PM-KUSUM Component A tariff and 25-year developer returns

PM-KUSUM Component A lets a developer build a small solar plant and sell power to the DISCOM at a fixed price for about 25 years. The money is simple on paper but tight in practice. This guide shows how the tariff is set and what really drives your long-term returns.

What the PM-KUSUM Component A tariff is

The PM-KUSUM Component A tariff is a fixed price per unit that a DISCOM pays a developer for every kWh a small solar plant sends to the grid. Component A covers decentralised, ground-mounted plants of about 0.5 to 2 MW built on farmer or barren land near a substation. The developer signs a long power purchase agreement, or PPA, and earns from selling that power.

Unlike rooftop schemes, there is no one-time subsidy cheque to the developer. Instead the return comes from the tariff over many years. So the whole business case rests on one number you do not fully control: the rate per unit set in the tender. That rate, the plant cost and the sunshine decide whether the project pays.

Who buys, who sells, who runs it

The developer or RESCO builds and owns the plant. The DISCOM buys the power. The state nodal agency (SNA) runs the tender and sets the rules under the central MNRE scheme. The land owner, often a farmer, leases the land or earns a share. Each party has a role in the cash flow, so read the tender to see exactly who pays whom.

How the feed-in tariff and PPA work

The feed-in tariff is discovered through competitive bidding, then frozen in the PPA for the full term. The SNA usually sets a ceiling tariff and developers bid at or below it. The lowest evaluated bid, the L1, often sets the rate. Once you sign, you sell at that rate for about 25 years, whatever the market does.

The tariff is flat for the full term

In most Component A tenders the tariff stays flat across the PPA term. There is no yearly increase to match inflation. So a rate that looks fine today must still cover your O&M and any loan in year 20. Model the full life, not just year one. The tariff figure is set by the live tender and is an estimate to confirm with the SNA.

Watch the ceiling and the term

Two numbers move the math the most: the ceiling tariff and the PPA term. A lower ceiling squeezes your margin. A longer term spreads your capex over more years. Both are set per tender and vary by state. Confirm the current ceiling and term against the live tender and the latest MNRE order before you size your bid.

RESCO vs CAPEX, in brief

The CAPEX model means the developer invests and owns the plant, while the RESCO model means a third party invests and the developer earns a build or service fee. Both appear under Component A. The choice changes who carries the long payment risk and who keeps the long upside.

CAPEX: you own the risk and the reward

Under CAPEX, you fund the plant, sign the PPA and collect every rupee the DISCOM pays for 25 years. You also carry the full risk if the DISCOM pays late or the plant under-performs. This suits a developer with patient capital and a healthy buyer DISCOM.

RESCO: lighter capital, thinner margin

Under RESCO, an investor owns the plant and you earn an EPC margin or an O&M fee. Your capital at risk is smaller, but so is your share of the long cash flow. Many EPCs new to agri-solar start here. Our RESCO vs CAPEX model guide compares the two in full.

What drives 25-year developer returns

Six inputs drive your Component A returns: capex per MW, the discovered tariff, the CUF, O&M cost, land lease and financing terms. Change any one a little and the IRR moves. Below is what each one does. Every figure is an estimate to confirm against the live tender and the latest MNRE order.

CUF: how much power the plant makes

The capacity utilisation factor, or CUF, is the share of full output the plant actually delivers over a year. It depends on your site, the irradiation and the design. A higher CUF means more units sold at the same tariff, so more revenue. A typical estimate is about 17 to 19 percent, but confirm it with a site study.

Tariff in rupees per unit

The tariff multiplies every unit you generate. A small drop in the rate cuts revenue across all 25 years. Because the tariff is bid-discovered, you cannot raise it later. Bid only at a rate that still works after O&M and loan repayment. The tariff is an estimate set by each live tender.

Capex per MW

Capex is the upfront cost to build one MW: modules, structure, inverters, balance of system and grid evacuation. Lower capex lifts your IRR directly. Module prices and DCR or ALMM content rules move this number, and those rules are volatile. Confirm the current sourcing rules against the latest MNRE office memorandum.

O&M, land lease and financing

Operations and maintenance, land lease and your loan terms all eat into the cash flow each year. O&M covers cleaning, spares, monitoring and security. Leased land adds a yearly cost that owned land avoids. Cheaper, longer-tenure debt raises your equity IRR. All three are estimates to confirm with vendors, the land owner and your lender.

An illustrative 1 MW returns model

The table below shows a sample 25-year cost and returns model for a 1 MW Component A plant. These are illustrative estimates only — confirm every figure against the live tender and the latest MNRE order. The numbers show how the pieces fit, not what your project will earn.

Illustrative estimate — confirm against the live tender / latest MNRE order. Source: framing based on MNRE Component A guidelines and SECI model documents; figures are SuryaHub illustrations, not quoted rates.

IRR and payback thinking

IRR and payback are two simple ways to test whether a Component A plant is worth building. Payback asks how many years until the plant repays its cost. IRR asks what yearly return the project earns over its full life. Both rest on the same inputs, so both are estimates until the tender is live.

Simple payback in plain terms

Take the capex and divide it by the net yearly cash flow. In the sample above, roughly Rs 4 crore divided by about Rs 45 lakh gives a payback near 8 to 9 years. That ignores discounting and loan cost, so it is only a rough check. A shorter payback usually means a safer project.

Why IRR matters more over 25 years

IRR weighs the timing of every rupee across the full term, so it captures degradation, O&M creep and the long flat tariff. A low double-digit project IRR is a common illustrative target, but the real figure swings with capex, CUF and finance. Model it yourself, and treat any single number as an estimate to verify.

DISCOM payment risk

DISCOM payment delay is the single biggest threat to your Component A returns. A strong tariff means little if the DISCOM pays you six or twelve months late. Many state DISCOMs carry heavy dues, so the buyer's financial health can matter more than the tariff itself.

What protects your payment

Read the tender for a payment-security mechanism: a letter of credit, an escrow or a payment-security fund. Check the buyer DISCOM's recent payment record and any tripartite arrangement. Our DISCOM PPA payment security guide explains how to read these clauses before you sign.

Price the risk into your bid

If the buyer DISCOM has a weak payment record, build that delay into your model. A late payment raises your working-capital cost and can stall your loan. Do not chase a thin tariff with a risky buyer. The payment terms and DISCOM health are facts to confirm with the SNA and the live tender.

When Component A makes sense, and when it does not

PM-KUSUM Component A makes sense when you have cheap land near a substation, low-cost finance and a healthy buyer DISCOM. It does not make sense when the tariff is thin, the grid connection is far or the DISCOM pays late. The deciding factors are site, money and the buyer.

Green flags before you bid

• Land within a few km of a substation — short evacuation lines cut capex.
• Owned or cheaply leased land — lower yearly cost lifts the IRR.
• A DISCOM with a clean payment record — your cash flow is only as good as the payer.
• Low-cost, long-tenure debt — cheaper finance raises your equity return.
• A tariff ceiling that still works after O&M — confirm it against the live tender.

Red flags to walk away from

Walk away when the substation is far, the land cost is high, the DISCOM is a known late payer or the ceiling tariff cannot cover your costs over 25 years. A bad Component A bid locks you into a long PPA you cannot exit. When the numbers do not work, it is fine to skip the tender. Verify all figures with the SNA first.

How SuryaHub helps you run Component A projects

Winning a tender is the start; running the plant for 25 years is the real work. SuryaHub keeps every tender, EMD, PBG and milestone in one place, and runs the build from government and DISCOM steps through finance and GST to long O&M tracking — so no deadline or payment follow-up slips. SuryaHub is pre-revenue; the real pilots are Suryantra Energy and RGESPL, and every returns figure here is an illustrative estimate, not a promise.

Related guides

Frequently asked questions

Sources & references

The tariff framework, benchmark costs and Component A rules come from primary government sources. All slabs, tariffs, costs and percentages are estimates that move — confirm the current figures with your state nodal agency, the live tender and the latest MNRE order before you bid.

• Ministry of New & Renewable Energy (MNRE) ↗

  Component A guidelines, benchmark costs and the tariff framework.

• PM-KUSUM National Portal ↗

  Component-wise progress and state-level targets.

• SECI ↗

  Model tender and PPA documents used as reference.