CERC’s Guidelines for VPPAs in India: Key takeaways for corporates and generators

Parties to a VPPA

Under the Guidelines, a VPPA would be treated as a “non-transferable specific delivery” (NTSD) contract. The contract would be entered into between:

• a “Consumer” under the Electricity Act, 2003 (which includes households, commercial users and any other entity that is connected to the grid) or a “Designated Consumer” under the Energy Conversation Act, 2001 (which would include energy intensive industries or other establishments that meet certain minimum energy consumption thresholds); and
• a renewable energy generating station or “REGS”, which is defined as such under the Central Electricity Regulatory Commission (Indian Electricity Grid Code) Regulations, 2023 and uses renewable source of energy for power generation.

Non-Transferable Specific Delivery (NTSD) contracts

A VPPA under the Guidelines would be entered into as a NTSD contract, which means that the VPPA must remain a contract between the original parties. A party cannot sell, assign or transfer any of its rights or obligations to any other person.

VPPAs would be “over-the-counter” or OTC contracts, which means that these would be entered into as private agreements outside a centralized exchange, either directly between the buyers and sellers described above or through trading licensees that are authorized by the CERC under the Central Electricity Regulatory Commission (Procedure, Terms and Conditions for Grant of Trading Licence and Other Related Matters) Regulations, 2020 to undertake inter-state trading of electricity.

Duration of VPPAs

A VPPA would be required to have a minimum term of 1 year under the Guidelines.

Supply of electricity

The Guidelines provide that the electricity generated by a REGS would be sold through any mode authorised under the Electricity Act, 2003, or the Central Electricity Regulatory Commission (Power Market) Regulations, 2021 for physical delivery. This would include sale through PPAs with distribution companies (DISCOMs) or trading licensees, open access supply, captive generation, as well as delivery under contracts on power exchanges.

VPPA Strike Price and Settlement Price

The Consumer or the Designated Consumer and the REGS can mutually agree on a strike price, i.e. the fixed price per MWh for the electricity produced by the renewable project.

If this strike price is more than the market price discovered in the power exchanges (or through any other mode authorised under the Electricity Act, 2003 or the Central Electricity Regulatory Commission (Power Market) Regulations, 2021 discussed above) for the sale of electricity for purposes other than for compliance with the obligation to purchase or consume renewable energy, then the Consumer or Designated Consumer would pay the difference to the REGS; and if the strike price is less than the market price then the REGS would pay the difference to the Consumer or Designated Consumer.

Renewable Energy Certificates (RECs)

The REGS capacity contracted through a VPPA would be eligible for issuance of RECs if it qualifies under the Central Electricity Regulatory Commission (Terms and Conditions for Renewable Energy Certificates for Renewable Energy Generation) Regulations, 2022.

The REGS would need to submit an undertaking for capacity contracted through a VPPA to the REC registry in India to avoid any double accounting of the REGS capacity. The RECs would be issued by the REGS to the Consumer or the Designated Consumer who shall be permitted to meet their regulatory obligations to purchase or consume renewable energy by way of such RECs (following which such RECs would be extinguished). The Consumer or Designated Consumer or REGS would need to communicate to the REC registry the receipt of RECs under the VPPA.

It is critical to note that RECs received by a Consumer or Designated Consumer under a VPPA are not eligible for trading. From a policy perspective, this would indicate that the introduction of VPPAs in India is only to meet renewable energy consumption obligations and not market arbitrage. This is also aligned with VPPAs themselves being non-tradable.

New reforms in relation to market price discovery

A key requirement for  VPPAs to develop is effective market price discovery. This is currently a challenge in India. India has three power exchanges — the Indian Energy Exchange, Power Exchange India Limited and Hindustan Power Exchange — which all operate under the Central Electricity Regulatory Commission (Power Market) Regulations, 2021. These regulations prescribe the mechanisms for price discovery. Depending on the market segment (e.g. day-ahead market, real time market, term-ahead market) and product type, different algorithms are used to determine market price. This means that each exchange determines its own market clearing price independently. 

The CERC has now proposed market coupling in the day-ahead market segments (with expansion to other market segments being assessed) across all power exchanges. This is expected to have a transparent, single market clearing price nationwide. Under this new regime,  buy and sell bids across the power exchanges will be pooled and run through a single algorithm by a market coupling operator. This new regime is expected to be implemented in early 2026.