1. Introduction
India’s energy transition has entered a decisive phase of maturity. For over a decade, the national focus was rightly on scale. The country demonstrated its ability to build renewable capacity at speed and volume. Renewable Energy Projects were commissioned, supply chains established, and clean energy firmly embedded in the generation mix.
That phase has delivered. Renewable energy is now an established pillar of India’s power system.
The challenge ahead is different.
India is moving from scale to depth – from vertical capacity expansion to horizontal system-building.
A clear signal of this shift is India’s 500 GW non-fossil capacity target by 2030, which requires not just supply growth, but credible and scalable demand participation.
The question today is no longer whether renewable energy can be built, but:
- how it can be integrated reliably into the grid,
- delivered on a round-the-clock basis, i.e. RTC Power, and
- consumed at scale by large buyers through mature market mechanisms.
This phase demands advances in forecasting, storage, balancing, and system design. Equally, it requires market instruments that increase flexibility, deepen participation, and encourage consumption.
It is in this context that Virtual Power Purchase Agreements (VPPAs) assume significance. Let’s understand it in detail – especially as it has been formalized as a procurement mechanism for companies in India by CERC.
2. What Is a Virtual Power Purchase Agreement (VPPA):
A New Clean Energy Pathway for C&I Companies in India
At its core, a Virtual Power Purchase Agreement is a non-physical, financial contract between a consumer or a designated consumer and a renewable energy generator.
Unlike traditional PPAs, where physical electricity is delivered and consumed, VPPAs rely on financial settlement linked to market prices, while the actual electricity is sold through authorised market platforms such as power exchanges like IEX or PXIL in India.
Under the CERC definition, a VPPA is a Non-Transferable Specific Delivery (NTSD) over-the-counter (OTC) contract, where the designated consumer commits to pay a VPPA price (strike price) agreed with the renewable generator over the contract duration.
The generator sells electricity through power exchanges (day-ahead or real-time markets) or other authorised modes under the Electricity Act, 2003. The difference between the VPPA price and the market price is settled bilaterally between the parties.
This structure separates the financial and environmental attributes of renewable procurement from physical electricity delivery, making it particularly relevant where physical open access is restricted, delayed, or expensive – ensuring that Indian corporates and Industries continue to get round the clock clean power.
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3. The Policy and Legal Backdrop of VPPA:
How VPPA meets Renewable Consumption Obligation (RCO) through Renewable Energy Certificates RECs
Three regulatory elements had to align before VPPAs could be formally recognised in India:
Energy Conservation Act and RCO
In 2023, under the Energy Conservation Act, the Government of India notified Renewable Consumption Obligation (RCO) targets for designated consumers, including DISCOMs, open-access consumers, and captive users. These obligations can be met through direct renewable procurement or through Renewable Energy Certificates (RECs), with penalties for shortfalls.
Power Market Regulations, 2021
CERC’s Power Market Regulations, 2021 created a formal category for OTC contracts and empowered the Commission (Regulation 54(3)) to issue guidelines for specific OTC products, including VPPAs.
Jurisdiction Clarity (SEBI and Ministry of Power)
Given the financial nature of VPPAs, CERC sought SEBI’s view on whether they fall under securities law. In its letter dated January 31, 2025, SEBI clarified that bilateral, non-tradable, non-transferable NTSD OTC contracts do not fall under the Securities Contracts (Regulation) Act. This placed VPPAs firmly within CERC’s regulatory domain. Subsequently, the Ministry of Power requested CERC to design a VPPA framework to support RCO compliance.
Together, these developments enabled the issuance of the 2025 VPPA Guidelines, which:
- Introduce an internationally proven corporate procurement instrument into India’s regulated power market,
- Explicitly link VPPAs to RCO compliance (not only voluntary ESG action), and
- Provide regulatory certainty for corporates, lenders, and auditors.
Three regulatory elements had to align before VPPAs could be formally recognised in India:
Energy Conservation Act and RCO
In 2023, under the Energy Conservation Act, the Government of India notified Renewable Consumption Obligation (RCO) targets for designated consumers, including DISCOMs, open-access consumers, and captive users. These obligations can be met through direct renewable procurement or through Renewable Energy Certificates (RECs), with penalties for shortfalls.
Power Market Regulations, 2021
CERC’s Power Market Regulations, 2021 created a formal category for OTC contracts and empowered the Commission (Regulation 54(3)) to issue guidelines for specific OTC products, including VPPAs.
Jurisdiction Clarity (SEBI and Ministry of Power)
Given the financial nature of VPPAs, CERC sought SEBI’s view on whether they fall under securities law. In its letter dated January 31, 2025, SEBI clarified that bilateral, non-tradable, non-transferable NTSD OTC contracts do not fall under the Securities Contracts (Regulation) Act. This placed VPPAs firmly within CERC’s regulatory domain. Subsequently, the Ministry of Power requested CERC to design a VPPA framework to support RCO compliance.
Together, these developments enabled the issuance of the 2025 VPPA Guidelines, which:
- Introduce an internationally proven corporate procurement instrument into India’s regulated power market,
- Explicitly link VPPAs to RCO compliance (not only voluntary ESG action), and
- Provide regulatory certainty for corporates, lenders, and auditors.
4. Components of an Indian VPPA
An Indian VPPA has four core building blocks:
Parties
- Renewable energy generator registered under the REC Regulations, 2022
- Consumer or designated consumer under the Electricity Act / Energy Conservation Act
- Optionally, a CERC-registered electricity trader or OTC platform for structuring support
Contract Terms
- VPPA price (mutually agreed strike price per MWh)
- Tenor: minimum one year; typically 10–15 years for meaningful risk management
- Non-tradable and non-transferable nature
Commercial Mechanics
- Generator sells electricity into DAM, RTM, or other authorised markets
- Periodic financial settlement of the difference between VPPA price and market price
- RECs issued to the generator and transferred to the corporate buyer for extinguishment
Regulatory Anchors
- REC Regulations, 2022
- Power Market Regulations, 2021
- Energy Conservation Act and RCO notifications
5. Who Is a VPPA For: Which Companies can use VPPA to meet their net zero goals & decarbonisation goals?
The guidelines permit any consumer or designated consumer to enter a VPPA.
A designated consumer refers to large, energy-intensive entities notified under the Energy Conservation Act, such as steel, cement, refineries, data centres, and large commercial facilities.
In practice, VPPAs are best suited for:
- large C&I companies with material RCO or net zero goals,
- multi-location corporates facing complex state-level OA rules,
- energy-intensive industries seeking long-term price hedging,
- MNCs using VPPAs globally to meet decarbonisation goals and seeking alignment in India, and
- companies early in their energy-transition journey that want a no-capex, low-operational-risk entry into renewable procurement.
How Does a VPPA Work in India: From Agreement signing to REC being issued
- Contract setup
- Corporate (consumer / designated consumer) and RE generator sign a VPPA.
- They agree on a fixed VPPA price (₹/MWh) and a contracted volume profile.
- Physical power sale
- Generator injects power into the grid.
- It sells the electricity component on a power exchange (DAM/RTM) or any other mode authorised under the Electricity Act 2003.
- Market price realised
- For each settlement period, the generator calculates the average market realisation (₹/MWh) from these sales.
- Contract‑for‑difference cashflow
- If Market Price < VPPA Price
- The corporate pays the generator.
- Payment = (VPPA Price – Market Price) × contracted MWh.
- Effect: generator’s net revenue is lifted up to the VPPA price; buyer bears low‑price risk.
- If Market Price > VPPA Price
- The generator pays the corporate.
- Payment = (Market Price – VPPA Price) × contracted MWh.
- Effect: buyer’s effective power cost is capped at the VPPA level; generator shares upside.
These bilateral payments are made directly between the two parties, outside the exchange, as per the VPPA contract.
- REC / green attribute flow
- Renewable energy project is registered under REC Regulations 2022 and deemed eligible.
- For eligible generation, RECs are issued to the generator.
- Generator transfers those RECs to the corporate (consumer / designated consumer).
- Corporate informs the REC registry, which extinguishes the RECs.
- Corporate uses the extinguished RECs for RCO compliance or green claims; they cannot be traded further.
- Corporate’s physical power
- Corporate continues to buy physical electricity from its DISCOM / captive plant / OA PPAs and pays those bills as usual.
- The VPPA cashflow is an overlay, not a replacement of the supply contract.
7. How VPPAs Benefit C&I Companies
- RCO compliance and decarbonisation without changing physical supply
- No capex or asset-ownership risk
- Long-term hedge against power-price volatility
- Portfolio-level decarbonisation for multi-state operations
- Lower exposure to state-level OA, banking, and curtailment risk
- Flexibility when demand or asset footprints change
- Globally accepted, audit-ready compliance mechanism
8. Current Challenges and Gaps of VPPAs
- Market price risk: prolonged low market prices can increase net payments.
- Regulatory evolution: REC and trading rules may change over time.
- REC eligibility constraint: projects using transmission or wheeling charge waivers are currently ineligible for RECs under REC 2022, limiting VPPA applicability largely to legacy assets.
- NTSD classification clarity: lack of codified NTSD tests may deter conservative buyers.
- Accounting and tax treatment: hedge accounting, GST, and tax treatment remain unresolved.
9. Conclusion
VPPAs are a natural outcome of renewable-market maturation, bridging physical infrastructure and financial market mechanisms.
For C&I consumers, their value lies in being used as a portfolio tool – complementing, not replacing, physical renewables. When structured thoughtfully, VPPAs can balance cost stability, compliance, and decarbonisation without over-exposure to operational or regulatory risk.
At a system level, wider VPPA adoption can deepen market liquidity, improve price discovery, and strengthen demand signals for renewable developers – supporting India’s clean-energy transition at scale.
10. How Corporates Can Work with Sunsure Energy for VPPA
VPPAs offer flexibility but sit at the intersection of regulation, power markets, finance, and sustainability accounting.
Sunsure Energy supports C&I companies across this complexity- from assessing whether a VPPA fits their compliance and sustainability objectives to structuring and executing regulator-aligned, commercially sound contracts. As a round-the-clock renewable energy RE-RTC solutions provider for Indian businesses and utilities, Sunsure enables corporates to meet RCO and ESG commitments while contributing meaningfully to India’s energy transition.
