CERC Drafts Guidelines for Virtual Power Purchase Agreements to Boost RE Consumption

In order to accelerate the transition towards clean energy, the Central Electricity Regulatory Commission (CERC) has released draft guidelines for Virtual Power Purchase Agreements (VPPAs), enabling greater renewable energy (RE) consumption by commercial and industrial consumers.

To support 2030 mission, the Centre notified mandatory renewable energy consumption obligations (RCOs) in October 2023 under the Energy Conservation Act, 2001. These obligations apply to various consumer categories viz. including electricity distribution licensees, open-access users, and captive consumers, who must source a minimum share of their power from clean energy. Falling short leads to penalties, unless the gap is bridged through Renewable Energy Certificates (RECs).

Based on global best practices, CERC now proposes the Virtual Power Purchase Agreement as a fresh tool for meeting RCO targets.

VPPAs are financial contracts between RE generators and consumers (or 'Designated Consumers' as defined under the law) in which the consumer pays a pre-agreed price, the VPPA price, for the electricity generated. However, instead of physically receiving the electricity, the RE generator sells it on power exchanges, and the price difference between the market and VPPA rates is settled between the parties.

SEBI has clarified that since VPPAs are bilateral Over-the-Counter (OTC) contracts and are non-tradable and non-transferable, they fall outside the Securities Contracts Regulation Act’s ambit, putting them firmly under CERC’s regulatory scope.

The draft guidelines are applicable to all parties entering into VPPAs and come into force from the date they’re notified in the Official Gazette. Consumers can enter into long-term VPPAs with RE generators directly, via power traders, or through OTC platforms registered with CERC.

Once registered under REC regulations, RE generators are permitted to sell electricity on power exchanges, such as in the Day-Ahead Market (DAM) or Real-Time Market (RTM). The RECs generated from this sale are then transferred directly to the consumer, who can use them either for RCO compliance or to claim green credentials. However, these RECs cannot be traded.

One key clause says that  VPPAs are non-tradable and non-transferable. The RE generator sells the power at the market rate, and if there’s a gap between that and the agreed VPPA price, the difference is settled bilaterally. This creates a win-win, RE developers get revenue certainty, and buyers meet their green obligations without complex physical delivery logistics.

The RE capacity linked to a VPPA will be eligible for RECs upon registration. Once RECs are transferred, the consumer must inform the REC registry so the certificates can be extinguished, meaning they’ve been used and can't be traded further. These RECs serve as proof of clean energy use, helping entities fulfill their RCO commitments or boost their sustainability image.

Disputes under the VPPA framework are to be resolved mutually by the contracting parties as per their agreement. This maintains flexibility while ensuring accountability.

If adopted widely, VPPAs could make the energy world smarter, rules clearer, and help speed up climate action.