How CERC’s New VPPA Framework Is Transforming Renewable Procurement In India?

India’s renewable energy market has now entered a more structured regulatory phase with the issuance of the Central Electricity Regulatory Commission (“CERC”) Guidelines for Virtual Power Purchase Agreements (“VPPAs”) dated 24 December 2025 and the subsequent Statement of Reasons issued on 27 April 2026.

For several years, VPPAs remained commercially significant yet legally uncertain within India’s renewable energy ecosystem. While corporates increasingly explored virtual renewable procurement mechanisms to meet sustainability and decarbonisation targets, India lacked a formal framework governing their regulatory treatment and enforceability.

The new framework materially changes that position. The Guidelines formally recognise qualifying VPPAs as Non-Transferable Specific Delivery (“NTSD”) based over-the-counter (“OTC”) contracts regulated by CERC, integrate VPPA-linked procurement into India’s REC and Renewable Consumption Obligation (“RCO”) ecosystem and simultaneously restrict speculative electricity-linked trading.

The framework therefore marks a significant shift in India’s renewable procurement landscape by formally bringing virtual renewable procurement within India’s mainstream electricity regulatory architecture.

I. Understanding What A VPPA Actually Is

A Virtual Power Purchase Agreement differs fundamentally from a conventional physical power purchase arrangement. Under a traditional physical Power Purchase Agreement (“PPA”), renewable electricity generated by a project is physically supplied to the consumer through transmission and distribution infrastructure. Under a VPPA structure, however, the generator sells electricity into the grid or market while the generator and the corporate buyer separately enter into a financial settlement arrangement linked to a pre-agreed strike price.

Where market prices exceed the agreed strike price, the generator compensates the buyer for the differential. Conversely, where market prices fall below the strike price, the buyer compensates the generator. The arrangement therefore operates as a financial settlement mechanism combined with allocation of renewable energy attributes associated with renewable generation.

Globally, VPPAs have emerged as one of the most widely used renewable procurement instruments for businesses attempting to meet RE100 commitments, net-zero targets and broader sustainability obligations without requiring physical connectivity to renewable projects. India, however, historically lacked a dedicated regulatory framework capable of formally recognising and governing such arrangements.

II. Why India’s Earlier Regulatory Position Created Commercial Uncertainty?

Before the issuance of the CERC framework, one of the largest concerns surrounding Indian VPPAs was the possibility that such arrangements could be categorised as derivative contracts or securities instruments under the Securities Contracts (Regulation) Act, 1956 (“SCRA”). This issue was commercially significant because classification as a transferable financial instrument or speculative derivative product could potentially have brought VPPAs under the regulatory jurisdiction of the Securities and Exchange Board of India (“SEBI”). The absence of regulatory clarity discouraged broader market participation despite increasing demand from corporates seeking renewable procurement flexibility.

The regulatory position began evolving after SEBI issued a clarification dated 31 January 2025 recognising that bilateral arrangements which are non-transferable and non-tradable would not fall within the securities contract framework under the SCRA. The CERC Guidelines and the subsequent Statement of Reasons now heavily rely upon this distinction. The framework repeatedly reinforces that the non-transferable character of VPPA arrangements forms the legal basis upon which such contracts remain outside speculative derivative regulation. This distinction has now become the central organising principle of India’s VPPA regulatory architecture.

III. CERC Has Formally Recognised VPPAs As NTSD-Based OTC Contracts

The Guidelines formally classify qualifying VPPAs as NTSD contracts operating within India’s OTC electricity market framework. This classification is one of the most consequential features of the framework because it intentionally distinguishes VPPAs from exchange-traded speculative derivative instruments.

The framework specifically clarifies that qualifying VPPAs are bilateral renewable procurement structures intended to facilitate renewable energy consumption and compliance-linked decarbonisation rather than speculative electricity-linked financial trading.

The Statement of Reasons further explains that the Commission intentionally adopted the NTSD structure because it preserves a direct nexus between renewable generation, contractual settlement and renewable accounting compliance. The Commission also makes it clear that it does not intend VPPAs to evolve into freely tradable financial products disconnected from identifiable renewable procurement activity.

The larger policy message emerging from the framework is therefore unmistakable. India is willing to permit sophisticated renewable procurement structures, but only within a compliance-centric electricity market ecosystem that preserves regulatory supervision and renewable accounting integrity.

IV. The Framework Places Qualifying VPPAs Under CERC Oversight Instead Of SEBI Jurisdiction

One of the most important legal uncertainties surrounding VPPAs has now been substantially resolved. The framework effectively places qualifying VPPA structures within the electricity regulatory ecosystem governed by CERC rather than the securities regulatory framework governed by SEBI. This clarification carries major commercial implications for renewable developers, industrial consumers and multinational businesses intending to operationalise renewable procurement structures in India.

The Statement of Reasons specifically addresses stakeholder concerns regarding possible treatment of VPPAs as speculative financial instruments. CERC appears to have intentionally designed the framework around bilateral, non-transferable and non-tradable arrangements precisely to avoid such treatment. The Commission repeatedly indicates that once unrestricted transferability or secondary market trading becomes part of the arrangement, the legal character of the transaction materially changes.

India’s framework therefore permits renewable procurement-linked financial settlement structures, but not speculative electricity-linked financial market products.

V. India Has Formally Integrated VPPAs Into Its Renewable Compliance Architecture

One of the most consequential aspects of the framework is the direct integration of VPPA structures into India’s renewable compliance ecosystem. Historically, India’s renewable compliance architecture largely revolved around Renewable Purchase Obligations (“RPOs”) applicable to distribution licensees, captive users and open access consumers.

The new framework materially expands this ecosystem by linking VPPA structures with:

1. Renewable Energy Certificates (“RECs”);
2. Renewable Consumption Obligations (“RCOs”); and
3. India’s broader renewable accounting architecture.

The Guidelines therefore formally recognise that renewable procurement may occur through financial settlement mechanisms rather than exclusively through physical power supply arrangements. The Statement of Reasons also reflects regulatory recognition that large commercial and industrial consumers increasingly require renewable procurement flexibility without geographically connected renewable power delivery. The framework therefore attempts to align India’s electricity regulation ecosystem with evolving corporate decarbonisation and sustainability practices.

Importantly, the Commission appears to view VPPAs not merely as private contractual arrangements, but as instruments capable of supporting India’s broader renewable transition and climate objectives.

VI. REC Treatment Under The Framework Is Intentionally Restrictive

Although the framework recognises VPPA-linked renewable accounting, it simultaneously imposes significant restrictions on transferability and market trading. The framework specifically prohibits unrestricted transferability and secondary trading of renewable compliance attributes associated with qualifying VPPA structures.

The Statement of Reasons explains that these restrictions were intentionally retained despite stakeholder requests for greater market liquidity and flexibility. According to the Commission, unrestricted transferability could create significant risks relating to speculative trading, double counting, duplicate environmental claims and disconnect between renewable generation and compliance usage.

This aspect of the framework demonstrates that India’s regulatory approach remains fundamentally compliance-centric rather than market-speculation driven. Renewable attributes must remain connected to identifiable renewable procurement activity rather than evolve into standalone financial trading instruments.

VII. The Framework Primarily Supports India’s Domestic Renewable Compliance Ecosystem

Another commercially important clarification emerging from the Statement of Reasons is that the framework is fundamentally designed around India’s domestic renewable compliance architecture. This distinction is particularly significant for multinational corporations that initially expected Indian VPPAs to operate identically to international I-REC or global Energy Attribute Certificate (“EAC”) systems.

The Statement of Reasons clarifies that the framework is intended to support India’s domestic REC, RCO and electricity market compliance ecosystem. Accordingly, Indian VPPA-linked renewable accounting may not automatically align with international greenhouse gas accounting methodologies, RE100 reporting standards, Scope 2 emissions disclosures or global ESG reporting frameworks.

Multinational groups operating cross-border sustainability reporting systems may therefore still need separate reconciliation mechanisms between Indian renewable accounting recognition and international disclosure obligations.

VIII. Grid India Has Been Given A Central Verification And Registry Role

The framework also reflects increasing institutionalisation of renewable energy accounting within India. Grid India has effectively been positioned as a central registry and renewable accounting infrastructure participant within the VPPA ecosystem.

This role is strategically important because the Statement of Reasons repeatedly highlights regulatory concern regarding auditability, verification, compliance traceability and renewable accounting integrity. Without centralised registry systems, the risks of duplicate environmental claims, double counting and unverifiable renewable accounting become materially higher.

The framework therefore seeks to create a traceable and verifiable renewable accounting ecosystem as India’s renewable procurement market becomes increasingly sophisticated.

IX. Battery Energy Storage Systems And Hybrid Renewable Projects Have Been Specifically Included

Another commercially significant aspect of the framework is the inclusion of Battery Energy Storage Systems (“BESS”) and hybrid renewable projects within the eligible VPPA ecosystem. The Statement of Reasons specifically addresses stakeholder comments concerning storage-backed renewable procurement structures and hybrid renewable arrangements.

The Commission appears to recognise that India’s renewable transition can no longer depend solely upon intermittent standalone renewable generation. Grid balancing, intermittency management and round-the-clock renewable supply increasingly require integrated renewable-storage infrastructure.

Accordingly, the framework accommodates hybrid renewable projects, integrated renewable-storage systems and storage-enabled renewable procurement structures. This is an important policy signal because it demonstrates that the framework has been designed with future renewable grid realities in mind rather than merely current procurement models.

X. The Framework Also Raises Important Contract Structuring And Compliance Questions

Although the framework substantially resolves regulatory uncertainty surrounding VPPAs, several practical structuring and operational issues will now become increasingly important for market participants.

Businesses entering VPPA arrangements will likely require significantly more sophisticated contractual documentation than was previously common in the Indian market. Issues relating to REC allocation, renewable attribute ownership, change-in-law protections, settlement price volatility, force majeure treatment, verification disputes, registry-linked accounting obligations and termination mechanics are now likely to become commercially significant.

Similarly, multinational businesses may need to separately evaluate how Indian VPPA-linked renewable accounting interacts with international ESG reporting systems and internal sustainability disclosures.

Questions relating to taxation treatment, accounting treatment, enforceability during insolvency proceedings, dispute resolution frameworks and interaction with future carbon market structures may also continue evolving as India’s VPPA ecosystem matures.

The framework has therefore resolved the foundational legality issue, but the next phase of market development will likely involve operational standardisation, contractual sophistication and institutional market scaling.

XI. SECI’s April 2026 Initiative Signals That India Intends To Scale The VPPA Market

India’s policy direction became even clearer after the Solar Energy Corporation of India (“SECI”) issued an Expression of Interest (“EoI”) in April 2026 for aggregation of VPPA demand.

This development demonstrates that Indian policymakers are not merely recognising VPPAs theoretically but are actively attempting to scale participation within the market itself. Demand aggregation mechanisms may significantly reduce transaction complexity for smaller commercial consumers lacking the scale or technical expertise required to independently negotiate sophisticated renewable financial contracts.

The initiative also indicates that India increasingly views VPPAs as an important component of its broader renewable transition strategy.

XII. India Is Now Building A Compliance-Centric Renewable Market Architecture

The broader regulatory message emerging from the Guidelines and the Statement of Reasons is now quite clear. India is no longer treating VPPAs as informal sustainability arrangements operating outside mainstream electricity regulation. It has now formally recognised virtual renewable procurement as part of its domestic renewable compliance architecture.

At the same time, the framework remains intentionally controlled. India appears willing to permit sophisticated renewable procurement structures, but only within a regulated ecosystem that preserves oversight over renewable accounting, REC allocation, compliance traceability and electricity market integrity.

For renewable developers, industrial consumers, energy traders and sustainability-focused businesses, the legal uncertainty surrounding Indian VPPAs has now been substantially reduced. The real challenge now lies not in whether VPPAs are recognised in India, but in how businesses structure, operationalise and scale such arrangements within India’s evolving renewable compliance ecosystem.

India is therefore no longer merely regulating renewable procurement. It is gradually constructing the institutional foundations of a regulated renewable market architecture capable of supporting the next phase of India’s energy transition.

XIII. Key Takeaways For Businesses

1. India has now formally recognised VPPAs within its electricity regulatory framework, substantially reducing the legal uncertainty surrounding virtual renewable procurement.
2. Qualifying VPPAs are now treated as NTSD-based OTC contracts under CERC oversight rather than SEBI-regulated speculative derivatives.
3. The non-transferable and non-tradable nature of VPPAs is now central to their regulatory validity under the framework.
4. Businesses should review existing VPPA structures to ensure that settlement mechanisms, REC allocation clauses, renewable attribute ownership provisions and assignment rights align with the new framework.
5. VPPA-linked renewable accounting has now been integrated into India’s REC and Renewable Consumption Obligation ecosystem.
6. Corporates using VPPAs for ESG and sustainability reporting should separately evaluate compatibility with RE100 commitments, Scope 2 accounting methodologies and international sustainability reporting standards.
7. Grid India is expected to play a central role in verification, registry management and renewable accounting traceability.
8. The inclusion of Battery Energy Storage Systems and hybrid renewable projects signals India’s intention to support storage-backed and round-the-clock renewable procurement structures.
9. The framework reflects India’s broader attempt to permit renewable procurement flexibility while simultaneously preventing the emergence of a speculative electricity-linked derivatives market.
10. India’s VPPA market is now expected to become significantly more institutionalised, compliance-driven and operationally scalable for large commercial and industrial consumers.

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