The Central Electricity Regulatory Commission (CERC) has issued draft guidelines on Virtual Power Purchase Agreements (VPPAs). The draft is aimed at increasing the use of renewable energy (RE) by commercial and industrial consumers. The move will help drive the transition to clean energy.
A few days ago, the central government imposed mandatory Renewable Energy Consumption Obligations (RCOs) under the Energy Conservation Act, 2001. These regulations require distribution companies, open access users and captive users to procure at least a certain percentage of electricity from renewable sources. If they fail to meet these targets, they will face penalties unless they make up the shortfall by purchasing renewable energy certificates (RECs).
Drawing on global practices, CERC now recommends using VPPAs as a new way to achieve RCO targets. A VPPA is a financial contract between a renewable energy producer and a consumer (or a “designated consumer” as defined by the law). Under the agreement, the consumer agrees to pay a fixed price for the electricity generated. However, the renewable energy plant does not actually supply electricity to the consumer. Instead, the company sells the electricity on a power exchange. The difference between the market price and the Virtual Power Purchase Agreement (VPPA) price is settled financially between the two parties.
The Securities and Exchange Board of India (SEBI) has clarified that VPPAs are bilateral OTC contracts and are not tradable or transferable. Hence, these agreements do not fall under the purview of SEBI and will be fully regulated by CERC.
The draft guidelines will be applicable to all parties entering into VPPAs. The draft guidelines will come into effect immediately once they are published in the Official Gazette. Consumers can enter into long-term VPPAs directly with renewable energy generators or through power traders or through OTC platforms registered with eCERC.
Renewable energy generators registered under the REC Regulation can sell power in markets such as Day-Ahead Market (DAM) or Real-Time Market (RTM). The RECs generated from these sales will be transferred directly to consumers. These certificates help consumers to meet their RCO obligations or to obtain green certification. It is important to note that these Renewable Energy Certificates (RECs) are not tradable further.
One of the key rules in the guidelines is that Virtual Power Purchase Agreements (VPPAs) are not tradable and are not transferable. Renewable energy producers sell power at market prices. If the market price differs from the agreed VPPA price, the parties shall settle the difference through negotiation. This arrangement provides revenue certainty to developers and enables buyers to achieve their green energy goals without actual power delivery.
Renewable energy generation capacity linked to a VPPA is eligible for RECs after registration. Once consumers receive these RECs, they must notify the REC registry to cancel the certificate. Cancelled RECs prove that clean energy has been consumed and are not tradeable again. This process helps organizations comply with RCOs and improve their sustainability profile.
Any disputes arising under the VPPA agreement will be settled through negotiation between the parties. This approach ensures accountability while maintaining flexibility in the system.
If VPPAs are widely adopted, it will make the energy industry more efficient and transparent. They may also accelerate efforts to combat climate change.
