From Policy Concept to Market Instrument: The Regulatory Framework for Virtual PPAs in India
Introduction
India’s move towards a clean energy future has resulted in the development of innovative market instruments that will help facilitate the growth of renewable energy while meeting obligations imposed on obligated entities. To this end, the Central Electricity Regulatory Commission (CERC) has proposed regulatory amendments to the Indian power market that will formally incorporate VPPAs (Virtual Power Purchase Agreement) into the market. The amendments are known as the “Draft Amendments” and will provide clarity regarding the legal status of VPPAs, where they will be traded in the OTC (Over-the-Counter) power market and the regulatory frameworks which will govern the OTC power market and REC (Renewable Energy Certificate) trading.
Table of Contents
Regulatory Developments
The draft guidelines for VPPAs were released by CERC on May 22, 20251, and were made available for stakeholder input until June 20, 2025, with a subsequent extension of the deadline to July 11, 2025. These draft guidelines are intended to provide stakeholders with the opportunity to comment on the proposed regulatory framework for VPPAs, which are a new product in the Indian electricity market.
On June 17, 2025, CERC published a draft of the first amendment to the Central Electricity Regulatory Commission (Power Market) (First Amendment) Regulations, 2025, requesting comments from stakeholders with an initial deadline of July 14 and a second deadline of August 18, 2025, and requesting comments concerning both regulatory drafts that have recently been established after the publication of the Central Electricity Regulatory Commission (Power Market) Regulations, 2021 and the Draft VPPA Guidelines. The public hearing on the Draft VPPA Guidelines and the Draft Power Market Amendment was held on August 18, 2025. On September 22, 2025, CERC published the Draft of the Central Electricity Regulatory Commission (Terms and Conditions for Renewable Energy Certificates for Renewable Energy Generation) (First Amendment) Regulations, 2025 for which the amendments are intended to modify the existing regulations regarding REC’s under the Renewable Energy Certificate Roadmap for Renewable Energy Generation (RCO) compliance.
The Indian government has set a renewable energy target of 500 GW of renewable energy by 2030, to improve the overall security of electricity supply and fulfil commitments to reduce climate change through renewable energy. To meet these objectives, a minimum Renewable Consumption Obligation has been implemented for different groups of end users, including distribution licensees, open access consumers, and captive customers. A designated consumer may satisfy their obligation to increase their usage of renewable energy by consuming renewable energy directly or by purchasing Renewable Energy Certificates.
After reviewing international best practices, the CERC has determined that virtual power purchase agreements (“VPPAs”) provide an option for designated consumers to meet their Renewable Consumption Obligation (“RCO”) targets. Due to the innovative structure of VPPAs, the CERC sought a definition of their regulatory status from the Securities and Exchange Board of India (“SEBI”). On January 31, 2025, SEBI characterized VPPAs as bilateral, non-tradable, and non-transferable over-the-counter contracts. Additionally, SEBI stated that in the event that a VPPA qualifies as a non-transferable specific delivery contract under the Securities Contracts (Regulation) Act of 1956, then the regulatory authority for these types of contracts would rest with the CERC under its jurisdiction.
As a result of SEBI’s opinion, on March 3, 2025, the Ministry of Power requested the CERC to create rules to regulate VPPAs in accordance with the format of an over-the-counter contract. This initiated the drafting of the proposed VPPA Guidelines, as well as proposed amendments.
Draft Amendment to the Electricity Market Regulations – Overview of Key Features
The proposed amendment to the Electricity Market Regulations is intended to integrate Virtual Power Purchase Agreements (VPPAs) into the Indian electricity market.2 The proposed amendment will define VPPAs, recognize VPPAs as an instrument of the electricity market and incorporate them into the framework governing Over-The-Counter (OTC) transactions.
VPPAs are defined as a non-transferable OTC contract based on specific delivery, as per the SEBI’s interpretation of OTC contracts. Furthermore, the proposed amendment broadens and redefines Critical Terms like “market;” “OTC Market;” “OTC platform;” and “member of an OTC platform” to allow for a larger number of transactions to take place via OTC platforms. It is expected that OTC platforms will facilitate the execution of new forms of OTC contracts, including VPPAs and Renewable Energy Certificates (RECs), through online communication and transparency.
In addition to expanding and redefining OTC contracts, the proposed amendment to the Electricity Market Regulations will also expand the types of OTC contracts that can be executed through the OTC market to include, but not be limited to, VPPAs, RECs, capacity contracts, battery energy storage systems, and power banking agreements. In addition, the proposed amendment requires that the structure and implementation of VPPAs comply with guidelines issued by the Central Electricity Regulatory Commission (CERC).
Renewable Power Purchase Agreements are structured in a way that allows for a relationship between an end-user of electricity or a third-party buyer and a renewable energy producer. The third-party buyer can be defined under the Energy Conservation Act of 2001. The end-user/buyer will pay an agreed-upon VPPA price for the entire duration of the contract.3
The renewable energy producer is required to supply the electricity generated to the Power Exchanges and/or to other methods as authorized by the Electricity Act of 2003. A VPPA is essentially a financial agreement between two entities and is settled bilaterally. The difference between the VPPA price and the current market price settled periodically based on the difference between the strike price and reference market price. The VPPA price is established by mutual agreement between the two entities, through a trader, and/or is listed on an Over-the-Counter platform.
VPPAs have been formally recognized in the Draft Power Market Amendment as valid “over the counter” contracts, which allow for their inclusion in the larger Electricity Marketplace. The definition of “market” has been changed to include platforms where electricity, RECs, and other types of Energy Saving Certificates that are approved by the Central Electricity Regulatory Commission can be traded
In the area of scheduling, the Draft Power Market Amendment aligns OTC contracts (including VPPA) with the Central Electricity Regulatory Commission (Connectivity and General Network Access to the Inter-State Transmission System) Regulations, 2022 and the Indian Electricity Grid Code, 2023 by replacing or deleting the existing references to the previous open access and connectivity regulation with appropriate provisions in line with the new regulatory framework.
OTC Platforms and Regulatory Oversight
OTC platform regulation will now allow for the facilitation of transactions between buyers and sellers of all OTC contracts, as well as their creation based on the mutual agreement, competitive bidding, or at the direction of the Regulatory Authority. OTC platform operators will be required to maintain minimum net worths of Rs.350 million (from Rs.10 million).
OTC platform registration periods will extend to ten years from five years. Although OTC platforms provide a means for buyers and sellers of OTC contracts to conduct transactions, they remain prohibited from assuming Counterparty credit risk.
CERC will also expand its oversight and inspection activities to include OTC platforms, allowing CERC to intervene in the case of non-compliance, market manipulation, etc., of OTC platforms.
REC Transactions under VPPAs
In addition to these regulations, the Draft REC Amendment introduces regulations related to Statutory RECs created by RE generating stations engaged in VPPA transactions. Statutory RECs generated in this manner are automatically transferred to the consumer (or designated consumer) through the VPPA and can be used to satisfy Renewable Purchase Obligations and Renewable Consumption Obligations.. Once used, these RECs are extinguished, although surplus certificates may be carried forward for future compliance. Importantly, such RECs are not permitted to be traded.
Conclusion
This conclusion summarizes the Draft Amendment as being a systematic approach for incorporating Virtual Power Purchase Agreements (VPPAs) into the Indian power market, supporting the extension of renewable energy and ensuring compliance with mandated obligations under the Renewable Energy Certificate (REC).
Draft Amendments clarify and recognise VPPAs as a new purchasing tool by standardising how VPPAs will operate within the context of contract, market setting and settlement processes.
The Draft Amendments provide a framework within which certain established guidelines will govern the use of VPPAs, but there are still limitations regarding both the transferability and tradability of environmental attribute certificates, as well as the narrow eligibility criteria for buyers. This could impact the ability of a company to utilize these VPPAs on a larger scale. However, given India’s goal of achieving climate and renewable energy commitments, the Draft Amendments will enhance private sector participation in renewable energy projects.
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