India Proposes Virtual Power Purchase Agreements to Boost Renewable Energy Trade
India’s power market regulator, the Central Electricity Regulatory Commission (CERC), has proposed a significant amendment to its electricity trading rules, as reported by Reuters. The draft regulations, set to be incorporated into the Power Market Regulations of 2025, aim to introduce Virtual Power Purchase Agreements (VPPAs) as a new financial instrument.
The use of VPPAs will assist consumers, particularly bulk buyers, in fulfilling renewable energy commitments by hedging power in the open market.
What are Virtual Power Purchase Agreements?
A VPPA is a financial contract between a consumer and a renewable energy generator. Under this agreement, the consumer and generator agree to a fixed price for renewable electricity, but the electricity itself is sold in the open market.
The financial settlement occurs based on the difference between the agreed VPPA price and the actual market price of the electricity. This structure allows large consumers to fulfill their renewable energy consumption targets without having to physically take delivery of the electricity.
The key advantage of VPPAs is that they offer a more flexible way for consumers to meet their renewable energy commitments without the logistical constraints of direct power delivery. The proposal is expected to enhance the scope of renewable energy trading in India, particularly for consumers who aim to meet environmental goals while minimizing their operational complexities.
While VPPAs are seen as a step toward integrating renewables into energy trading, analysts like Ember warn they risk becoming a compliance tool, allowing companies to claim 100% renewable use without real market impact, potentially weakening true sustainability efforts.
Supporting Infrastructure for VPPAs
According to Reuters, in addition to the VPPA proposal, the draft regulations also outline the establishment of power derivative contracts by Indian exchanges, including the National Stock Exchange (NSE) and the Multi Commodity Exchange of India (MCX). These new products will provide additional tools for trading renewable energy and managing risks associated with price volatility.
The draft rules also suggest increasing the role of CERC, such as increasing its powers of inspection and auditing power exchanges and over-the-counter (OTC) platforms to ensure improved supervision and transparency in the changing power market.
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Reuters reports that CERC has invited public comments on the draft proposal until July 14, 2025, before finalizing the regulations. The feedback received will be crucial in refining the VPPA framework and ensuring that it meets the needs of both consumers and renewable energy producers, while fostering growth in India’s renewable energy sector.
