Green Futures: Maximizing Virtual Power Deals in India

[By Ankur Singh]

The author is a student of National Law University, Odisha.



This article delves into the impact of Virtual Power Purchase Agreements (VPPAs) on the adoption of Renewable Energy (RE) and the dynamics of the Indian market. With a growing global emphasis on reducing carbon emissions and transitioning to renewable energy sources, the demand for RE is on the rise. VPPAs play a crucial role in facilitating energy transactions between producers and consumers, primarily businesses, without the need for actual electricity transmission. Unlike traditional contracts, VPPAs establish fixed prices, offering stability amidst market fluctuations. Oversight of VPPAs falls under the purview of both the Central Electricity Regulatory Commission (CERC) and the Securities and Exchange Board of India (SEBI). However, India’s VPPA regulatory framework faces several challenges. 

This article explores key questions surrounding VPPAs, including the collaboration between SEBI and CERC, the issuance of Renewable Energy Certificates (RECs), and the arbitration of disputes arising from RE-related transactions. It suggests strategic enhancements to regulatory frameworks, advocates for the streamlining of International Renewable Energy Certificate (I-REC) registration procedures, and proposes the integration of VPPA mechanisms under CERC authority with SEBI supervision. By addressing these issues, the article aims to advance international environmental objectives while improving the efficiency and competitiveness of India’s renewable energy sector. It particularly underscores the uncertainty surrounding regulatory jurisdiction between SEBI and CERC, providing insights into financial and physical aspects of VPPA collaboration, REC issuance protocols, and dispute resolution mechanisms. The article seeks to delineate collaboration between SEBI and CERC in VPPAs, encompassing both financial and physical dimensions, and addressing REC issuance processes and dispute resolution mechanisms for RE-related transactions involving both entities. 

The Role of Virtual Power Purchase Agreements in Renewable Energy Adoption and Market Dynamics 

The importance of renewable energy versus non-renewable sources is highlighted by rising energy demand and the need to reduce carbon emissions. On the other hand, switching to RE presents difficulties. The emphasis on environmental issues around the world forces nations to lower their carbon footprint, and one simple and efficient way to do this is through the use of renewable electricity. VPPAs facilitate the switch from conventional fossil fuels to renewable energy sources more quickly, despite certain obstacles. 

A Virtual Power Purchase Agreement is a type of contract in which a generator and a client exchange energy. In essence, it’s a contract in which one party sells electricity to another together with RECs. A Commercial & Industrial (C&I) company interacts with the “seller,” usually the developer or project owner, in a VPPA arrangement, acting as the “buyer” or “off-taker.” PPAs for C&I renewable energy can be classified as either physical or financial, with the latter being referred to as “virtual.” VPPAs do not involve direct energy transfer, in contrast to physical PPAs. Rather, a predetermined price known as the strike price is agreed upon by the client and the electrical provider. The VPPA offers revenue certainty by insuring the power plant against market price fluctuations. If the market price exceeds the strike price, the generator compensates the off-taker for any negative surplus, and vice versa if the strike price surpasses the market price. Crucially, a VPPA doesn’t alter the buyer’s relationship with its utility at the retail level. It’s purely a financial arrangement, with the buyer still fulfilling its electricity load through standard methods. In the energy market, the generator sells brown power which is the energy produced by the fossil fuel industry, and the customer can choose to buy the energy either from the generator or another party in a separate transaction. 

Instead of providing actual electricity, the generator offers Renewable Energy Certificates (RECs) to customers as evidence of the extra energy produced. This energy industry mechanism seeks to promote the usage of renewable energy sources. Electricity and renewable energy assurance are purchased independently in REC transactions; this is referred to as the “Unbundled Approach.” Under Virtual Power Purchase Agreements (VPPAs), consumers purchase renewable energy certificates (RECs) from renewable energy generators while continuing to get conventional electricity from utility providers. Although the Central Electricity Regulatory Commission (CERC) historically set floor and forbearance prices to safeguard stakeholders’ interests, the market ultimately determines the price of renewable energy certificates. On September 29, 2021, the Ministry of Power (MoP) declared, however, that floor and forbearance limits would no longer apply to REC pricing, which would now be exclusively based on market price. There is now a great deal more VPPAs in India than ever before. Cleantech Solar just signed one, promising to produce 187 GWh of green energy over the course of the project. With this capability, more than 171 kilotons of carbon emissions may be offset. These initiatives help India reach its targets of producing 500 GW of renewable energy by 2030 and reaching net-zero emissions by 2070. 

Jurisdictional Ambiguities and Unresolved Issues in the Regulation of Virtual Power Purchase Agreements (VPPAs) in India 

The conflict over the jurisdiction concerning the physical and financial contracts between the SEBI and CERC has been a long-term issue and was first dealt with in the Multi Commodity Exchange of India Limited & Another v. Central Electricity Regulatory Commission & Ors., 2010, where  SEBI argued that it had the jurisdiction over forward and the future contracts of all types and thus it should have the jurisdiction over the contracts. Furthermore, they maintained that the forward and future contracts were not even alluded to in the Electricity Act of 2003. The argument suggested that only contracts with immediate delivery fell under the purview of CERC because forward and future contracts were exclusively pecuniary in character. It recommended that the relevant government regulate contracts that are solely financial in nature. 

On the other hand, CERC contended that the Electricity Act sought to combine the laws that oversee the generation, transmission, distribution, trade, and use of electricity. As a result, CERC affirmed its right to pass laws promoting the expansion of the energy sector, including trade. Through a combined interpretation of Sections 66 and 178(2)(y) of the Electricity Act, CERC argued that trading included all associated activities, such as forward and futures trading in electricity. The court in an ambiguous judgement held that, 

Both the regulatory authorities are functioning under different statutes and, therefore, neither of them can be said to be subject to the jurisdiction of other 

The court eventually held in the Power Exchange of India v. Securities and Exchange Board of India, 2021 that SEBI will deal with the financial and derivative aspects of electricity whereas CERC will deal with the physical delivery based forward contracts. Nevertheless, despite this decision, there remains uncertainty regarding the specific jurisdictional authority governing Virtual Power Purchase Agreements (VPPAs), leading to several unresolved issues: 

  • In cases where VPPAs involve both financial and physical aspects, the collaboration between SEBI and CERC remains unclear. 
  • The exact process for issuing Renewable Energy Certificates (RECs) and the global usage policy for these certificates is not clearly defined. 
  • If disputes arise from financial or physical transactions related to Renewable Energy (RE), the way arbitration would be conducted remains uncertain, taking into consideration the interests of both SEBI and CERC. 


A VPPA is a customizable Over-the-Counter (OTC) transaction exempt from the Securities Contracts Regulation Act, 1956, per Section 18. OTC derivatives, such as forward contracts and swaps, fall under the VPPA category and are not regulated by the SCRA. Instead, they are governed by Section 45V of the RBI Act, 1934. However, a challenge arises as VPPAs do not require an agency, scheduled bank, or bank to be one of the parties, contrary to the RBI Act’s stipulation. Addressing this, Regulation 43 of the CERC Market Regulations 2021 aims to permit generating companies and open access consumers to be participants in the OTC platform. Nevertheless, Regulation 7 mandates physical electricity delivery, creating a hurdle for CERC oversight. To resolve this, a proposed amendment to include RECs in the definition of “Physical Delivery of Electricity” would align with the regulation’s goals of meeting energy purchase requirements and promoting renewable energy use through VPPAs. 


In conclusion, the seamless integration of VPPAs in India necessitates a strategic approach addressing regulatory, procedural, and alignment with international standards. To enhance regulatory compliance, it is recommended to place the VPPA mechanism be placed under the jurisdiction of the CERC, with oversight from the SEBI to ensure financial checks and balances. Establishing a comprehensive framework for adoption, including a single-window clearance system, would streamline the process for commercial and industrial consumers. Moreover, the creation of a standardized Power Purchase Agreement document would mitigate risks and conflicts, minimizing the need for regulatory interventions. Finally, facilitating the registration of   VPPA projects under the International Renewable Energy Certificate (I-REC) system in Asia, Africa, and Latin America and has even reported reduced greenhouse gas emissions, and is a worldwide standard as an acknowledged reporting instrument, would not only enable multinational corporations to benefit from cross-border certificate utilization but also position India to capitalize on the burgeoning international market demand. Implementing these suggestions would contribute to a more efficient and globally competitive VPPA landscape in the Indian energy sector. 


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