Solar and Power Project Audit: PPA, Generation and Incentive Checks

A solar or power project audit checks that units billed match units metered, that tariff and adjustments follow the power purchase agreement, that large receivables from utilities are recoverable, that project cost is capitalised correctly, and that government incentives are recognised only when conditions are met. Revenue depends on a single counterparty and a single meter.

Last reviewed: 17 October 2026. Facts checked. We ran a web search on Ind AS 20 and generation-based incentives for renewable projects. It returned general accounting explainers, an EY note on production-linked incentives, a policy database entry and old parliamentary answers. We read the search summaries and did not open the standard, the current scheme documents or any regulator order. The results indicated that a government grant is recognised only with reasonable assurance of meeting conditions and of receipt, and that tax benefits sit under the income tax standard. Historic incentive rates appeared but are not current, so we give none. The search did not address utility-receivable accounting or the Electricity Act. Confirm all points with the standards, the PPA and current notifications. Existing site posts were checked so that links point to pages that exist.

What is distinctive about power projects

• Revenue is units generated multiplied by a tariff in a long-term power purchase agreement, or by market price for merchant sales.
• Units are read from a meter that the utility or a grid authority often controls.
• The buyer is frequently a state utility, so receivables can be large and slow.
• Capital cost is high, with land, modules, inverters, evacuation lines and engineering contracts.
• Incentives and benefits may be tied to commissioning dates, generation or local content.
• Plants are financed with long-term debt that carries covenants and reserve accounts.
• Output depends on weather, equipment degradation and grid availability.

Key risks

1. Revenue accuracy. Units billed differing from joint meter readings, or deemed generation claims unsupported.
2. Tariff errors. Wrong tariff, curtailment or penalty adjustments.
3. Receivable recovery. Delayed payments, disputed deductions and late-payment surcharges.
4. Capital cost. Costs capitalised before commissioning, or maintenance treated as capital.
5. Incentive recognition. Income booked before conditions are met.
6. Asset lives and degradation. Depreciation periods that do not match the PPA term.
7. Debt covenants. Ratios, reserve accounts and rating triggers.
8. Related-party contracts. Engineering and operating contracts with sponsors.

Audit programme in steps

Step 1: Read the key agreements

Obtain the PPA, connection and evacuation agreements, the loan agreement, the operation and maintenance contract and land documents. Prepare a one-page sheet of tariff, term, billing cycle, payment security, curtailment terms and termination clauses.

Step 2: Test generation and billing

Tie monthly billed units to joint meter reading reports or the grid operator's statement. Recompute invoices for a sample of months using the PPA tariff. Check supporting records for any deemed-generation or curtailment claim. Reconcile inverter-level data to the meter at a high level and investigate gaps.

Step 3: Test receivables

Age receivables by invoice date and compare payments after year-end. Obtain confirmation from the utility where possible. Review disputed deductions, delayed payment surcharge claims and any payment security such as a letter of credit. Judge recoverability with documented evidence, not management's expectation. Our note on working capital leakage covers ageing tests.

Step 4: Test project cost and commissioning

Review the cost schedule by contract. Test cut-off at the commissioning date and the transfer from capital work-in-progress. Check that borrowing cost capitalised stops when the asset is ready. Look at variation orders and liquidated damages. See the fixed assets checklist.

Step 5: Test depreciation and component accounting

Check useful lives for major components against the PPA term and warranties. Where parts such as inverters are replaced earlier than the plant, check whether they are accounted as separate components.

Step 6: Test incentive and grant income

For each incentive, obtain the scheme terms, the application and the approval. Test whether the conditions for recognition were met by the year-end and whether income is shown gross as other income or as a reduction of cost, following the standard on government grants. Confirm the current scheme and rates from the official notification.

Step 7: Review debt and covenants

Obtain lender confirmations, test interest calculation and covenant ratios, and check balances in escrow and reserve accounts. Review whether any covenant breach triggers a change in debt classification.

Step 8: Test operations and maintenance

Check payments to the operator against the contract, performance guarantees and any penalty claims for low availability. Review insurance cover on the plant. Test spare parts and consumables.

Step 9: Review related-party and group contracts

Where the sponsor or an affiliate supplies engineering, operations or financing, apply the steps in our related-party procedures and compare pricing with external quotes.

Step 10: Review tax and compliance

Test GST on sale of power where applicable, TDS on contractor payments and the tax treatment of accelerated depreciation or holidays, confirming current rules from the law. Check land, environmental and grid approvals and any asset retirement obligation under the lease or land agreement.

Common findings

• Billed units not agreed to a joint meter report.
• Large utility receivables with no confirmation and no assessment.
• Capitalisation continuing after the plant was commissioned.
• Incentive income booked on application, not approval.
• Depreciation periods unrelated to the PPA term.
• Covenant calculations missing from the file.
• Sponsor contracts at prices that were never benchmarked.

Which Indian rules to check

Name only. Verify current text:

• The Electricity Act, 2003 and regulatory commission orders for the state concerned.
• Ministry of New and Renewable Energy scheme notifications for any incentive claimed.
• Indian Accounting Standards on government grants, property plant and equipment, borrowing costs and financial instruments.
• GST law and the Income-tax Act as they apply to power sales and depreciation.
• Environment and land-related approvals for the project.

FAQs

Why is the meter report so important?

It is the independent record of units sold, and the basis for revenue under the agreement.

Can incentive income be booked on application?

Only when there is reasonable assurance that conditions are met and the amount will be received.

Which balance carries the most judgement?

Receivables from a state utility, where delay and dispute are common.

Related Articles

• Energy audit types and process
• Fixed assets internal audit checklist
• Working capital leakage
• Audit of grants and utilisation certificates

Statutory facts on this page are checked against their sources, and the page says where it relied on secondary reporting. How we verify · Report an error