CERC Proposes Draft Guidelines For Virtual Power Purchase Agreements To Boost Renewable Energy Compliance

The Central Electricity Regulatory Commission (CERC) has released draft guidelines for Virtual Power Purchase Agreements (VPPAs) to support India’s clean energy goals. India aims to achieve 500 GW of installed capacity from non-fossil fuel sources by 2030. To push for more renewable energy consumption, the government has already specified minimum required shares of non-fossil energy for various electricity consumers. These targets can be met by consuming renewable energy or using Renewable Energy Certificates (RECs). Failure to meet these targets results in penalties.

The new guidelines aim to provide another option for meeting these targets through VPPAs. A VPPA is a long-term contract between a consumer or a designated consumer and a renewable energy (RE) generator. In this agreement, the consumer guarantees payment at a mutually agreed price for electricity generated by the RE generator, even though the actual electricity is sold through a power exchange or any authorized mode. The key difference between the agreed VPPA price and the actual market price is settled between the two parties.

CERC clarified that VPPAs are not tradable or transferable and are treated as Over-the-counter (OTC) contracts. Based on feedback from the Securities and Exchange Board of India (SEBI), VPPAs fall outside the scope of securities regulations, and hence CERC is responsible for regulating them.

These guidelines apply to all parties entering into VPPAs and will take effect from the date of their publication in the official gazette. The structure of the VPPA ensures that RE generators can sell electricity in power markets while transferring the associated RECs to consumers. These RECs can be used for compliance with Renewable Energy Consumption Obligations (RCOs) but cannot be traded further.

The agreement can be entered into directly, through a trader, or listed on an OTC platform registered with CERC. The RE project involved must also be registered under the REC regulations. Once RECs are issued and transferred to the consumer, they must notify the REC Registry, which will then cancel the certificates to prevent resale.

Dispute resolution is left to the agreement between the contracting parties. All terms must be settled mutually, and the agreement remains binding for its full term. This mechanism allows consumers to meet their green energy obligations without physically receiving electricity from a specific renewable source.

These draft guidelines mark an important step in providing flexibility for businesses and regulated entities to participate in renewable energy adoption. It provides a way for them to claim the environmental attributes of green power without being tied to its physical delivery, thus enabling financial and environmental gains while ensuring compliance with regulatory obligations.