Virtual Power Purchase Agreements: Catalyst For Renewable Energy Transformation In India

Introduction

India's commercial and industrial ("C&I") sector is increasingly prioritizing renewable energy as part of broader sustainability and cost-reduction strategies. While traditional Power Purchase Agreements ("PPAs") have facilitated clean energy procurement, they are often accompanied by operational and regulatory constraints, such as grid connectivity challenges, exposure to financially weak Distribution Companies ("DISCOMs"), and complex interstate permissions. In recognition of the growing need for alternative structures, the Central Electricity Regulatory Commission ("CERC") has recently issued Draft Guidelines for Virtual Power Purchase Agreements¹ ("Draft Guidelines") to provide a regulatory framework for Virtual Power Purchase Agreements ("VPPAs"), thereby seeking to ensure transparency, contractual certainty, and appropriate risk allocation in such transactions.

VPPAs, unlike conventional PPAs, are structured as financial contracts rather than physical supply agreements. They allow corporates to support renewable energy projects and obtain Renewable Energy Certificates ("RECs") without physically altering their existing power supply arrangements. Through financial settlements linked to renewable energy ("RE") generation, VPPAs help designated consumers comply with Renewable Consumption Obligations ("RCOs") under the Energy Conservation (Amendment) Act, 2022 ("Energy Conservation Act")², while simultaneously advancing corporate Environmental, Social, and Governance ("ESG") objectives.

What Are VPPAs?

A VPPA is a contractual arrangement between a Designated Consumer ("Consumer") and a Renewable Energy Project Developer ("Renewable Developer"), structured primarily as a financial instrument rather than a physical supply agreement. Under such an arrangement, the Consumer contractually agrees to a pre-determined fixed price ("Strike Price") for the notional quantity of electricity generated by the renewable project. The physical electricity is injected into and sold on the relevant wholesale electricity market, and not delivered to the Consumer. In a standard two-way VPPA, the parties undertake reciprocal payment obligations: where the market settlement price exceeds the Strike Price, the Renewable Developer remits the differential to the Consumer; conversely, where the market settlement price falls below the Strike Price, the Consumer compensates the Renewable Developer for the shortfall. In addition to this financial settlement, the Consumer is contractually entitled to receive the associated REC corresponding to the quantum of renewable electricity generated. Such RECs may be applied towards compliance with RCOs or to augment the Consumer's corporate ESG credentials. Given that VPPAs do not contemplate physical delivery of electricity, but operate as a financial hedge linked to renewable power generation and market prices, they are generally regarded as over-the-counter ("OTC") derivative contracts, and are distinguished in nature and treatment from conventional power purchase agreements governed by electricity regulatory law.

The Renewable Consumption Obligation Framework –

To accelerate the adoption of renewable energy across India's energy-intensive sectors, the Energy Conservation Act, introduced the concept of RCOs. Unlike the Renewable Purchase Obligation ("RPOs"), which is imposed on distribution licensees, open access, and captive consumers under the Electricity Act, 2003, the RCO framework applies directly to designated consumers notified under the Energy Conservation Act, including large industrial and commercial entities with significant energy consumption. Under this framework, designated consumers are required to ensure that a minimum percentage of their total energy consumption comes from renewable sources. The trajectory and sectoral targets are notified by the Ministry of Power in consultation with the Bureau of Energy Efficiency³ ("BEE"). Non-compliance may attract penalties under the Section 26 of the Energy Conservation Act with BEE empowered to impose sanctions for both performance shortfalls and procedural violations.

Compliance with RCOs have been achieved in two ways: Direct renewable procurement through on-site generation or open access arrangements; and Market-based instruments, such as RECs or energy savings certificates, duly issued and retired in line with statutory regulations. VPPA would act as another mechanism to fulfil the obligation via the procurement and retirement of RECs.

Who Benefits from VPPAs?

A. For Consumers (Designated Consumers)

For consumers such as C&I companies, VPPAs transform the energy costs into more predictable investments through fixed-price hedging. They also help corporates meet RCOs, elevate ESG scores, and enable participation in sustainability-linked financial products.

VPPAs can particularly benefit large energy-intensive corporates across diverse sectors, especially those with multi-location operations and ambitious sustainability commitments. VPPAs allow companies to satisfy statutory green energy mandates even in locations where open access or renewable infrastructure is not easily accessible. This becomes particularly advantageous for large conglomerates with dispersed operations; they simplify compliance by consolidating obligations under a single contract.

Beyond compliance, VPPAs significantly enhance a company's ESG profile. Retiring RECs through a VPPA provides verifiable proof of renewable energy procurement and measurable emissions reduction. VPPAs offer cleaner and more innovative solutions that go beyond simple energy consumption. By securing long-term access to offsite renewable energy, they provide both sustainability benefits and cost predictability. Importantly, they support corporate climate strategies across Scope 2 and Scope 3 emissions.⁴ Scope 2 focuses on reducing indirect emissions from purchased electricity, typically achieved through renewable energy procurement or efficiency measures. Scope 3, by contrast, covers the broader value chain and is far more complex, requiring companies to collaborate with suppliers, customers, and partners to address emissions linked to purchased goods and services, the use of sold products, and other upstream and downstream activities. A strong ESG score, in turn, improves investor confidence, satisfies customer sustainability expectations and loyalty, and opens access to green finance instruments like ESG-linked loans, sustainability bonds, and climate-aligned credit facilities. In a regulatory and investment climate that increasingly rewards credible climate action, VPPAs represent a critical enabler of competitiveness, reputation, and capital efficiency.

B. For Renewable Developers -

For Renewable Developers, VPPAs offer predictable cash flows and they also de-risk projects from volatile merchant markets, making them more attractive to investors and lenders. Financial institutions also benefit by gaining exposure to a new class of green assets with long-duration, inflation-hedged returns. At the system level, VPPAs could drive investments in improving grids such as storage, demand-side management, advanced forecasting, eventually reducing the levelized cost of energy and strengthening the reliability of India's renewable energy infrastructure.

VPPAs in the Global Context

Globally, VPPAs have become an essential tool in the renewable energy procurement by corporates. In the United States, renewable energy developer Invenergy⁵ recently expanded its partnership with Meta, signing four new clean energy agreements totalling 791 MW of solar and wind capacity. These agreements, which follow Meta's 2024 commitment to procure 1 GW of renewable capacity from Invenergy, bring the total capacity under their collaboration to nearly 1,800 MW, including over 740 MW in Ohio alone. While the power generated will flow into the local grid, Meta will receive the associated clean energy credits, reinforcing its data center expansion and long-term sustainability goals.

Asia, too, is seeing a surge in VPPA adoption. Singapore's⁶ leading solar developer, Sunseap Group, has recently inked a groundbreaking VPPA with Facebook. Under the VPPA, Sunseap will generate electricity from its solar photovoltaic (PV) systems located on various rooftops across Singapore. The energy generated by these solar installations will be sold to Facebook through a long-term contract. By purchasing renewable energy from Sunseap, Facebook will offset its carbon emissions and support the development of clean energy projects in the region, while in Japan⁷.These developments highlight the key value of VPPAs as they enable companies to procure renewable energy and environmental benefits regardless of the constraints of physical grids.

The Indian Regulatory Shift: CERC's Draft Guidelines

Until recently, the legal status of VPPAs in India was unclear, with overlapping jurisdictional concerns between CERC and SEBI. That changed when the Central Electricity Regulatory Commission issued Draft Guidelines recognizing VPPAs as OTC, non-transferable, and non-tradable financial contracts under its regulatory purview.

This recognition is a major breakthrough. By bringing VPPAs into India's power regulatory framework, CERC has aligned the domestic policy with global financial instruments for renewable energy procurement. However, the guidelines stop short of providing standard model contracts or a dispute resolution mechanism, leaving gaps in enforceability and clarity.

Under the guidelines, a Designated Consumer (as defined under the Energy Conservation Act) can sign a VPPA with a renewable generator. The generator sells electricity through exchanges like the Day-Ahead Market (DAM) or Real-Time Market (RTM), and the financial difference between the market price and the agreed VPPA price is settled bilaterally. Importantly, RECs issued from this sale are transferred to the consumer and can be retired for compliance or claiming Green Attributes, but they cannot be traded or resold, which helps ensure transparency but restricts flexibility. Legally, this transforms the buyer from a traditional consumer under the Electricity Act into a counterparty that assumes market risk and acquires RECs for compliance and green attribution. By enabling buyers to fulfil RCOs without requiring physical power procurement, the VPPA structure challenges conventional regulatory classifications and creates a new hybrid role, partially financial, partially compliance-driven.

Conclusion: Towards a Cleaner, Smarter Energy Market

While VPPAs in the Southeast Asian region are a relatively new concept, we have seen increasing interest in the adoption of such arrangements as companies seek to build on their environmental and sustainability targets. VPPAs represent a turning point in India's renewable energy journey. By enabling financial certainty, facilitating environmental compliance, and attracting capital to green projects, they hold the potential to accelerate India's progress toward its 2030 climate goals⁸. Yet, the path forward will depend on closing regulatory gaps, ensuring market transparency, and embedding VPPAs into comprehensive sustainability frameworks. If these conditions are met, VPPAs could evolve into a defining legal innovation for India's energy future, bridging the gap between ambition and action.

Footnotes

1 Central Electricity Regulatory Commission (CERC), Draft Guidelines on Virtual Power Purchase Agreements (May 2025), https://cercind.gov.in/.

2 Ministry of Power, Energy Conservation (Amendment) Act, 2022, https://powermin.gov.in/en/content/energy-conservation-amendment-act-2022

3 Bureau of Energy Efficiency, Renewable Consumption Obligations (RCO), https://beeindia.gov.in/renewable-consumption-obligations-rco.php

4 India GHG Program, Explaining Scope 1, 2 & 3, India GHG Program, WRI India https://indiaghgp.org/explaining-scope-1-2-3

5 Invenergy, Meta and Invenergy Announce 791 MW Clean Energy Agreement (2024), https://invenergy.com/news/meta-invenergy-renewables

6 Sunseap Group, Sunseap Signs VPPA with Facebook in Singapore (2021), https://sunseap.com/press-releases/facebook-sunseap-vppa/.

7 Renova Inc., Murata Manufacturing Enters 115 MW VPPA with Renova (2024), https://renovainc.com/news/

8 Ministry of New and Renewable Energy, India's Renewable Energy Capacity Hits New Milestone - Renewable Energy Now Constitutes More Than 46.3% of Total Capacity (Nov. 13, 2024), https://www.pib.gov.in/PressReleasePage.aspx?PRID=2073038

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.