The virtual PPA voyage in India

This article is authored by Poonam Verma Sengupta, partner, JSA Advocates and Solicitors.

On May 22, 2025, the Central Electricity Regulatory Commission (CERC) released draft guidelines to establish a regulatory framework for Virtual Power Purchase Agreements (VPPAs), marking another milestone on India’s path to its 500 GW renewable energy (RE) target. 

Finance

VPPA is a form of a corporate power purchase agreement (CPPA). A VPPA or a CPPA is not defined under the Indian legislation yet. However, the same is already internationally recognised. VPPAs are essentially contracts for difference, allowing corporates to transact with project developers at a fixed price for a fixed duration. While the power is sold on the exchange, Renewable Energy Certificates (RECs) corresponding to the power sold are transferred to the corporate(s) and the differential is paid by the corporate upon transfer of RECs. The VPPA mechanism aims to enhance RE procurement by large commercial and industrial (C&I) consumers with substantial electricity demand.

The VPPA model is operative in countries like Australia, UK and the US. In these liberalised electricity markets, VPPAs operate as commercial agreements with no requirement of special energy regulatory approval. Though in some jurisdictions VPPAs are subject to derivative accounting rules. India (until now) had not formally integrated VPPAs into its legal framework. Instead, corporate offtakers (C&I customers) met their RE goals through open-access or captive-supply arrangements, principally via three primary routes of RE consumption i.e. onsite solar, intra-state offsite solar and purchasing RECs. Since corporates generally seek low-risk, firm and competitively priced RE options, exercising these routes of consumption has often been constrained by state-level regulatory issues, surcharges, net-metering caps, wheeling policies etc. In India, while 70 to 80% of the corporates report procuring RE and many have joined the global RE100 initiative, their actual RE consumption still lags i.e. just 7 to 10% of total electricity use compared to 20% in case of companies from the US. 

CERC’s new draft guidelines now provide the first formal recognition of a VPPA contract format. It is perceived that introduction of VPPAs will provide C&I consumers with a fourth option enabling inter-state procurement. Like how it operates internationally, draft guidelines provide that VPPA would allow a designated consumer to financially settle a contract with an RE generator without physically receiving power. The RE generator will sell electricity on exchanges and RECs generated from such sales will be transferred to the consumer for RCO compliance. The price realised on the exchange will then be settled with the consumer. 

Through this, the draft guidelines aim to facilitate compliance with Renewable Energy Consumption Obligations (RCO) by the designated consumers. RCO was introduced in 2023 through the Energy Conservation (Amendment) Act, 2022, specifying minimum non-fossil energy consumption targets for energy-intensive industries (designated consumers) like aluminium, cement, steel, fertilisers etc. By recognising RCO and paving the way for VPPAs, CERC also in a way acknowledges the difficulty in achieving RE targets solely through physical procurement or RECs. 

Further, in the draft guidelines VPPAs are proposed to be Non-Transferable Specific Delivery (NTSD) Over-the-Counter (OTC) contracts between consumers and RE generators. Guidelines acknowledge SEBI’s clarification that such OTC contracts do not fall under the Securities Contracts (Regulation) Act, placing them within CERC’s jurisdiction. This resolves the earlier concerns among corporates (C&I customers) that VPPAs might be treated as derivative instruments, potentially subjecting them to additional regulatory burdens.

Though the guidelines come as a first step for formal recognition of VPPAs, they do not yet outline the full regulatory mechanism. The guidelines specify that VPPA disputes will follow the terms of the contract, however, the questions remain as to how VPPAs will be monitored and whether ultimately CERC or any other adjudicatory body will have the jurisdiction. The guidelines also offer limited information on disclosure obligations, risk management protocols etc. This is relevant since the contract would be executed through OTC platforms and the underlying power would be traded on the exchange. It will be important for these gaps to be addressed in follow on regulations or implementation rules.

Although the guidelines offer a route for C&I consumers to meet RCO and sustainability goals by avoiding geographic and regulatory barriers, maintaining price competitiveness may be a concern. Much of India’s electricity generation is tied up in long-term contracts and the exchange market is largely driven by thermal power. To remain financially viable and cash neutral VPPA tariffs may have to match or beat prevailing break-even rates.

In addition to benefitting C&I customers, VPPAs may also aid RE generators by diversifying their customer base. Currently RE developers primarily engage with RPO-bound entities through long-term PPAs. VPPAs on the hand would introduce medium-term contractual opportunities, offering a more flexible and market-aligned price structure.

VPPAs also have the potential to reshape and strengthen the entire electricity market. By enhancing demand-side flexibility, they may contribute to more efficient price discovery in RE markets. With this, corporate buyers could play a central role in strengthening market demand alongside government-led initiatives.

The draft guidelines are a welcome and timely intervention for India’s RE landscape. By addressing regulatory uncertainties and broadening participation, VPPAs have the potential to become a cornerstone in India’s evolving RE ecosystem.

This article is authored by Poonam Verma Sengupta, partner, JSA Advocates and Solicitors.