Pursuant to a public notice dated May 22, 2025, the (Indian) Central Electricity Regulatory Commission (“CERC”) released draft guidelines for virtual power purchase agreements (“VPPAs,” and such draft guidelines, “Draft VPPA Guidelines”), inviting comments, suggestions, and/or objections from stakeholders and interested parties by June 20, 2025.
In general, while a ‘physical’ power purchase agreement (“PPA”) involves the actual delivery of electricity from a power generator (“generator”) to a consumer/ buyer, a VPPA is essentially a bilateral financial contract to provide a level of guarantee with respect to electricity prices, hedging against price fluctuations and future volatility. Accordingly, while the generator might sell the electricity it generates at a floating rate in the spot market, the VPPA counterparty might agree to buy a notional quantity of such power at a contractually pre-determined price (“strike price”). If the floating/ real-time cost of electricity in the wholesale market exceeds the strike price, the generator will pay the buyer the difference. Conversely, if the market price is lower than the strike price, the buyer must make up the difference to the generator. Accordingly, a VPPA could be a derivative contract structured as a fixed-for-floating swap or a ‘contract for differences’ (“CFD”).
In India, the Securities Contracts (Regulation) Act, 1956 (“SCRA”) defines a ‘derivative’ to include commodity derivatives, which, in turn, include CFDs that derive their value from the price of underlying goods. Further, the SCRA defines non-transferable specific delivery (“NTSD”) contracts as specific delivery contracts, the rights or liabilities under which, or under any delivery order or related document(s) of title, are not transferable. In turn, a ‘specific delivery contract’ under the SCRA means a commodity derivative which provides for the actual delivery of specific qualities or types of goods during a specified future period at a fixed price, or at a price to be fixed in a manner agreed upon, and in which the names of both the buyer and the seller are mentioned. Importantly, neither do VPPAs typically involve the actual delivery of electricity, nor are they intended for trading on market exchanges or meant to be transferred to third parties.
While there is no physical exchange of electricity in a VPPA, the net effect of its underlying financial arrangement is such that the generator will expect to receive, and the buyer will expect to pay, the strike price during the term of their contract. Further, a VPPA related to renewable energy (“RE”) might involve the transfer of environmental attributes of RE without the transfer of actual power (e.g., Guarantees of Origin in the European Union), which, in turn, may count towards RE-based procurement mandates (e.g., renewable portfolio standards in certain states in the United States).
For an overview of VPPAs in the Indian context, see our note here. For a more detailed discussion, see here (pp. 27-71).
Context
Previously, pursuant to a Gazette notification dated February 15, 2021, the CERC had notified the Central Electricity Regulatory Commission (Power Market Regulations) 2021 (“2021 Power Market Regulations”), which came into effect on August 15, 2021. Among other reasons, erstwhile regulations on the Indian power market (“2010 Power Market Regulations”) were repealed, and the 2021 Power Market Regulations were finalized, on account of certain developments in the Indian electricity sector, including (i) the overall growth of, and the increasing share of RE sources in, power generation in the country; (ii) growth in peak demand, and (iii) an increase in the volume of electricity transacted on power exchanges.
Pursuant to an order dated July 22, 2022, read with a corrigendum dated September 19, 2022, the Ministry of Power (“MoP”) specified a trajectory for renewable purchase obligations (“RPOs”) and energy storage obligations until 2029-2030. Now known as renewable consumption obligations (“RCOs”), RPOs have been defined under the Electricity Act, 2003 (“Electricity Act”) and the National Tariff Policy, 2016 (“Tariff Policy”).
Pursuant to Section 86(1)(e) of the Electricity Act, certain categories of ‘obligated entities’ (such as electricity distribution licensees (“discoms”), open access consumers, and captive power producers) are required to purchase a minimum percentage of electricity from RE sources as a share of their total power consumption. Paragraph 6.4(1) of the Tariff Policy authorizes the appropriate electricity regulatory commission to fix a minimum percentage of the total electricity consumption in the area of a discom for purchasing RE after accounting for the availability of resources and its impact on retail tariffs, along with the cost of such RE purchase. The Tariff Policy also provides for the MoP to prescribe the long-term growth trajectory of RPOs in consultation with the Ministry of New and Renewable Energy (MNRE).
Further to a Gazette notification dated December 20, 2022, the Energy Conservation (Amendment) Act, 2022 (“2022 Amendment”) was notified, which came into effect from January 1, 2023 for the purpose of amending the Energy Conservation Act, 2001 (“EC Act”). Among other changes, the 2022 Amendment added sub-section (x) to Section 14 of the EC Act, pursuant to which the Central Government (“Government”), in consultation with the Bureau of Energy Efficiency (“BEE”), was authorized to specify a minimum share of consumption with respect to non-fossil sources by designated consumers (“DCs”) as energy or feedstock. A DC has been defined under sub-section (e) of Section 14 of the EC Act as a user of energy in any energy intensive industry or any other establishment as specified in the EC Act. The MoP is the nodal ministry of the Government in this regard. Further, the 2022 Amendment authorized the Government to specify different shares of consumption for different types of non-fossil sources for different DCs.
Subsequently, to accelerate the addition of RE capacity in India for the purpose of achieving the country’s target of 500 GW of installed capacity from non-fossil fuel sources by 2030, pursuant to a Gazette notification dated October 20, 2023 issued under Section 14(x) of the amended EC Act in consultation with the BEE (such notification, “RE Consumption Notification”), the MoP specified the minimum share of consumption of non-fossil/ RE sources by DCs as energy or feedstock, where different shares of such consumption (as a percentage of the aggregate electricity consumed) were specified for different types of non-fossil sources for different DCs based on their consumer category, such as discoms (see here and here), open access consumers, and captive power plants/ users (see here).
The RE Consumption Notification, which came into force on April 1, 2024, specified certain RE consumption targets (“Targets”) and required such Targets to be met either directly, or through RE certificates (“RECs”) in accordance with the Central Electricity Regulatory Commission (Terms and Conditions for Renewable Energy Certificates for Renewable Energy Generation) Regulations, 2022 (“2022 REC Regulations”). Notified in May 2022 before coming into force with effect from December 5, 2022, the 2022 REC Regulations replaced erstwhile regulations on RECs. The RE Consumption Notification further clarified that any shortfall with respect to the Targets would be treated as non-compliance, and penalties would be imposed at rates specified under Section 26(3) of the EC Act.
Regulation 54(3) of the Power Market Regulations authorizes the CERC to deal with any matter or exercise any power under the Electricity Act in respect of which no provision has been made in the 2021 Power Market Regulations. Accordingly, the CERC formulated the Draft VPPA Guidelines in exercise of its powers under such Regulation 54(3).
At present, based on its study of international practices, the CERC is of the view that VPPAs can serve as appropriate instruments for the purpose of enabling DCs to meet their respective Targets with respect to RCOs. As discussed above, RCOs provide a mechanism under the 2022 Amendment pursuant to which DCs are obliged to consume a certain percentage of electricity from eligible non-fossil sources as a share of their total power consumption.
Immediate Background
Since VPPAs are ‘innovative’ contracts in terms of their nature and structure, the CERC sought an opinion from the Securities and Exchange Board of India (“SEBI”) on regulatory jurisdiction with respect to such contracts. Through a letter dated January 31, 2025, the SEBI replied to the CERC and issued its opinion in the matter (such opinion, “SEBI Opinion”). The SEBI Opinion stated that VPPAs are bilateral, non-tradable, and non-transferable ‘over-the-counter’ (“OTC”) contracts. According to the 2021 Power Market Regulations, OTC contracts are those contracts that are transacted outside electronic platforms, subject to such platforms being registered as power exchanges under the 2021 Power Market Regulations (such power exchanges, “Power Exchanges”). Accordingly, the SEBI Opinion indicated that if VPPAs or any such OTC contracts are considered as NTSD contracts, the provisions of the SCRA will not apply, and such contracts will come under the regulatory purview of the CERC.
Thereafter, through its communication dated March 3, 2025, the MoP requested the CERC to formulate a suitable regulatory framework for VPPAs as NTSD-based OTC contracts for the purpose of facilitating RCO compliance by regulated entities. Further to the SEBI Opinion, the CERC has now issued the Draft VPPA Guidelines.
Regulatory Jurisdiction: Background
In January 2009, the Multi Commodity Exchange of India Limited (MCX) started trading in electricity futures and forward contracts. The Power Exchange of India Limited (PXIL) argued that the CERC (and not the SEBI) had exclusive jurisdiction in such matters. Subsequently, the 2010 Power Market Regulations, as notified by the CERC, included references to ‘financially settled electricity derivatives contracts transacted in the OTC market’ (“Erstwhile Provision”). A year later, the Bombay High Court declared the 2010 Power Market Regulations inoperative as far as electricity futures and forward contracts were concerned.
In October 2018, for the purpose of resolving jurisdictional issues between the SEBI and the CERC, the MoP constituted a committee on the regulation of electricity derivatives (“Committee”). Pursuant to a report dated October 30, 2019, the Committee recommended that NTSD contracts ought to be regulated by the CERC, while commodity derivatives in electricity other than NTSDs ought to be regulated by the SEBI.
The 2021 Power Market Regulations, as notified by the CERC to replace the 2010 Power Market Regulations, includes contracts related to RECs (as transacted on Power Exchanges), as well as delivery-based OTC contracts. However, the 2021 regulations do not include the Erstwhile Provision of the 2010 regulations and apply to physically settled OTC contracts only (as opposed to financially settled electricity derivatives contracts in the OTC market as earlier provided in the 2010 Power Market Regulations).
Pursuant to an order dated October 6, 2021(the “SC Order”), the Supreme Court sought to resolve the question of jurisdiction over forward and derivative contracts in the electricity sector. To the extent that the SEBI and the CERC agreed to the Committee’s recommendations, the SC Order approved such terms, and it was decided that the CERC would regulate physical delivery-based forward contracts, while financial and commodity derivatives in electricity (except NTSD contracts) would be regulated by the SEBI.
However, even after the SC Order, the physical and financial aspects of VPPA-based transactions were unclear, and corresponding jurisdictional questions were left unaddressed. In this regard, the SEBI Opinion is useful to clarify the appropriate regulatory authority. For a discussion on past ambiguities associated with jurisdiction over VPPAs, see here.
Draft VPPA Guidelines: Key Points
The Draft VPPA Guidelines seek to describe the Indian statutory framework for VPPAs. Once finalized, such guidelines are likely to apply to all parties that enter into VPPAs in India.
The Draft VPPA Guidelines define a VPPA as an NTSD-based OTC contract between:
- on the one hand,
- a consumer, as defined in the Electricity Act, being a person who is supplied with electricity for his own use by a licensee, the Government, or any other person engaged in the business of supplying electricity to the public under the Electricity Act or any other law in force, and includes any person whose premises are connected with the works of a licensee, the Government, or other person, as applicable, for the purpose of receiving electricity (“Consumer”), or
- a DC, as defined in the EC Act; and
- on the other hand,
- an RE generator (together with the Consumer/ DC, “VPPA Parties”), where the Consumer/ DC guarantees the payment of a mutually agreed price (i.e., “VPPA Price” – see below) to the RE generator for the entire duration of the agreement.
Further to such agreement, the RE generator will sell electricity through a Power Exchange or any other mode authorized under the Electricity Act, and the difference between the VPPA Price and the market price will be settled bilaterally between the VPPA Parties pursuant to the contractual terms agreed between them.
The VPPA Price has been defined as the price of electricity, as mutually agreed upon by the VPPA Parties, in either of three modes (“Modes”), i.e., (i) directly; (ii) through a ‘trader’, as defined under the Central Electricity Regulatory Commission (Procedure, Terms and Conditions for grant of trading licence and other related matters) Regulations, 2020; or (iii) by listing on an OTC platform, as defined in the 2021 Power Market Regulations, i.e., an electronic platform for the exchange of information among buyers and sellers of electricity.
Accordingly, the Draft VPPA Guidelines envisage a VPPA to be a long-term bilateral PPA which the VPPA Parties may enter into at the VPPA Price, pursuant to terms and conditions as agreed between them. If the RE generator sells electricity components through Power Exchanges in the ‘Day-Ahead Market’ (“DAM”) and/or the ‘Real Time Market’ (“RTM”) segments, or through any other mode authorized under the Electricity Act, the RECs received pursuant to such sale will be transferred to the Consumer or the DC. Such Consumer or DC, in turn, can then use such RECs for its own RCO compliance, or for claiming green attributes. However, it has been clarified that such RECs cannot be traded.
With respect to implementation, the Draft VPPA Guidelines specify that the Modes will remain subject to registration granted by the CERC, and such project will be registered pursuant to the 2022 REC Regulations. It has also been clarified that VPPA contracts will be non-tradable and non-transferable, and the VPPA Parties will be bound by the contractual terms of such VPPA for the entire period of such contract.
The Draft VPPA Guidelines also specify that the RE capacity contracted through a VPPA will be eligible for the issuance of RECs pursuant to registration in accordance with, and in terms of the eligibility conditions specified in, the 2022 REC Regulations. Such issued RECs will be transferred by the RE generator to the Consumer/ DC directly. The recipient Consumer/ DC will then be required to communicate to the REC registry about the receipt of such RECs, upon which the REC registry will extinguish such certificates.
In respect of dispute resolution, the Draft VPPA Guidelines state that any disputes arising out of a VPPA will be mutually settled by the VPPA Parties pursuant to the terms of their contract.
Analysis
For the purpose of reaching ‘net-zero’ emissions, investments into RE projects need to rise significantly, including in India, despite the obstacles faced by developing countries, such as limited access to international capital. Further, such obstacles are exacerbated on account of energy security concerns.
India’s RE investment requirements are particularly significant on account its ambitious climate targets, even as the country is likely to witness a large increase in energy demand over the next few decades – given the continued growth in both its economy and population. Therefore, as a matter of national interest, innovative contractual arrangements involving RE might prove useful, including for the purpose of scaling up RE capacity-addition and procurement through increased private sector participation, as the success of VPPAs in the U.S. has shown.
Through a VPPA, companies can use their purchasing power to add new RE generation capacity, including in India, without receiving the electricity generated. Such RE can then be sold into the national grid, and such companies can be credited for the power contracted through the VPPA, thereby allowing them to offset their energy consumption and greenhouse gas (“GHG”) emissions. Accordingly, a VPPA is an effective tool for companies to decarbonize their energy consumption while supporting the development of RE projects. Large Indian companies with significant exports and global presence could ‘green up’ their products/ services through VPPAs to secure greater credibility and wider acceptance among sophisticated investors in developed, climate-conscious markets.
Other than reputational and/or corporate/ product branding benefits, VPPAs serve important economic functions. For instance, despite the decreasing costs of RE in India, consumers of RE-based power may face procurement-related issues due to the inherent intermittency, seasonality, and unreliability of solar and wind energy, coupled with limitations in storage capacity, as well as variations in RE quality and potential across regions/ states. Further, a VPPA can insulate power users from long-term risks associated with changing electricity costs and unpredictable geopolitical trends. In addition, RECs can allow obligated entities to meet their RCO Targets without relying on actual RE procurement.
Accordingly, given the importance of VPPAs for the purpose of combating global warming and supporting climate goals, including India’s commitment towards RE deployment and decarbonization measures, the Draft VPPA Guidelines appear to be a step in the right direction. Further, in light of persistent doubts about appropriate regulatory jurisdiction involving VPPAs despite the SC Order, the SEBI Opinion is a significant milestone, paving the way for greater clarity and better policy.
Importantly, while the Draft VPPA Guidelines clarify that the RE capacity contracted pursuant to a VPPA will be eligible for REC issuances further to registration and other conditions, as specified in the 2022 REC Regulations, such regulations do not expressly provide for the sale of ‘bundled’ RECs (i.e., when RECs can be sold together with their associated energy) through bespoke bilateral arrangements – although the 2022 REC Regulations do permit the use of electricity traders by eligible entities for the purpose of exchanging/ selling RECs. In this context, detailed procedures with respect to implementing the 2022 REC Regulations (“Procedures”) require electricity traders to have back-to-back arrangements with both buyers and sellers before applying for a trade request to the central agency. It is possible that bundled REC transfers will be considered in the future through the 2022 REC Regulations and/or the Procedures.
The Draft VPPA Guidelines further specify that an RE generator will be allowed to sell the electricity component through Power Exchanges in the DAM and/or RTM segments, or through any other mode authorized by the Electricity Act. It appears that the Draft VPPA Guidelines enable RE generators to sell the power that is notionally the subject of a VPPA in the open market. In this situation, the power purchaser must procure the electricity that it needs to run its business and day-to-day operations from a third party (including from a discom, if required) through a separate transaction, independent of the VPPA.
Bundled REC sales through customized bilateral contracts, like in VPPAs, can be particularly useful for the purpose of financing new RE projects, since RE generators may be able to show potential lenders a guaranteed revenue stream from both their ‘products’ (i.e., RE as well as RECs). However, ‘unbundled’ RECs would not be tied to their underlying power and may not lead to new RE being generated (i.e., unbundled RECs may not produce ‘additionality’, such that an RE project would not have been possible in the absence a VPPA). Since most voluntary RE purchasers might seek additional RE to satisfy reputational goals, corporate sustainability pledges, and/or stakeholder demands, unbundled RECs are likely to provide limited opportunities to distinguish their brand. When bundled, the vintage and source of RECs are likely to be precise. When unbundled, however, it might be more difficult to verify such factors, potentially affecting/ impacting (i) claims based on environmental, social, and governance (“ESG”)-related parameters, (ii) corporate reputation and credibility, and (iii) vulnerabilities associated with ‘greenwashing’ allegations (for an overview of greenwashing, see our note here). Nevertheless, the Draft VPPA Guidelines require the underlying RE projects to be registered pursuant to the 2022 REC Regulations, and the contractual terms of such VPPAs, including the VPPA Price, will remain subject to registration granted by the CERC itself.
According to the 2022 REC Regulations, RECs may be issued by the National Load Dispatch Center (“NLDC,” the designated central agency in this regard) to eligible entities, subject to certain restrictions/ qualifications prescribed under Regulation 4(2) of the 2022 REC Regulations. Such eligible entities include (i) RE generating stations, (ii) captive generating stations based on RE sources, (iii) discoms, and (iv) open access consumers. While such mechanism under the 2022 REC Regulations involving centralized REC issuances may not, by itself, have been enough to make VPPAs viable in India – since RECs would ultimately need to be transferred to, or directly issued in favor of, counterparties, including for the purpose of making VPPAs commercially viable, the Draft VPPA Guidelines require the RECs issued pursuant to a VPPA to be transferred by the RE generator to the Consumer/ DC directly. However, a plain reading of the Draft VPPA Guidelines suggests that apart from statutory RECs issued under the 2022 REC Regulations, no other environmental/ energy attribute certificates (“EACs”) may be transferred in a VPPA, thereby compromising the commercial viability of such bespoke contractual arrangements. It may be noted that internationally, many VPPAs do not necessarily include any transfers of EACs. However, the language of the Draft VPPA Guidelines seems to suggest that the transfer of RECs is a mandatory element of the VPPAs it seeks to regulate. Further, the RECs underlying a VPPA cannot be traded, implying that the RECs would necessarily have to be utilized for meeting the Consumer/ DC’s Targets. This may restrict consumers/ DCs from entering into VPPAs for capacities not supported by RECs which may be detrimental to the development of RE projects.
In general, non-statutory EACs can be obtained from sources other than a national registry, such as the International Tracking Standard Foundation (“I-TRACK Foundation”), i.e., (i) the founder of International RECs (“I-RECs”) (the code of which no longer exists), and (ii) the ‘International Attribute Tracking Standard’ (which implements, among others, a global standard for electricity-based certificates (“I-REC(E)s”)). The I-REC(E) standard is available in several countries and remains a recognized tool to document reduced GHG emissions and improve sustainability performance. Like other EACs (such as RECs and the EU’s Guarantees of Origin), each I-REC(E) represents proof that 1MWh of RE has been produced and includes the environmental benefits of such RE.
As contemplated in the Draft VPPA Guidelines, when a company buys I-REC(E)s as proof of electricity consumption, such certificates are canceled in the corresponding registry. Being standardized instruments, I-REC(E)s make it possible to track ownership, verify claims, and ensure that such certificates are only sold once (i.e., no double counting). Further, an I-REC(E) is an exchangeable EAC that conveys certain information about the production of a unit of electricity – such as (i) where such electricity was produced, (ii) the capacity of the production facility concerned, and (iii) the energy source involved. While I‑REC(E)s can be used for a variety of requirements, including for national energy and Scope 2 reporting, respectively, along with general end-user claims, the use of I-REC(E)s is accepted by relevant consumer claim standards as well, including the Greenhouse Gas Protocol (GHGP), CDP (Carbon Disclosure Project), RE100, and others.
The added advantage of I-REC(E)s is that these certificates can be utilized by companies with international operations for the purpose of increasing their appeal among global customers. Earlier, the Green Certificate Company (GCC) issued I-RECs in India. In September 2024, it was announced that the Board of the I-TRACK Foundation had approved International Carbon Exchange (ICX), a wholly owned subsidiary of the Indian Energy Exchange Limited (IEX) – a leading power trading exchange in India – as the local I-REC(E) issuer in India. Accordingly, the authors submit that I-REC(E)s should be included within India’s VPPA guidelines to make VPPAs more viable for the parties involved.
The introduction to the Draft VPPA Guidelines explains that they have been formulated pursuant to the MoP’s request to the CERC to provide a regulatory framework for VPPAs for facilitating RCO compliance by regulated entities. Consequently, buyers under VPPAs are required to be either Consumers or DCs under the Draft VPPA Guidelines. This, along with the requirement for mandatory transfer of RECs, would narrow the buyers who can enter into VPPAs in India. If EACs were permitted to be transferred in addition to RECs and the buyers were not restricted as currently provided, foreign entities would be able to enter into VPPAs and acquire EACs for compliance with their ESG norms and their stakeholders’ requirements, and enhance their reputations. This in turn would make available more funding to RE generators in India to increase capacity.
Since VPPAs can be complicated agreements, contractual provisions related to pricing, accounting, projections, financing, changes-in-law, construction delays, etc. need to be carefully drafted and reviewed. In addition, information asymmetries between power projects and corporate buyers may complicate negotiations. However, the Draft VPPA Guidelines do not provide guidance on the documentation necessary for VPPAs in India. Global practice suggests that VPPAs are usefully governed by regulations related to the derivatives market. In the U.S., while documentation related to VPPAs is often formulated as long-form confirmations under an International Swaps and Derivatives Association (“ISDA”) Master Agreement – which is the standard contract used for OTC derivatives transactions – VPPA transactions are typically structured as ‘swaps’ – i.e., a type of OTC derivative regulated by the U.S. Commodity Futures Trading Commission (“CFTC”). The ISDA could publish global template/ standard documentation with respect to VPPAs and/or RE-based PPAs which are intended to be financially settled (“FPPAs”) in India and/or the Asia-Pacific region. Such options related to VPPA/ FPPA templates might include definition booklets, annexes, or confirmations. Specifically, such templates could include base provisions upon which users can incorporate, adapt, or supplement for specific transaction terms, counterparty types, and jurisdictions, including with respect to project-specific terms and payment provisions.
In the U.S., swaps are subject to reporting, record-keeping, and registration requirements pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”). The Dodd-Frank Act enhanced the regulatory authority of the CFTC in the aftermath of the 2008 financial crisis, providing the CFTC with oversight powers in respect of the swaps market. VPPA transactions in the U.S. can also be structured as commodity forward contracts (where RECs are priced at the difference between a floating and a fixed price). In this scenario, VPPAs are not considered swaps.
Lastly, given that the CERC has decided to regulate VPPAs pursuant to the issuance of guidelines – as opposed to regulations – dispute resolution among VPPA Parties might be complicated in the future. While the CERC’s guidelines and regulations may both set standards for the electricity sector, they could differ in scope and enforceability. While guidelines typically provide broad principles and recommendations pursuant to the CERC’s advisory mandate – such as with respect to the promotion of competition, efficiency and investment in the Indian power sector, regulations issued by the CERC pursuant to its mandatory functions may contain legally binding rules that must be followed by covered entities. In this regard, the provision in the Draft VPPA Guidelines which specifies that disputes arising out of VPPAs will be mutually settled by the disputing parties pursuant to the terms of their contract does not provide enough clarity or confidence with respect to the VPPA regulatory framework. Nonetheless, arbitration may remain a viable option.
This insight has been authored by Aakanksha Joshi and Dr. Deborshi Barat from S&R Associates. They can be reached at [email protected] and [email protected], respectively, for any questions. This insight is intended only as a general discussion of issues and is not intended for any solicitation of work. It should not be regarded as legal advice and no legal or business decision should be based on its content.