This note discusses certain recent proposed changes (together, “Draft Amendments”) to the Indian regulatory framework, as applicable to virtual power purchase agreements (“VPPAs”). For a general overview of VPPAs, see our note here.

The Draft Amendments aim to integrate VPPAs into the Indian power market, including by defining the nature and essential features of such contracts, and establishing their placement within the over-the-counter (“OTC”) market.

Recent Developments

Earlier this year, pursuant to a public notice dated May 22, 2025, the (Indian) Central Electricity Regulatory Commission (“CERC”) had released draft guidelines for VPPAs (“Draft VPPA Guidelines”), inviting comments, suggestions, and/or objections from stakeholders and interested parties by June 20, 2025 (the deadline was later extended to July 11, 2025). Pursuant to such public notice, the CERC received comments from various stakeholders.

Separately, pursuant to another public notice dated June 17, 2025, the CERC released the Draft Central Electricity Regulatory Commission (Power Market) (First Amendment) Regulations, 2025 (“Draft Power Market Amendment”), inviting stakeholder comments/ suggestions/ objections by July 14, 2025 (the deadline was extended twice – to August 4, 2025 and August 18, 2025, respectively). The Draft Power Market Amendment, along with its explanatory memorandum, were issued further to a number of developments in the Indian power market that arose subsequent to the notification of the Central Electricity Regulatory Commission (Power Market) Regulations, 2021 (“Principal Power Market Regulations”). Among other things, such power market developments included the issuance of the Draft VPPA Guidelines. For a detailed discussion on the Draft VPPA Guidelines, see our note here. The CERC received comments from various stakeholders on the Draft Power Market Amendment as well.

Pursuant to another public notice dated August 6, 2025, the CERC announced a public hearing on August 18, 2025 with respect to both the Draft VPPA Guidelines and the Draft Power Market Amendment.

More recently, pursuant to a public notice dated September 22, 2025, the CERC released the Draft Central Electricity Regulatory Commission (Terms and Conditions for Renewable Energy Certificates for Renewable Energy Generation) (First Amendment) Regulations, 2025 (“Draft REC Amendment”), inviting stakeholder comments/ suggestions/ objections by October 23, 2025. Released along with an explanatory memorandum, the Draft REC Amendment seeks to amend the Central Electricity Regulatory Commission (Terms and Conditions for Renewable Energy Certificates for Renewable Energy Generation) Regulations, 2022 (“Principal REC Regulations”), which came into effect from December 5, 2022.

The Principal REC Regulations needed amendment for several reasons, including, among other things, enabling provisions in the Principal REC Regulations to facilitate the deemed transfer of green attributes from eligible renewable energy (“RE”) stations to designated consumers under VPPAs for the purpose of compliance with Renewable Consumption Obligations (“RCO”).

Background

The Government of India (“Government”) has set an ambitious target of 500 GW of non-fossil fuel capacity by 2030 to meet the country’s needs with respect to its energy security transition. To achieve this objective, the Government has notified minimum RCOs for designated consumers. Such obligations specify the required share of power from non-fossil sources for certain consumer categories (such as distribution licensees, open access consumers, and captive users) with respect to the aggregate electricity consumed by them. These RCO targets can be met either through direct consumption of RE or by purchasing Renewable Energy Certificates (“RECs”).

Based on a study of international practices, the CERC was of the view that VPPAs can serve as appropriate instruments for the purpose of enabling designated consumers to meet their respective RCO targets. However, 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 the appropriate regulatory jurisdiction with respect to such contracts. Through a letter dated January 31, 2025, the SEBI issued its opinion in the matter (such opinion, “SEBI Opinion”). The SEBI Opinion stated that VPPAs are bilateral, non-tradable, and non-transferable OTC contracts.

The Securities Contracts (Regulation) Act, 1956 (“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. 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. Further, a ‘derivative’ under the SCRA includes commodity derivatives, which, in turn, include ‘contracts for differences’ (Cedes) that derive their value from the price of underlying goods. The SEBI Opinion indicated that if VPPAs (or any such OTC contracts) are considered to be NTSD contracts, the provisions of the SCRA will not apply, and such contracts will come under the regulatory purview of the CERC.

Thereafter, pursuant to a communication dated March 3, 2025, the Ministry of Power requested the CERC to develop a regulatory framework for VPPAs as NTSD-based OTC contracts. Accordingly, the CERC issued the Draft VPPA Guidelines, including with the aim of facilitating RCO compliance by obligated entities.

Draft Power Market Amendment: Overview

Proposed amendments to the Principal Power Market Regulations, as contemplated under the Draft Power Market Amendment, aim, among other things, to:

1. define and describe VPPAs, including in terms of their contractual nature and parties involved, pricing, structuring, guaranteed payment and RE generator obligations, financial settlement, and scheduling
2. recognize VPPAs as legitimate market instruments, including through their inclusion in the OTC market, and
3. integrate VPPAs into the regulatory framework applicable to the Indian power market, including by –
4. adding new and broader definitions of (1) markets, (2) OTC markets, (3) OTC platforms, and (4) members of such OTC platforms, respectively; and
5. imposing additional facilitation obligations on OTC platforms to enable buyers and sellers to undertake and execute a wider set of contracts and transactions, including those with respect to VPPAs and RECs.

Earlier, the Draft VPPA Guidelines had sought to provide an alternative mechanism for designated consumers to satisfy their RCO compliance requirement. Since the criteria for notifying designated consumers are already provided under the Energy Conservation Act, 2001 (“EC Act”), the Draft Power Market Amendment and the Draft REC Amendment seek to include such reference into the Principal Power Market Regulations and the Principal REC Regulations, respectively, for the purpose of defining designated consumers therein. The Draft REC Amendment also proposes to include a new definition for RCO – i.e., as the Government-specified requirement under Section 14(n) and (x) of the EC Act for the minimum share of consumption with respect to non-fossil sources (i.e., RE).

Further, for the purpose of establishing a complete and wider list of the type of contracts allowed on the OTC market, the Draft Power Market Amendment seeks to expand upon the corresponding provision in the Principal Power Market Regulations (as it exists on date) to include within such list, among other things, contracts related to VPPAs and RECs.

In addition, to ensure the implementation of VPPAs pursuant to the terms and conditions provided in the Draft VPPA Guidelines, the Draft Power Market Amendment proposes to include a new provision in the Principal Power Market Regulations, which states that the implementation arrangement and contractual terms of VPPAs must be in accordance with guidelines notified by the CERC.

Draft REC Amendment: Overview

As specified in the Draft VPPA Guidelines, a consumer or a designated consumer may enter into a long-term bilateral VPPA with an RE generator at a mutually agreed price (i.e., the VPPA price) for facilitating RCO compliance by regulated entities. Under such arrangement, if the RE generator sells the (actual) electricity component through power exchanges or any other mode, as authorized under the Electricity Act, 2003 (“Electricity Act”), the RECs received thereby must be transferred to the consumer or designated consumer – who can then use such RECs for its own RCO compliance, or for the purpose of claiming green attributes. However, such RECs will not be allowed to be traded.

The CERC has now proposed certain amendments to the Principal REC Regulations to provide for REC transactions under VPPAs.

VPPAs: Definitions, Structure, Pricing And Settlement

The Draft Power Market Amendment introduces a formal definition of VPPAs, which includes elements as outlined below:

• Nature of Contract: The Draft Power Market Amendment defines a VPPA as an NTSD-based OTC contract in alignment with the SEBI Opinion. According to the Principal 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 Principal Power Market Regulations (such power exchanges, “Power Exchanges”).

In this regard, the Draft Power Market Amendment re-defines:

1. an ‘OTC market’ (by including OTC platforms within such definition) as follows:

• a market where OTC contracts (i.e., contracts outside Power Exchanges) are transacted between sellers and buyers directly, through a trading licensee, or on an OTC platform;

1. an ‘OTC platform’ (for the purpose of enabling such platforms to (1) facilitate transactions between buyers and sellers, (2) promote transparency, and (3) facilitate innovative market instruments such as VPPAs, RECs and others) as follows:

• an electronic platform for (a) the exchange of information between buyers and sellers of electricity, and (b) facilitating the engagement of such buyers and sellers in transactions as specified in regulations and guidelines issued in this regard, including the Principal Power Market Regulations, as amended, and the Guidelines for Registration and Filing Application for Establishing and Operating Over the Counter (OTC) Platform, 2022 (“OTC Guidelines”);

1. a ‘market’ (by including OTC platforms as one of the platforms where buyers and sellers can buy or sell electricity, RECs, or Energy Savings Certificates (“ESCerts”)) as follows:

• a platform or place where buyers and sellers, either directly or through trading licensees, Power Exchanges, or OTC platforms, buy or sell electricity, RECs, ESCerts, or any other product decided by the CERC; and

1. a ‘member of a power exchange or an OTC platform’ (in view of the proposed new activities on OTC platforms) as follows:

• a person who has been admitted as such by a Power Exchange or OTC platform pursuant to the Principal Power Market Regulations, as amended, or the OTC Guidelines, as well as in accordance with by-laws, rules, and business rules of the Power Exchange or OTC platform concerned.

Further, to include the members of OTC platforms (other than OTC platforms themselves) within the list of market participants as specified in the Principal Power Market Regulations, the Draft Power Market Amendment seeks to replace such reference with one that expressly incorporates OTC platforms, as well as their members.

The Draft REC Amendment also seeks to include a new definition for VPPAs in the Principal REC Regulations. In this regard, the Draft REC Amendment proposes that a ‘VPPA’ will have the same meaning as assigned to it under the Principal Power Market Regulations, as amended from time to time, or any re-enactment thereof.

• Contracting Parties: According to the Draft Power Market Amendment, the contract related to the VPPA must be entered into between (i) a consumer/ designated consumer, on the one hand, and (ii) an RE generator, on the other hand.

In this regard, both the Draft Power Market Amendment and the Draft REC Amendment define a ‘designated consumer’ as the designated consumer under the EC Act. Similarly, the Draft REC Amendment specifies that references to a ‘designated consumer’ under the Principal REC Regulations will have the same meaning as assigned to such term under the EC Act, as amended from time to time, or any re-enactment thereof.

• Guaranteed Payment: According to the Draft Power Market Amendment, the designated consumer guarantees payment of the mutually agreed price (i.e., the VPPA price) under the VPPA agreement to the RE generator for the entire duration of such contract.
• RE Generator Obligation: Pursuant to the Draft Power Market Amendment, the RE generator is required to sell the actual electricity generated through a Power Exchange or any other mode authorized under the Electricity Act.
• Financial Settlement: According to the Draft Power Market Amendment, the VPPA will operate as a financial contract, where the difference between the VPPA price and the market price must be settled bilaterally between the contracting parties according to mutually agreed terms.
• VPPA Price Determination: The ‘VPPA price’ has been explicitly defined under the Draft Power Market Amendment as the price of electricity as mutually agreed upon by and between a consumer/ designated consumer (on the one hand) and an RE generator (on the other hand) in any of the following ways: (i) directly, (ii) through a trader, or (iii) by listing on an OTC platform.

VPPAs: Regulatory Placement and Market Integration

The Draft Power Market Amendment aims to ensure that VPPAs are recognized products within the larger framework of the Indian power market, and specifically in the OTC segment, as follows:

• Inclusion in OTC Market: The Draft Power Market Amendment proposes to formally include VPPAs as a type of contract that is permissible within the Indian OTC market. Accordingly, the revised listing of contractual categories in the OTC market now proposes to include (other than delivery-based energy contracts, as already applicable under the Principal Power Market Regulations), the following: (i) capacity contracts, (ii) RECs, (iii) contracts relating to VPPAs, (iv) battery energy storage system (BESS) contracts, (v) power banking, and (vi) any other contract approved by the CERC.
• Market Definition: The broader definition of a ‘market’ as contemplated under the Draft Power Market Amendment confirms the market’s role as a platform or place where buyers and sellers buy or sell electricity, RECs, ESCerts or any other CERC-approved product.
• Facilitation by OTC Platform: By defining an OTC platform as an electronic platform that facilitates informational exchanges between buyers and sellers for the purpose of enabling them to engage in various transactions, including with respect to a wider list of contracts – which includes VPPAs and RECs, the Draft Power Market Amendment seeks to integrate VPPAs meaningfully into the Indian power market.

Scheduling of OTC Contracts

The Draft Power Market Amendment proposes to deal with the scheduling of OTC contracts pursuant to the provisions of the Central Electricity Regulatory Commission (Connectivity and General Network Access to the inter-State Transmission System) Regulations, 2022 (“Connectivity and GNA Regulations”) and the Central Electricity Regulatory Commission (Indian Electricity Grid Code) Regulations, 2010 (“Grid Code”).

In terms of delivery procedure, the Draft Power Market Amendment substitutes the existing provision in the Principal Power Market Regulations related to the application for scheduling of contracts in the OTC market (at present, required to be made in accordance with regulations related to open access and grant of connectivity) with a revised clause – which states that such application for contract scheduling in the OTC market (which includes VPPAs), wherever applicable, must be made in accordance with the Connectivity and GNA Regulations and the Grid Code.

After being notified on June 7, 2022, the Connectivity and GNA Regulations were amended by the CERC twice, in 2023 and 2024, respectively. However, since the Connectivity and GNA Regulations entered into force after the notification of the Principal Power Market Regulations, the Draft Power Market Amendment seeks to make appropriate changes to the Principal Power Market Regulations, as necessary, including by substituting existing references to the Central Electricity Regulatory Commission (Open Access in inter-State Transmission) Regulations, 2008 (i.e., ‘open access regulations’) with the Connectivity and GNA Regulations.

Further, since the Central Electricity Regulatory Commission (Grant of Connectivity, Long-term Access, and Medium-term Open Access in inter-State Transmission and related matters) Regulations, 2009 (“Grant of Connectivity Regulations”) have been subsumed under the Connectivity and GNA Regulations, the Draft Power Market Amendment proposes to delete the reference to such Grant of Connectivity Regulations from the Principal Power Market Regulations.

OTC Platforms

In addition to the existing objectives of OTC platforms under the Principal Power Market Regulations, the Draft Power Market Amendment introduces an additional objective with respect to facilitating transactions between buyers and sellers. Accordingly, OTC platforms may now be obliged to facilitate the engagement of buyers and sellers in respect of transactions related to all such contracts in the OTC market as expanded upon under the Draft Power Market Amendment.

In terms of price discovery, since the proposed scope of activities on OTC platforms requires certain changes with respect to pricing and other contractual terms in the OTC market, the Draft Power Market Amendment specifies that the price and other terms of contract in the OTC market will be determined in either of the following ways:

1. through a mutual and direct agreement between the buyer and the seller
2. through a trading licensee
3. on an OTC platform
4. pursuant to a competitive bidding process, or
5. as determined by the appropriate electricity regulatory commission (including State Electricity Regulatory Commissions (“SERCs”)).

In light of the expanded scope of activities on OTC platforms, the Draft Power Market Amendment aims to impose a higher minimum net worth (“MNW”) requirement for granting registration as OTC platform operators to applicant entities. Accordingly, such MNW has now been revised upwards, from INR 10 million to INR 350 million, as on any date falling within a period of 30 days immediately preceding the date of filing the application. Further, the Draft Power Market Amendment requires registered OTC platform operators to maintain such revised MNW at all times. Existing operators will be provided a relaxation of 12 months from the date of enforcement of the Draft Power Market Amendment to meet the higher MNW and must submit an audited special balance sheet to demonstrate their compliance with the revised requirement. Further, the Draft Power Market Amendment proposes to increase OTC platform operators’ initial registration period from five to 10 years (unless such registration is revoked or canceled earlier).

While the enhanced scope of activities for OTC platforms will enable them to facilitate transactions between buyers and the sellers, they will not be permitted to undertake any counterparty or credit risk arising out of such transactions. Accordingly, the Draft Power Market Amendment specifies that OTC platforms are required to facilitate the execution of all such contracts by and between buyers and the sellers as listed and expanded upon in the Draft Power Market Amendment (including in respect of VPPAs and RECs) without taking counterparty or credit risk on behalf of such buyers or sellers. At present, the corresponding provision in the Principal Power Market Regulations merely states that OTC platforms must not engage in the negotiation, execution, clearance or settlement of contracts.

In light of the expanded scope of activities now contemplated on OTC platforms, existing provisions in the Principal Power Market Regulations related to the CERC’s regulatory intervention and supervision, respectively, in respect of Power Exchanges, require appropriate changes to be made, including through the inclusion of OTC platforms within a wider regulatory ambit of the CERC.

Accordingly, in this regard, the Draft Power Market Amendment proposes as follows:

Oversight Authority

1. With respect to market oversight, the CERC retains its authority to order an inquiry or investigation (“Oversight Authority”) in accordance with the provisions of the Electricity Act after being satisfied that any of such circumstances as specified in the Principal Power Market Regulations exist – including on account of non-compliance of statutory obligations by market participants or stemming from their involvement in prohibited activities such as market manipulation, cartelization, insider trading, abuse of dominant position and others. However, pursuant to the Draft Power Market Amendment, after receiving any information or a report under its Oversight Authority, the CERC may now direct both OTC platforms and Power Exchanges by issuing an order to cancel the membership of such member, after giving an opportunity to the concerned market participant to make a representation in connection with the report, and after considering such representation, if made.

Inspection Authority

1. Similarly, in terms of inspection powers, while the CERC retains its authority to undertake inspections, conduct inquiries, or audit either through its officers or a third-party agency at any time (“Inspection Authority”) in accordance with the provisions of the Electricity Act, the Draft Power Market Amendment extends such powers as provided under the Principal Power Market Regulations to include both OTC platforms and Power Exchanges within the scope of the CERC’s Inspection Authority. Further, when the CERC exercises such powers over an OTC platform under its expanded Inspection Authority, the concerned OTC platform, as well as each of its directors, managers, officers, and employees, must cooperate for such inspection, inquiries, or audit.

Implementation, Settlement and Future Guidelines

The structure of VPPAs is set to be formalized and progressively updated, as necessary, pursuant to official guidance from the CERC, including pursuant to future guidelines notified by the CERC in this regard.

At present,in terms of settlement conditions, the Principal Power Market Regulations specify that the settlement of contracts, as transacted in the OTC market, is required to be done only through the physical delivery of electricity. However, the Draft Power Market Amendment proposes to replace such provision in the Principal Power Market Regulations with a new one which explicitly states that the implementation arrangement and terms of contract of VPPAs will be in accordance with guidelines as may be notified by the CERC.

REC Transactions Under VPPAs

The Draft REC Amendment proposes to add a new provision in the Principal REC Regulations with respect to the treatment of RECs under the contractual scheme of VPPAs, where such RECs are issued by the National Load Dispatch Center (“NLDC” or “Central Agency”) in accordance with the Principal REC Regulations (such NLDC-issued RECs, “Statutory RECs”). This new provision, which, irrespective of anything (else/ contrary) contained in the Principal REC Regulations, as amended, aims to govern all Statutory REC issuances to eligible generating stations which enter into VPPAs, specifies as below:

• Statutory RECs issued to the RE generating station will stand transferred to the consumer or the designated consumer with whom such generating station has entered into a VPPA.
• The consumer/ designated consumer under a VPPA will be eligible to meet its (i) renewable purchase obligation (“RPO”) (i.e., the requirement for an entity to purchase power from RE sources, as specified by SERCs under Section 86(1)(e) of the Electricity Act) or (ii) RCO, as applicable, by way of Statutory RECs.
• Once transferred to the consumer/ designated consumer, Statutory RECs will stand extinguished. However, the certificates to the credit of the consumer/ designated consumer over and above the RPO or RCO can be carried forward for compliance in future years. Nonetheless, such certificates will not be available for sale in Power Exchanges or through traders.
• An eligible generating station must inform the Central Agency about the project that has entered into a VPPA.
• The Central Agency will extinguish Statutory RECs after such certificates are used for compliance by consumers/ designated consumers towards their RPO or RCO, and the NLDC will update its record to reflect the extinguishment of such certificates accordingly.

Conclusion

On account of India’s ambitious climate targets, innovative contractual arrangements involving RE are likely to prove useful, including for the purpose of scaling up RE procurement through increased private sector participation. In this regard, by entering into a VPPA, companies can use their purchasing power to add new RE generation capacity (but without receiving the actual electricity generated). Such RE can then be sold into the national grid, and companies can be credited for the power contracted through a VPPA, thereby allowing them to offset their energy consumption and greenhouse gas emissions. Accordingly, a VPPA is an effective tool for companies to decarbonize their energy consumption while supporting the development of RE projects.

Despite decreasing RE costs in India, RE consumers face procurement-related issues due to intermittency, seasonality, and the unreliability of solar and wind energy, coupled with limitations in storage capacity. A VPPA can insulate power users from long-term risks associated with changing electricity costs and unpredictable geopolitical, and geographic trends. In addition, RECs can allow obligated entities to meet their RCO targets without relying on actual RE procurement which may suffer from practical challenges. Given the importance of VPPAs for the purpose of supporting India’s climate goals, the Draft Amendments are likely a step in the right direction.

However, as on date, it appears that apart from Statutory RECs, no other environmental/ energy attribute certificates (“EACs”) may be transferred through a VPPA in India. This limitation is likely to compromise the commercial viability of bespoke contractual arrangements possible through a VPPA.

Further, the Statutory RECs underlying a VPPA cannot be traded. Accordingly, such RECs would necessarily have to be utilized for meeting the consumer’s/ designated consumer’s RCO targets. This may restrict such consumers from entering into VPPAs for capacities not supported by Statutory RECs – which, in turn, may be detrimental to the development of RE projects.

In addition, buyers under VPPAs are required to be either consumers or designated consumers. This requirement, along with the obligation to mandatorily transfer Statutory RECs, would narrow the potential pool of buyers who can enter into VPPAs in India. If EACs were permitted to be transferred (in addition to Statutory RECs), and the buyers were not restricted as currently contemplated, foreign entities would be able to enter into VPPAs and acquire EACs for their own compliance requirements, environmental, social, and governance (ESG)-driven incentives, and/or investor/ stakeholder/ reputational/ branding reasons. This possibility would make more funding available to Indian RE generators and might lead to increased RE capacity-addition in the country.

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.