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CERC Notifies Rules for Virtual PPAs to Enable Renewable Consumption Compliance

The Central Electricity Regulatory Commission (CERC) has released a comprehensive regulatory framework governing Virtual Power Purchase Agreements (VPPAs), formalising the use of over-the-counter bilateral contracts as a compliance mechanism for Renewable Consumption Obligation (RCO) requirements.

In its order, the Commission classified VPPAs as Non-Transferable Specific Delivery (NTSD) bilateral contracts falling under CERC’s regulatory jurisdiction, following an earlier clarification issued by the Securities and Exchange Board of India (SEBI).

CERC observed that VPPAs are increasingly being adopted globally as an alternative procurement instrument, allowing large electricity consumers—including distribution companies, open-access users, and captive power consumers—to complement physical renewable power procurement while meeting statutory clean-energy obligations.

The issuance of the guidelines follows a request from the Ministry of Power to establish a structured regulatory pathway for recognising VPPAs as a valid tool for RCO compliance.

Under the notified framework, a VPPA is defined as a non-tradable and non-transferable bilateral OTC contract between a renewable energy generating station (REGS) and a consumer or designated consumer. Through the agreement, the buyer commits to a pre-determined VPPA strike price for the contract tenure, providing revenue certainty to the generator.

Electricity generated by the REGS under a VPPA will be sold through power exchanges or other authorised channels for purposes other than RPO or RCO compliance. Any difference between the agreed strike price and the market settlement price will be settled bilaterally between the contracting parties in line with mutually agreed terms.

A central element of the framework is the treatment of Renewable Energy Certificates (RECs). RECs issued against the VPPA-contracted capacity will be transferred to the buyer for RPO or RCO compliance. These certificates will be non-tradable and extinguished upon utilisation, though excess RECs may be carried forward to subsequent compliance years.

The framework mandates a minimum VPPA tenure of one year, with both parties bound by the contract for its full duration. Renewable generators participating in VPPAs must be registered under the CERC Renewable Energy Certificate Regulations, 2022, and are required to submit an undertaking to the REC Registry to prevent double counting of contracted capacity.

Any disputes arising from VPPA arrangements are to be resolved mutually in accordance with the contractual provisions agreed between the parties.

CERC stated that the framework aims to broaden the compliance options available to obligated entities, while ensuring regulatory oversight, transparency, and integrity in VPPA-linked REC transactions. The guidelines will come into force from a date to be notified separately and may be reviewed periodically.