Simplifying Virtual Power Purchase Agreements (VPPA)- Indian perspective

Currently, in India, C&I consumers avail RE power mainly through signing “physical power purchase agreements (PPA)” viz. either on-site (rooftop) or off-site (open access). These procurement models require real time accounting of power generated and consumed. As RE based power is highly variable in nature, C&I consumers fail to replace all of their consumption using physical PPA route. To counter this problem, virtual PPA (VPPA) has been explored by various players.

Structure of VPPA

VPPA is a bilateral agreement signed between the power producer (RE generator) and the C&I consumer with no physical delivery of power.  

Under VPPA, the power producer sells its electricity on the power exchange (such as IEX, PXIL etc.) at the market price. The consumer only receives the renewable energy attribute (green energy credits) associated with the traded power for a pre-agreed VPPA contract price called the strike price. However, the difference between the strike price and the wholesale market rate forms the basis of the actual price settlement between the consumer and the power producer.

When the market rate is higher than the strike price, the power producer pays the difference to the consumer. Whereas when the market price is lower, the consumer pays the difference. This kind of settlement structure is known as Contracts-for-difference (CfD). The RE generator then transfers the associated green credits to the C&I consumer. The infographic below denotes the operating procedure of a VPPA.

Figure 1: Operation of a VPPA  

Source: JMK Research

VPPA strike price determination: To account for inflation in the future, strike price of VPPA initially is kept above the current prevailing average market price. Thus, according to CfD settlement mechanism described above, initial cash flow during the agreement is from C&I consumer to the RE generator. This cash flow gets reversed during the later stages of the VPPA contract tenure.


VPPA, at the core, is just a long term financial derivative contract wherein green credits (usually in form of Renewable energy certificates) are traded between the RE generator and consumer. VPPA addresses several challenges that physical PPA’s otherwise face. VPPA creates a very favorable “Win-Win-Win” scenario for C&I consumers, RE power producers and DISCOM respectively.

Table 1: VPPA benefits to entities involved

Source: JMK Research

Why VPPA has failed to take off in India?

Although VPPA is an established RE procurement model in several other countries, it is still stuck in India at the concept stage, owing to primarily a regulatory roadblock. For about a decade, the power regulating authority, the Central Electricity Regulatory Commission (CERC) and the regulatory body for securities and commodity market, the Securities and Exchange Board of India (SEBI), were in a legal dispute with each other. The dispute relates to regulatory jurisdiction over the new market instruments – forward derivative contracts and futures in electricity, of which VPPA is a kind.

However, on 6 October 2021, with the Supreme Court’s intervention, the tussle between the two regulators ended. According to the Supreme Court order, CERC will regulate all physical delivery-based forward contracts while financial derivatives will be handled by SEBI. Thus, any VPPA will be jointly regulated by CERC and SEBI.

Outlook of VPPA market in India

With this clarity between CERC and SEBI, stakeholders expect the Indian VPPA market to make some on-ground progress soon.

In fact, according to a study conducted jointly by World Wide Fund (WWF) and ICF, VPPA market in India can reach up to a size of 104 GW by 2030[1]. This number is according to report’s optimistic scenario. In conservative and realistic scenarios, market size of VPPA in 2030 will be 22 GW and 69 GW respectively. Accordingly, VPPA market may contribute 4.4% (conservative), 13.8%(realistic) and 20.8%(optimistic) to the national RE target of 500 GW capacity by 2030.


For the growth of VPPA market, certain regulatory provisions require further clarity:

Table 2: Recommendations

Source: Ministry of Power, JMK Research

To conclude, outlook of VPPA market in India is bright. VPPA fills the gap between RE consumption from physical PPA and total power consumption and creates a favorable scenario for consumers, DISCOM and developers alike. Going forward, VPPA is likely to form a major share of C&I renewable PPA market. It is responsibility of all stakeholders to discuss and formulate clear and favorable frameworks, thereby kickstarting the growth of VPPA market in India.

[1] WWF, Virtual Power Purchase Agreement for C&I consumers in India, June 2022