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Introduction to Virtual Power Purchase Agreements
1.1 In terms of the Paris Agreement, India has submitted its updated Nationally Determined Contributions (NDCs) outlining its climate action targets. As per the updated NDCs, India is required to, inter-alia, reduce the emission intensity of its GDP by 45% by 2030, from the 2005 level.
1.2 Despite high demand, renewable energy penetration in the C&I sector remains low due to several challenges: inconsistent state policies, regulatory hurdles in open access, and intermittency of solar and wind resources. Further, traditional power purchase agreements are often hindered by high minimum load thresholds, unreliable delivery, and the absence of storage or banking mechanisms—making them inadequate for meeting the continuous, high-demand needs of C&I consumers across India.
1.3 Virtual Power Purchase Agreement ("VPPAs") are financial contracts that enable corporations to scale renewable energy use without physical power delivery. The generator sells power on the exchange as conventional (brown) electricity but transfers the green attributes (e.g., renewable energy certificates) to the consumer. Consumers retain flexibility to procure power via DISCOMs, exchanges, or captive sources. Since supply remains through local DISCOMs, utilities retain their customer base. A strike price is agreed upon and compared to real-time market prices; the difference is financially settled between the generator and the consumer, offering price hedging without disrupting physical power arrangements.
1.4 VPPAs are hybrid contracts combining elements of electricity transactions and derivative contracts, with their value linked to electricity prices. This dual nature has led to regulatory overlap between the Central Electricity Regulatory Commission ("CERC") and the Securities and Exchange Board of India ("SEBI") (the statutory regulatory body to protect investors' interests in the Indian securities market). A jurisdictional dispute arose when Multi Commodity Exchange of India's electricity forward contracts were challenged by Power Exchange of India Limited before the Hon'ble Supreme Court of India. To resolve the jurisdictional dispute between CERC and SEBI, the Committee on Efficient Regulation of Electricity Derivatives constituted by the Ministry of Power in 2019 ("MoP Committee") recommended that all 'ready delivery contracts' and 'non-transferable specific delivery contracts' in electricity, as defined under the Securities Contract Regulation Act, 1956, entered into by members of power exchanges registered under the CERC (Power Market) Regulations, 2010, should be regulated by the CERC provided they satisfy certain conditions. The Hon'ble Supreme Court, in its final order, took note of the recommendations of the MoP Committee and accordingly, disposed of the matter without commenting further on the jurisdictional issue.1
1.5 With regard to certain 'Obligated Entities', such as – DISCOMS, open access consumers, and captive consumers, consuming power from fossil fuel sources, Section 14 of the Energy Conservation Act, 2001, empowers the Central Government to specify the minimum share of consumption of non-fossil sources (i.e., renewable energy) by such Obligated Entities ("RCO"). Similarly, Section 86(1)(e) of the Electricity Act, 2003 ("Electricity Act"), empowers state electricity regulatory commissions to the minimum share of purchase of renewable energy by such Obligated Entities ("RPO"). Further, the specified RCO and RPO targets are permitted to be met either directly or through Renewable Energy Certificates ("RECs") in accordance with the Ministry of Power's notification dated September 27, 2025,2 and Central Electricity Regulatory Commission (Terms and Conditions for Renewable Energy Certificates for Renewable Energy Generation) Regulations, 2022 ("REC Regulations")3 respectively. The REC Regulations provide for the regulation of the grant, exchange, and redemption of RECs in India.
1.6 Furthermore, the CERC has notified the CERC (Power Market) Regulations, 2021 ("PMR 2021")4 to govern power exchanges, other market participants, and the over-the-counter ("OTC") market.5 The PMR 2021 apply to all contracts transacted on the power exchanges, including contracts relating to RECs.6
VPPA Guidelines
2.1 The CERC vide an office memorandum dated December 24, 20257 , has published the Guidelines for Virtual Power Purchase Agreements ("VPPA Guidelines").8
2.2 A critical analysis of the VPPA Guidelines is provided in Part 4 of the Note. For ease of reference, the key provisions have been summarised under Part 3 of this Note.
Key Provisions of the VPPA Guidelines
Table 1: Key Provisions
| SL No | Reference Para | Heading | Description |
|---|---|---|---|
| 1. | Para 1.3 | SEBI's View on the nature of VPPAs | SEBI, vide its letter dated January 31, 2025, to CERC, has stated that VPPAs are bilateral, OTC contracts that are non-tradable and non-transferable. Consequently, such contracts are considered Non-Transferable Specific Delivery9 ("NTSD") contracts and the provisions of the Securities Contracts (Regulation) Act, 1956 would not apply, and such contracts would fall under the regulatory purview of the CERC. |
| 2. | Para 4.1 (d) | Definition of "Over the Counter Contracts" | The VPPA Guidelines describe the term 'Over the Counter Contracts' to have the same meaning as ascribed to it under the PMR 2021.10 |
| 3. | Para 4.1 (e): | Definition of "REGS" | The VPPA Guidelines describe the term 'REGS' to have the same meaning as ascribed to it under the CERC (Indian Electricity Grid Code) Regulations, 2023PMR 2021.11 |
| 4. | Para 4.1 (l) | Definition of Settlement Price |
The VPPA Guidelines describe the term 'Settlement Price' to mean: "the price discovered in Power Exchange or through any other mode authorised under the Electricity Act, 2003, or the PMR 2021, for the sale of electricity for purposes other than for RPO/ RCO compliance." |
| 5. | Para 4.1 (n): | Definition of VPPAs |
The VPPA Guidelines describe the term 'VPPAs' to mean: "the NTSD based OTC contracts entered between a Consumer or Designated Consumer and a REGS, wherein the Consumer or the Designated Consumer guarantees payment of the mutually agreed price (VPPA Strike Price) to the REGS for the entire duration of the agreement. The REGS shall sell electricity in a power exchange or any other mode authorized under the Electricity Act 2003, or the PMR 2021, and such sale shall be for the purposes other than for RPO/RCO compliance. The difference between the VPPA Strike Price and the Settlement Price shall be settled bilaterally between the contracting parties as per mutually agreed terms." |
| 6. | Para 5 | Overview of Virtual Power Purchase Agreements |
5.1 The VPPA between a REGS and a Consumer or a Designated Consumer under the VPPA Guidelines are required to have following essential features:
5.2 Consumer or Designated Consumer may execute VPPA with REGS at a mutually agreed VPPA Strike Price. 5.3 The REGS shall sell electricity through any mode authorised under the Electricity Act, 2003, or the PMR 2021, as per mutually agreed terms and conditions, and such sale shall be for purposes other than for RPO/ RCO compliance. 5.4 RECs transferred to the Consumer or Designated Consumer shall not be eligible for trading. |
| 7. | Para 6 | Implementation Agreement |
6.1 A Consumer or a Designated Consumer may enter into a VPPA with a REGS as an Over The Counter Contract on mutually agreed terms and conditions. 6.2 The REGS is required to be registered in accordance with the REC Regulations. 6.3 REGS is allowed to sell the electricity component through power exchanges or any other mode authorized under the Electricity Act 2003, or PMR 2021, and such sale is required to be for purposes other than for RPO/RCO compliance. The RECs received thereby are to be transferred to the Consumer or Designated Consumer who can use such RECs for RPO/RCO compliance. 6.4 The VPPA contracts for RPO/RCO compliance are required to be non-tradable and non-transferable, and the contracting parties are bound by the contract terms for the entire period of the contract. |
| 8. | Para 7 | Payment Terms | The RE generator may sell electricity through power exchange or any other mode authorized under the Electricity Act 2003, or the PMR 2021, and such sale be for purposes other than RPO/RCO compliance. The difference between the VPPA Strike Price and the Settlement Price is to be settled bilaterally between the contracting parties as per mutually agreed terms and conditions. |
| 9. | Para 8 | Renewable Energy Certificates |
8.1 The REGS capacity contracted through VPPA will be eligible for issuance of RECs upon registering in accordance with and in terms of the eligibility conditions specified in the REC Regulations. The REGS shall submit an undertaking for capacity connected through VPPA to the REC Registry to avoid any double counting of the said REGS capacity. 8.2 The RECs issued to the REGS shall be transferred to the Consumer or Designated Consumer with whom such REGS has a contract under VPPA. 8.3 The Certificates, once transferred to the Consumer or the Designated Consumer, shall stand extinguished. Further, Certificates to the credit of the Consumer or the Designated Consumer, over and above the RPO/ RCO, can be carried forward for compliance in future years. The Consumer or Designated Consumer is required to communicate with the REC Registry about the receipt of the RECs. . the Central Agency shall extinguish such certificates after they are used for compliance with the RPO/RCO by the Consumer or the Designated Consumer and shall update its records. 8.4 The Consumer or Designated Consumer under the VPPA shall be eligible to meet their RPO/RCO Compliance, as the case may be, by way of such Certificates. |
| 9 | Para 9 | Dispute Resolution | Any disputes arising out of VPPA are to be mutually settled by the parties as per the terms of the contract. |
Analysis – Key Observations on the VPPA Guidelines
4.1 Restricting VPPAs to a minimum tenure of 1-year Limits Contractual Freedom of the Parties:
Issue: Para 5 of the VPPA Guidelines (Refer Serial No. 6 of Table 1 above) restricts the minimum tenure for VPPAs to 1 year. Excluding tenures shorter than 1 year lacks a clear rationale and restricts the contractual freedom of the parties.
Recommendation: The VPPA Guidelines should clarify the rationale for prescribing the minimum tenure requirement.
4.2 Limitation of VPPAs to Renewable Transactions
Issue: The current definition restricts VPPAs to contracts with REGS (Refer Serial No. 5 of Table 1 above), thereby limiting their application to green energy transactions. However, there appears to be no justification for such a limitation, particularly given that VPPAs primarily function as financial instruments for hedging electricity price volatility and need not necessarily be linked to renewable energy attributes.
VPPAs are fundamentally financial instruments intended to hedge electricity price volatility and can operate independently of renewable energy attributes. Restricting the definition to arrangements with REGS not only narrows the potential applicability of VPPAs in conventional power markets, but also introduces interpretational concerns, particularly where parties wish to enter into functionally similar price hedging arrangements involving non-renewable energy.
Recommendation: The term 'REGS' in the VPPA Guidelines should be substituted with the broader term 'Generators' to reflect the fundamental nature of VPPAs as price hedging instruments.
4.3 Determining Settlement Price
Issue: Para 4.1 (l) of the VPPA Guidelines (Refer Serial No. 4of Table 1 above) defines 'Settlement Price' to mean the price discovered in Power Exchange or through any other mode authorised under the Electricity Act, 2003, or the PMR 2021, for the sale of electricity for purposes other than for RPO/ RCO compliance. . Firstly, there are multiple power exchanges in India, and the price is different for each market segment of these exchanges – DAM, RTM, TAM etc. Hence, there is no fixed price and typically an averaging of prices of a particular market segment will need to be considered. Further, "through any other mode" would also include power purchase agreements for which tariff has been determined under Sections 62 and 63 of the Electricity Act, third-party open access and captive arrangements. In terms of Para 7 (Refer Serial No. 8 of Table 1 above) of the VPPA Guidelines, the difference between the VPPA Strike Price and the Settlement Price is to be settled bilaterally between the parties. It is unclear how the 'Settlement Price' will be determined.
Recommendation: Clarity is required on the definition of 'Settlement Price'.
4.4 Restriction on Trading of Renewable Energy Certificates Transferred under VPPAs
Issue: Para 5.4 (Refer Serial No. 6 of Table 1 above) of the VPPA Guidelines provide that RECs transferred to the Consumer or Designated Consumer shall not be eligible for trading. Further, Para 8.3 (Refer Serial No. 9 of Table 1 above) of the VPPA Guidelines provides that the RECs, once transferred to the Consumer or Designated Consumer, shall stand extinguished, after they are used for compliance with the RPO/RCO. VPPAs are intended primarily to function as price-hedging instruments, providing long-term price certainty to both buyers and sellers; the VPPA Guidelines, however, reflect a narrower purpose by positioning VPPAs predominantly as a mechanism for RPO and RCO compliance. Consequently, by prohibiting the trading of RECs transferred pursuant to a VPPA and limiting participation to Consumers or Designated Consumers who are 'Obligated Entities', the VPPA Guidelines limit the applicability of VPPAs exclusively to Obligated Entities.
Recommendation: While the VPPAs itself may be non-transferable, this limitation should not extend to the RECs delivered under the VPPA. Wider participation of non-obligated entities should also be allowed, as VPPA regime is a tool for price hedging and not merely for RPC/RCO compliance.
4.5 Prohibition on Transfer or Assignment of VPPAs and Its Impact on Bankability and Contractual Continuity
Issue: Para 5.1 (c) (Refer Serial No. 6 of Table 1 above) of the VPPA Guidelines provides that VPPAs are "bilateral OTC non-tradable and non-transferrable contract". While the non-tradable character addresses concerns of speculative trading, an absolute prohibition on transfer or assignment may adversely affect project bankability and contractual continuity. In particular, the inability of a REGs to collaterally assign the VPPA to its lenders, or of a consumer to assign the VPPA to an affiliate pursuant to a merger or corporate restructuring, could pose material commercial and financing risks. Such limited assignments, when undertaken with counterparty consent, do not undermine the non-speculative character of VPPAs and are standard features in conventional PPAs and project financing arrangements.
Recommendation: The VPPA Guidelines should permit limited transfer or assignment of VPPAs to lenders or affiliates, with the consent of the counterparty, for purposes such as financing, merger, or corporate restructuring, while continuing to restrict transfers intended for speculation or risk-hedging.
4.6 Instruments such as I-RECs not covered:
Issue: The VPPA Guidelines currently recognize only RECs issued under the REC Regulations and do not account for international instruments such as international renewable energy certificates (I-RECs).
Recommendation: The VPPA Guidelines should explicitly recognize I-RECs within its scope.
4.7 Absence of Model Contractual Provisions for VPPAs:
Issue: The VPPA Guidelines do not provide illustrative contractual provisions that parties may consider while drafting VPPAs. Given the relative novelty of VPPAs in the Indian context and the absence of a settled market practice, the lack of illustrative contractual provisions may create uncertainty in structuring bankable arrangements.
Recommendation: The VPPA Guidelines should provide either (i) a model VPPA; or (ii) key illustrative clauses to promote standardisation and improve the bankability of VPPA-backed projects.
Footnotes
1. Order dated October 06, 2021 in Civil Appeal Nos. 5290 5291 of 2011, Supreme Court of India.
2. Notification No. S.O. 4421(E) dated September 27, 2025, Ministry of Power. Available at: https://powermin.gov.in/sites/default/files/Revised_RCO_Gazzette_Notification_dated_27th_September_2025.pdf
3. The REC Regulations can be accessed at: https://www.cercind.gov.in/regulations/REC-Regulations-2022.pdf.
4. The Power Market Regulations can be accessed at: https://www.cercind.gov.in/2021/regulation/161-reg.pdf.
5. Regulation 3 of the Power Market Regulations.
6. Regulation 4(1) of the Power Market Regulations.
7. Office Memorandum No. L-1/257/2020/(PMR-4)/CERC. Available at: https://cercind.gov.in/regulations/Guidelines-VPPA.pdf
8. The Guidelines for Virtual Power Purchase Agreements are available at: https://cercind.gov.in/regulations/Guidelines-VPPA.pdf
9. Section 2 (ca) of the Securities Contracts (Regulation) Act, 1956 has defined 'Non-Transferable Specific Delivery Contract' as "a specific delivery contract, the rights or liabilities under which or under any delivery order, railway receipt, bill of lading, warehouse receipt or any other documents of title relating thereto are not transferable".
10. Regulation 2 (105) of the CERC (Indian Electricity Grid Code) Regulations, 2023 define the term 'REGS' as "means a generating station based on a renewable source of energy with or without Energy Storage System and shall include Renewable Hybrid Generating Station".
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.
