VPPA Guidelines:Enabling Corporate Greening while Deferring Grid Reality

The CERC framework on Virtual Power Purchase Agreements (VPPAs) is an important step, but it is intentionally a modest one. Its main purpose is to create additional demand for renewable energy, rather than to change how the power system itself works. Seen as a whole, the Guidelines reflect a careful regulatory choice: to allow companies to buy renewable energy in a simple and secure way, without getting into the complexities of grid operation, electricity tariffs, or power market design.

At a conceptual level, the Guidelines correctly recognise that India’s next phase of variable renewable energy (VRE) growth cannot rest solely on DISCOMs, whose financial and contractual constraints increasingly limit their ability to absorb new capacity. By allowing Designated Consumers to meet Renewable Consumption Obligations (RCOs) through VPPAs, the framework expands the demand base for renewables beyond regulated procurement. This is a clear positive for VRE deployment. Corporates gain a relatively simple, non-physical route to long-term green procurement, while renewable generators gain an additional class of counterparties willing to provide price certainty through a contract-for-difference structure.

The legal clarity achieved through the Guidelines is itself a significant merit. By classifying VPPAs as non-transferable, non-tradable NTSD-based OTC contracts under CERC’s jurisdiction, the framework decisively resolves the earlier ambiguity around SEBI versus power-sector regulation. This jurisdictional certainty reduces legal risk for both developers and lenders and marginally improves the bankability of merchant and quasi-merchant renewable projects, especially wind and solar projects increasingly exposed to exchange price volatility. In that sense, VPPAs function as a financial stabiliser layered over India’s evolving short-term power markets.

However, the same features that make VPPAs attractive as a low-friction financial instrument also define their limitations. The Guidelines explicitly delink physical power from RPO/RCO compliance, relying entirely on the transfer and extinguishment of RECs. This design choice turns the VPPA into a hybrid instrument that is closer to a “REC plus price hedge” than to a true power procurement mechanism. The consumer’s green claim is completely detached from the time, location, and system value of generation. As a result, a unit of noon-time solar and a unit of evening wind are treated as economically and environmentally equivalent, despite their very different implications for grid stability and adequacy.

This neutrality may simplify compliance, but it weakens the framework’s relevance for India’s core VRE challenge: integration rather than addition. The Guidelines make no distinction between solar, wind, hybrid, or firm renewable supply, and they provide no incentive for pairing VRE with storage or other flexibility solutions. Consequently, they risk reinforcing the existing bias toward least-cost, energy-only solar capacity, even as the power system struggles with steep evening ramps, seasonal deficits, and rising balancing costs. In effect, the Guidelines promote renewable quantity while remaining largely silent on renewable quality.

Another structural vulnerability lies in the settlement mechanism. VPPA pay-outs are linked to exchange-discovered prices, yet India’s power exchanges remain thin, non-marginal, and increasingly shaped by administrative and behavioural factors rather than pure system economics. As VPPA volumes grow, this linkage risks converting what is intended as a hedging instrument into a quasi-financial bet on exchange price movements. The absence of exposure limits, reporting requirements, or prudential safeguards amplifies this risk, especially from the standpoint of consumer protection and systemic stability.

Equally important—but often overlooked—is the Commission’s decision to issue Guidelines rather than binding Regulations. This soft-law approach offers flexibility and speed, allowing the market to experiment with an unfamiliar contractual form without heavy compliance burdens. In the short run, this encourages early adoption and avoids stifling innovation. Yet for long-tenor renewable investments, the distinction matters. Guidelines lack the enforceability, standardisation, and jurisprudential weight of Regulations. Critical elements such as credit support, default treatment, termination payments, and change-in-law protections are left entirely to bilateral negotiation. This will likely produce bespoke contracts rather than a standardised, scalable VPPA market, favouring large corporates and developers while limiting broader participation.

The absence of a central VPPA registry further accentuates this softness. Apart from interactions with the REC Registry to prevent double counting, there is no requirement to register VPPAs with any central authority. While this preserves contractual privacy and reinforces the OTC nature of the instrument, it creates a transparency gap for regulators and system planners. Neither CERC nor grid operators will have visibility into the volume of renewable capacity tied up under VPPAs, the tenor and strike prices of such contracts, or the aggregate exposure of consumers and generators to market price volatility. As a result, VPPA-driven renewable capacity will remain largely invisible to transmission planning, resource adequacy assessments, and long-term power balance projections.

The cumulative effect is a growing disconnect between private renewable procurement and public system responsibility. VRE capacity supported by VPPAs does not reduce DISCOM procurement obligations, does not contribute to firm capacity planning, and does not provide any operational signal to the grid. Yet the variability and balancing costs associated with this capacity continue to be socialised through DISCOMs and system operators. Over time, this risks deepening the structural asymmetry in India’s power sector: private actors capture green attributes and financial hedges, while public institutions bear the physical and economic burden of integration.

In sum, the VPPA Guidelines are a pragmatic but partial reform. They will almost certainly accelerate headline VRE capacity addition by unlocking corporate demand and stabilising merchant revenues. At the same time, their guideline-based, registry-light, and technology-neutral design ensures that they remain largely peripheral to the central challenge of running a reliable, affordable, VRE-heavy power system. Unless complemented by firmer regulatory architecture—such as standardisation, disclosure, differentiated green attributes, or linkage with resource adequacy frameworks—VPPAs risk becoming a parallel financial layer that improves balance sheets and compliance metrics, while leaving the underlying power system no better prepared for India’s high-renewables future.