In a significant move set to revolutionize India’s renewable energy landscape, the Central Electricity Regulatory Commission (CERC) has released draft guidelines for Virtual Power Purchase Agreements (VPPAs).”
The guidelines provide a robust regulatory framework for VPPAs, empowering designated consumers to meet their ambitious renewable energy consumption obligation (RCO) targets.
Key features and benefits:
RCO compliance: VPPAs offer a flexible mechanism for designated consumers to meet their RCO targets. Renewable energy certificates (RECs) generated from the contracted RE capacity will be transferred directly to the consumer, who can use them for RCO compliance or to claim green attributes.
Long-term price certainty: VPPAs provide a long-term contractual arrangement, offering price certainty for both the RE generator and the consumer, de-risking investments in renewable energy projects.
Bilateral and non-tradable: The guidelines emphasize that VPPAs are bilateral, non-tradable, and non-transferable contracts, ensuring the integrity and specific delivery nature of the agreement.
Flexibility in implementation: Consumers or designated consumers can enter into VPPAs directly with RE generators, through a trader, or by listing on CERC-registered OTC platforms.
Streamlined REC transfer: The RECs generated from VPPA-contracted projects will be directly transferred from the REC generator to the consumer and subsequently extinguished by the REC Registry upon consumer communication.
VPPAs not under SEBI purview:
The CERC initiative follows extensive deliberation and consultation.
Notably, in its letter dated January 31, 2025, SEBI clarified that Virtual Power Purchase Agreements (VPPAs), being bilateral Over The Counter (OTC) contracts, are non-tradable and non-transferable.
This means they are not considered securities under the Securities Contracts Regulation Act (SCRA) and fall under the regulatory purview of the CERC.
This clarity, coupled with a request from the Ministry of Power on March 3, 2025, prompted CERC to devise the current regulatory framework.
What are VPPAs?
As defined in the draft guidelines, a VPPA is a non-transferable specific delivery (NTSD) based over-the-counter (OTC) contract entered into between a consumer or designated consumer and an RE generator.
Under a VPPA, the designated consumer guarantees payment of a mutually agreed VPPA price to the RE generator for the entire duration of the agreement.
Backdrop:
India has set an ambitious goal of achieving 500 GW of installed capacity from non-fossil fuel sources by 2030. To accelerate this transition, the central government in October 2023 mandated minimum non-fossil energy consumption shares for designated consumers, including electricity distribution licensees, open-access consumers, and captive users.
While RCO targets can currently be met directly or through renewable energy certificates (RECs), the introduction of VPPAs is expected to provide a new, flexible, and impactful instrument.
The RE generator sells the generated electricity through power exchanges or other authorized modes, and the financial difference between the VPPA price and the market price is settled bilaterally between the parties.
