CERC VPPA Guidelines: How Virtual PPAs Now Work for Indian C&I Buyers

On 24 December 2025, CERC issued the Guidelines for Virtual Power Purchase Agreements (VPPAs), establishing for the first time in India a formal regulatory framework for financial contracts that procure renewable energy without physical delivery. For C&I buyers — particularly large corporates with multi-location operations, designated consumers under the Energy Conservation Act, and companies driven by global net-zero commitments — VPPAs now sit as a real, regulated procurement option alongside physical PPAs and REC purchases.

Pairing with the CERC REC (First Amendment) Regulations 2026 notified in March 2026, the VPPA Guidelines complete the regulatory architecture: physical delivery PPAs at one end, generic REC purchases at the other, and VPPAs as a financial-only middle path with clean REC attribution.

What is a VPPA

A VPPA is a purely financial contract between a renewable energy generator and a consumer. Unlike a physical PPA, the consumer does not actually receive the electricity. Instead:

• The generator continues to sell its physical output to the wholesale market or another offtaker
• The consumer continues to buy its physical power from its existing supplier (grid, DISCOM, or other PPA)
• The VPPA settles the difference between a contracted "strike price" and the actual market price — typically the wholesale exchange price for the relevant time block
• The RECs from the generator's output are transferred to the consumer, enabling RCO/RPO compliance

The economic effect is that the consumer locks in a long-term price for a notional volume of renewable energy, hedges against price volatility, and claims the green attribute — all without changing its physical electricity supply or paying transmission and wheeling charges on the contracted MWh.

The VPPA structure under the Guidelines

The CERC Guidelines establish VPPAs with specific structural features:

• Non-Transferable Specific Delivery (NTSD) over-the-counter contracts — they sit outside the exchange-traded derivative regime
• Bilateral arrangement between the renewable energy generating station and the consumer (or designated consumer under the Energy Conservation Act)
• Minimum duration of one year — VPPAs are positioned as long-term hedging instruments, not short-term trading products
• CERC regulatory oversight — subject to SEBI's jurisdictional clarity where relevant
• Effective from a date to be separately notified by CERC — the framework is established, but operational rollout follows separate notification

How financial settlement works

The financial mechanics of a VPPA work in three steps each settlement period:

1. Strike price is agreed bilaterally at contract inception (₹/kWh)
2. Reference market price is observed each settlement period — typically the time-block weighted-average price on the relevant power exchange (DAM)
3. Net difference is settled financially:
   • If market price > strike price: generator pays the consumer the difference × contracted volume
   • If market price < strike price: consumer pays the generator the difference × contracted volume

The consumer's net cost of renewable procurement is therefore approximately the strike price, regardless of how the market moves. The generator's revenue is similarly stabilised at the strike price plus the value of any direct physical sales. Both sides are hedged.

REC attribution and RCO compliance

This is where the VPPA Guidelines and the March 2026 REC Amendment regulations dovetail. Under Regulation 14A of the amended REC framework:

• RECs issued against the VPPA-contracted renewable energy generation are transferred to the consumer (or designated consumer)
• The consumer can use these RECs to meet RCO or RPO requirements
• Once used for compliance, the RECs are extinguished — preventing any double-counting
• Surplus RECs may be carried forward but cannot be traded on power exchanges or through traders
• Generators must report VPPA-linked projects to the central agency for compliance tracking

This closes the previous regulatory gap: under earlier rules, the green attribute of VPPA-contracted RE was ambiguous. Now it's clean — the RECs follow the contract, are reserved for the consumer, and are extinguished on use.

VPPA vs physical PPA — when does each make sense?

The choice is not either/or. Many large corporates run hybrid strategies — physical PPAs from on-site or nearby renewable assets for their main loads, supplemented by VPPAs for dispersed operations or as a portfolio hedge.

Practical guidance for C&I buyers

For C&I buyers evaluating whether to add VPPAs to their procurement toolkit, five practical points:

1. Map your load geography first. If your operations are concentrated in one or two locations, a physical PPA or captive structure may deliver lower landed cost. If your load is dispersed across multiple states or sites, the VPPA's location-agnostic structure becomes valuable.
2. Don't treat VPPAs as captive substitutes. Captive structures save you the Cross-Subsidy Surcharge and Additional Surcharge — typically ₹2-3/unit. A VPPA doesn't. If your goal is the lowest landed cost on a specific load, captive remains the benchmark.
3. VPPAs shine for RCO compliance + price hedging. Designated consumers under the Energy Conservation Act with mandatory RCO compliance, where the goal is clean RECs + a long-term financial hedge against power-price volatility, are the natural fit.
4. Negotiate the strike price carefully. The strike price is the long-term cost anchor for the entire contract. Build sensitivity analysis around expected market prices, especially as market coupling rolls out and exchange prices behave differently. A strike price that looks attractive against today's market may look expensive if coupled-market prices compress in 2027-28.
5. Wait for the operational notification. The Guidelines establish the framework, but they come into effect from a date to be separately notified by CERC. Some operational details — settlement mechanics, dispute resolution, reporting requirements — will be clarified at that stage. Engaging with generators on VPPA terms now is sensible; signing contracts before the notification carries some structural risk.

VPPAs have been a mainstay of corporate renewable procurement in mature markets for over a decade — Google, Amazon, Walmart, and Microsoft have together signed VPPAs covering tens of gigawatts globally. India's adoption has been slower, partly because the regulatory status was unclear. The December 2025 Guidelines and the March 2026 REC Amendment together fix that. For Indian C&I buyers with the right load profile and compliance drivers, VPPAs are now a credible, regulated, third leg of the renewable procurement stool.