India is moving quickly toward clean energy, and a new tool is helping industries and commercial users be a part of this transition. This tool is called a Virtual Power Purchase Agreement, or VPPA. A VPPA is different from the traditional way of buying renewable power. In a traditional Power Purchase Agreement, a company receives power directly from a renewable energy project. But in a VPPA, the company doesn’t get the actual electricity. Instead, it signs a financial agreement with the renewable energy generator.
Under this agreement, the company pays a fixed price for the electricity that the renewable energy project generates. This electricity is then sold in the market by the generator, and the company and the generator settle the difference between the fixed price and the market price. This way, the company supports green energy projects and protects itself from rising energy prices in the future. It also earns Renewable Energy Certificates, or RECs, which help show that the company is using clean energy. These RECs count toward meeting environmental goals, which are important for both government rules and investor expectations.
This type of agreement is especially useful for businesses that have operations in more than one state. Different states have different rules, charges, and systems for delivering electricity. With a VPPA, companies don’t have to deal with the physical delivery of electricity, which makes things simpler. Also, they don’t need to build solar or wind systems on-site, which helps those operating in leased buildings or cities where space is limited.
In India, the government is encouraging renewable energy in many ways. Programs like the Renewable Energy Development Fund and the Green Open Access Rules aim to promote clean power. India has set a big goal of reaching 500 GW of power capacity from non-fossil fuel sources by 2030. To help meet this goal, the Central Electricity Regulatory Commission (CERC) has released draft guidelines for VPPAs.
These draft guidelines give industries another way to meet the Renewable Energy Consumption Obligations (RCOs). These are minimum green energy targets set by the government. If companies fail to meet them, they must pay penalties. The VPPA offers a solution where companies can support green projects financially and still meet these targets without taking actual delivery of the power.
CERC has made it clear that VPPAs are not tradable and are considered private contracts between the buyer and the renewable energy seller. They are not treated as securities and are outside the regulation of SEBI. These contracts can be signed directly or through a registered trader or platform. The renewable energy project must be registered under REC rules. Once the RECs are issued and transferred to the buyer, they are canceled to avoid resale.
This system gives both financial and environmental advantages to businesses while supporting the growth of green energy. It also ensures that businesses stay in line with rules while contributing to India’s clean energy future.
