CERC Greenlights Virtual PPAs in India
To Enhance Indian Power Market Supply-Side Liquidity
On May 22, 2025, the Central Electricity Regulatory Commission (CERC) took a major stride in the Indian power sector by issuing the “Draft Guidelines for Virtual Power Purchase Agreement (VPPA) agreements.” These guidelines provide crucial regulatory approval, clarity, and acceptance for an innovative financial structure in the renewable energy sector, which is gaining substantial traction in global power market.
A VPPA is a bilateral agreement between a power producer (renewable energy generator) and an end consumer that does not involve the physical delivery of electricity. Instead, it transfers the associated green credits from the renewable energy generation to the end consumer under a contracts-for-difference (CfD) price settlement structure.
Figure 1: Timeline of key events in VPPA market development in India
Source: CERC, JMK Research
The release of these guidelines follows a decade-long dispute between the Securities and Exchange Board of India (SEBI) and CERC over the regulatory jurisdiction governing VPPA contracts. In January 2025, SEBI stated that the regulatory authority for non-tradable and non-transferable VPPA contracts lies entirely with CERC, which led the Ministry of Power (MoP) to instruct CERC to develop the new VPPA guidelines.
Table 1: Salient features of CERC’s “Draft guidelines for VPPA agreements”
Source: CERC, JMK Research
A key feature of the new VPPA guidelines is that end consumers cannot trade the associated Renewable Energy Certificates (RECs). Instead, designated consumers can only use RECs to meet their annual Renewable Consumption Obligation (RCO) compliance. This provision aligns with the eligibility criteria for Non-Transferable Specific Delivery (NTSD) contracts set by SEBI in its January 2025 directive.
However, certain aspects of the VPPA guidelines require further clarification and detail, which CERC may include in the final policy release:
- The guideline mandates registration solely under the REC mechanism, and the absence of tradability may limit participation from multinational corporations, which often prefer International Renewable Energy Certificates (IRECs) for their global applicability.
- The draft regulations do not address the lack of standardization of power market prices across various Indian exchanges, which is a crucial factor in assessing VPPA contract returns.
- The guidelines do not clearly define the roles of the various nodal agencies involved, nor do they mention associated incentives to stimulate development.
The draft VPPA guidelines represent a significant milestone for the clean energy transition of corporations in India. Currently, the average renewable energy penetration among Indian commercial and industrial (C&I) consumers is only 10-15%, well below the 33.01% requirement outlined under the RCO for FY2026. These guidelines will enable corporations to plan and secure VPPA capacities to meet their long-term RCO compliance. This development will indirectly strengthen the Indian power market by enhancing supply-side liquidity and overall market participation. VPPAs will be the bridge for larger corporations to attain RE100, which are already sourcing 70-80% from direct RE procurement. In the future, VPPAs are expected to play a crucial role in shaping the renewable Power Purchase Agreement (PPA) market for C&I consumers in India. With widespread adoption encouraged by the recently issued VPPA guidelines, VPPAs have the potential to accelerate the decarbonization of Indian corporations, significantly contributing to India’s goal of achieving 500 GW of renewable energy capacity by 2030.