In a significant move towards enhancing India’s renewable energy landscape, the Central Electricity Regulatory Commission (CERC) of India has released draft guidelines for Virtual Power Purchase Agreements (VPPAs). These guidelines aim to provide a structured framework for designated consumers to meet their Renewable Energy Consumption Obligation (RCO) targets through non-physical means.
What is a Virtual Power Purchase Agreement (VPPA)?
A Virtual Power Purchase Agreement (VPPA) is a financial contract between a renewable energy generator and a designated consumer, where the consumer agrees to pay a fixed price for renewable energy generated by the producer. The electricity generated is sold into the power market, and the consumer receives Renewable Energy Certificates (RECs) equivalent to the contracted capacity. These RECs can be used to fulfill RCO compliance or to claim green attributes.
Unlike traditional Power Purchase Agreements (PPAs), VPPAs do not involve the physical delivery of electricity to the consumer. Instead, they are purely financial arrangements that provide flexibility for consumers to support renewable energy projects without the need for direct infrastructure investments.
Key Features of the Draft VPPA Guidelines
- Regulatory Framework: The guidelines establish VPPAs as Non-Transferable Specific Delivery (NTSD)based Over-The-Counter (OTC) contracts, ensuring that they are not tradable or transferable, thereby maintaining the integrity of the renewable energy attributes.
- RCO Compliance: Designated consumers can utilize the RECs obtained through VPPAs to meet their RCO targets, as specified under the Energy Conservation Act, 2001. This mechanism offers an alternative route for compliance, especially for consumers without direct access to renewable energy sources.
- Bilateral Agreements: VPPAs are to be executed as bilateral contracts between the consumer and the renewable energy generator. These agreements can be facilitated through registered OTC platforms or directly between the parties, based on mutually agreed terms.
- Settlement Mechanism: The difference between the agreed VPPA price and the market price at which electricity is sold will be settled bilaterally between the consumer and the generator. This arrangement allows for financial hedging against market price fluctuations.
- Non-Tradability of RECs: The RECs associated with VPPAs are non-tradable and non-transferable, ensuring that they are used exclusively for the specific RCO compliance of the contracting consumer.
Implications for Stakeholders
Designated Consumers: VPPAs provide an opportunity for consumers to meet their RCO targets without the need for direct procurement or installation of renewable energy systems. This is particularly beneficial for entities with dispersed operations or those located in regions with limited renewable energy infrastructure.
Renewable Energy Generators: These agreements offer a stable revenue stream, facilitating financing and development of renewable energy projects. By entering into VPPAs, generators can secure long-term contracts that enhance the financial viability of their projects.
Regulatory Bodies: The implementation of VPPAs aligns with India’s broader goals of increasing the share of non-fossil fuel-based energy sources. By formalizing such agreements, regulatory bodies can ensure transparency and accountability in the renewable energy sector.
Next Steps and Stakeholder Engagement
The CERC has invited comments and suggestions from stakeholders on the draft guidelines by June 20, 2025, via email at secy@cercind.gov.in and chiefeco@cercind.gov.in. This open consultation process allows industry participants, environmental groups, and other interested parties to provide feedback, ensuring that the final guidelines are comprehensive and effective.
The introduction of VPPAs, as outlined in the draft CERC guidelines, represents a progressive step towards integrating financial instruments into India’s renewable energy strategy. By enabling designated consumers to fulfill their RCO obligations through financial agreements, VPPAs offer a flexible and scalable solution that can accelerate the transition to a sustainable energy future.
