPPA guidelines: The draft framework exists and could unlock an estimated 40 GW of stranded projects.

Third, enable secondary markets: This needs legal clarity on PPA transferability, with streamlined approvals.

Fourth, expand distributed generation: Standardise net metering across states; scale financing mechanisms.

Fifth, use exchange-traded futures: The infrastructure is already available and needs regulatory attention.

In parallel, address the grid connectivity bottleneck. The current system of awarding connectivity before PPAs are signed creates a logjam that blocks both existing and new projects. Reforms should include:

• Time-bound connectivity approvals tied to realistic project milestones, not indefinite holds.
• Transparent mechanisms for releasing idle capacity when projects stall.
• Faster transmission build-out to close the gap between generation growth (24%) and transmission growth (6.5%).

The CERC’s proposal to revoke connectivity after 12 months is a start, but it must be paired with protections for developers facing delays caused by discoms or transmission agencies.

One caveat: even advanced markets are still evolving. Hybrid PPAs face slow uptake. Contract structures for storage are not yet mature. We need to track these developments closely, as the solutions being piloted in Europe today may be templates available to other jurisdictions tomorrow as finished products.

None of these steps requires a constitutional amendment. They require only that regulators act and states cooperate.

The Cost of Doing Nothing
The choice for allocation of resources is between the gas pipeline push and the electrostate model. The crisis has concentrated attention and the window is open, but will not stay open forever. Every month of delay pushes the renewables backlog deeper. And every rupee spent on gas pipelines is a rupee not spent on the grid, on storage, on the systems that define the electrostate. The cost of inaction is already visible in the 45–55 GW of awarded capacity waiting for signatures that may never materialise.

Part 1 questioned the gas pipeline push, a bet that the past can be extended. Part 2 defined the electrostate model, a bet that electrification delivers energy security. Part 3 has mapped approaches that could unlock the logjam.

The technology and the capital exist and there is a crisis is at hand. The only thing missing is follow-through. The cost of locking in to an older system by default becomes even higher when the cost of doing nothing on viable alternatives is added.

This is the concluding part a three-part series titled Why Waste a Good Crisis: India's Chance to Become an Electrostate

Part 1 covered India ‘s pipeline paradox — Speeding up gas pipelines risks locking India into a 20th century energy model, even as renewable capacity waits for transmission and PPAs.

Part 2 explained what is an electrostate model, what does it require, and why it offer a more resilient path than the one India is currently pursuing.