The Central Electricity Regulatory Commission has issued detailed guidelines for Virtual Power Purchase Agreements, creating a structured regulatory framework for these over-the-counter renewable energy contracts to help designated consumers meet their Renewable Consumption Obligation targets.

Under the guidelines, VPPAs are classified as non-transferable specific delivery bilateral contracts within CERC’s jurisdiction, following a clarification issued earlier this year by the Securities and Exchange Board of India. The Commission noted that VPPAs have emerged globally as an innovative mechanism allowing large energy consumers, including distribution licensees, open-access users and captive consumers, to supplement physical procurement of renewable power with contract-based instruments aligned with compliance requirements.

The guidelines follow a request from the Ministry of Power to develop a suitable regulatory framework to enable RCO compliance through VPPAs. As per the framework, a VPPA is defined as a non-tradable, non-transferable bilateral OTC contract between a renewable energy generating station and a consumer or designated consumer. Under such an agreement, the buyer guarantees payment of a mutually agreed VPPA strike price for the duration of the contract.

The renewable energy generating station will sell the electricity produced through power exchanges or other authorised modes for purposes other than RPO or RCO compliance. The difference between the VPPA strike price and the settlement price will be settled bilaterally between the contracting parties in line with mutually agreed terms and conditions.

A key feature of the mechanism is that Renewable Energy Certificates issued against the contracted capacity will be transferred to the consumer or designated consumer for RPO or RCO compliance. These certificates will not be tradable and will be extinguished upon use, although surplus certificates may be carried forward for future compliance years. The VPPA must have a minimum tenure of one year, and the contracting parties will remain bound by the agreement for its entire duration.

The guidelines also stipulate that renewable energy generating stations participating in VPPAs must be registered in accordance with the Central Electricity Regulatory Commission (Terms and Conditions for Renewable Energy Certificates for Renewable Energy Generation) Regulations, 2022. In addition, generating stations must submit an undertaking to the REC Registry for the capacity contracted under a VPPA to prevent double counting of the same capacity.

Any disputes arising from VPPA contracts are to be resolved mutually by the contracting parties in accordance with the terms of the agreement, the Commission said.