The Central Electricity Regulatory Commission (CERC) has issued comprehensive guidelines for Virtual Power Purchase Agreements (VPPAs), establishing a formal regulatory framework for over-the-counter renewable energy contracts aimed at helping designated consumers meet their Renewable Consumption Obligation (RCO) targets.
Under the new framework, VPPAs have been classified as Non-Transferable Specific Delivery (NTSD) bilateral contracts that fall within CERC’s regulatory jurisdiction. This classification follows a clarification issued earlier this year by the Securities and Exchange Board of India (SEBI).
CERC noted that VPPAs are increasingly being adopted globally as an innovative contractual mechanism that allows large electricity consumers including distribution licensees, open access users, and captive consumers to complement physical renewable power procurement with financial contracts aligned to regulatory compliance requirements. The guidelines were developed following a request from the Ministry of Power to create an enabling framework for RCO compliance through VPPAs.
As per the guidelines, a VPPA is defined as a non-tradable and non-transferable bilateral OTC contract between a renewable energy generating station (REGS) and a consumer or designated consumer. Under such contracts, the buyer commits to a mutually agreed VPPA strike price for the duration of the agreement. The renewable generator, meanwhile, sells the actual electricity produced through power exchanges or other authorised channels for purposes unrelated to RPO or RCO compliance. Any difference between the VPPA strike price and the settlement price is to be settled bilaterally in accordance with the agreed contractual terms.
A central feature of the VPPA mechanism is the allocation of Renewable Energy Certificates (RECs). RECs issued against the contracted REGS capacity will be transferred to the consumer or designated consumer exclusively for RPO or RCO compliance. These certificates will be non-tradable and will be extinguished upon use, although surplus RECs may be carried forward to future compliance years.
The guidelines mandate a minimum VPPA tenure of one year, with contracting parties bound by the agreement for its full duration. Renewable generators participating in VPPAs must be registered under the CERC (Terms and Conditions for Renewable Energy Certificates for Renewable Energy Generation) Regulations, 2022. Additionally, REGS entities are required to submit an undertaking to the REC Registry for the capacity contracted under a VPPA to prevent double counting.
Any disputes arising from VPPA contracts are to be resolved mutually in line with the contract provisions. CERC stated that the framework is intended to broaden compliance options for obligated entities while ensuring regulatory oversight, contractual certainty, and transparency in VPPA-linked REC transactions. The guidelines will come into force from a date to be notified separately and may be reviewed periodically.
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