Virtual Power Purchase Agreements

Virtual Power Purchase Agreements (VPPAs) are emerging as a key tool in India's renewable energy transition. Here's a breakdown of what they are, how they work, and their relevance in India:


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🔌 What Is a Virtual Power Purchase Agreement (VPPA)?

A VPPA is a financial contract (not a physical energy delivery contract) between a renewable energy developer and a corporate buyer.

How It Works:

A renewable project (e.g., solar/wind farm) sells electricity into the grid at market price.

The buyer (e.g., a company) agrees to pay a fixed rate for the power generated.

If the market price is higher than the fixed rate, the developer pays the difference to the buyer (and vice versa).

The buyer receives renewable energy certificates (RECs) to offset its carbon footprint—without physically consuming the electricity.


> Think of it as a hedging instrument + sustainability commitment, especially useful for companies in urban areas without access to large-scale renewable projects on-site.




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🇮🇳 India’s Push for VPPAs (2025 Update)

Key Developments:

In June 2025, the Indian government proposed formal guidelines to promote VPPAs for commercial and industrial (C&I) consumers.

The move aims to bypass the physical delivery challenges and increase access to renewables for urban companies tied to traditional power grids.

The Ministry of Power and MNRE (Ministry of New and Renewable Energy) are preparing a regulatory framework to:

Allow corporate RE procurement without needing direct transmission rights.

Enable use of green attributes (RECs) for ESG and sustainability goals.

Attract investment into India's 500+ GW renewable target by 2030.




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💼 Why VPPAs Matter for Indian Businesses

Benefit Explanation

Sustainability Helps firms meet net-zero or RE100 commitments.
Cost Control Fixed-price contracts offer long-term price certainty.
Grid Independence Ideal for urban offices or campuses without land for solar.
ESG Compliance Generates RECs and Scope 2 emission offsets.



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🔍 Challenges Ahead

Policy clarity: Lack of legal framework so far has limited VPPA adoption.

Market access: VPPAs depend on robust open access and REC mechanisms.

Price volatility: Market-based pricing can make VPPAs riskier without proper financial structuring.

Infrastructure: Transmission bottlenecks may limit developers' ability to deliver power into the grid efficiently.



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✅ Outlook

As India prepares for carbon markets, VPPAs will likely play a central role in corporate decarbonization and renewable finance.

Key sectors like IT, manufacturing, and retail are expected to drive demand.

Here are Frequently Asked Questions (FAQs) on Virtual Power Purchase Agreements (VPPAs)—tailored to India but applicable globally as well:


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🔹 1. What is a Virtual Power Purchase Agreement (VPPA)?

A VPPA is a financial contract between a power buyer (usually a corporate or industrial entity) and a renewable energy project developer.
It allows companies to offset their carbon footprint without physically receiving the power, using renewable energy certificates (RECs).


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🔹 2. How is a VPPA different from a traditional Power Purchase Agreement (PPA)?

Feature VPPA Traditional PPA

Power Delivery No physical delivery Physical delivery
Location Flexibility Anywhere (usually offsite) Same region or on-site
Structure Financial hedge + RECs Direct energy purchase
Grid Dependence Uses general grid Requires connection



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🔹 3. How do companies benefit from a VPPA?

Meet sustainability goals (e.g., net-zero, RE100).

Lock in long-term energy prices as a hedge against volatility.

Earn RECs and reduce Scope 2 emissions.

Support new renewable capacity development in India.



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🔹 4. Are VPPAs legal in India?

Not fully yet, but the Government of India (June 2025) is working on a national framework to allow and standardize VPPAs for commercial and industrial consumers.
States with advanced open access and REC mechanisms are already experimenting with VPPA-like structures.


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🔹 5. What is an REC and how does it work in a VPPA?

A Renewable Energy Certificate (REC) is a tradable credit that represents 1 MWh of electricity generated from a renewable source.
In a VPPA, even if a company doesn’t use the power, it gets RECs that can be used to show renewable usage or traded on carbon markets.


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🔹 6. What risks are involved in a VPPA?

Market risk: If market prices fall below the contract price, the buyer pays the difference.

Regulatory risk: Policy changes in renewable or power sectors may affect contract economics.

Settlement risk: Relies on accurate and timely performance data from the power project.



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🔹 7. Who are the typical parties involved in a VPPA?

Corporate Buyer (e.g., Infosys, Tata Motors, Flipkart)

Renewable Developer (e.g., ReNew Power, Greenko, Adani Green)

Aggregator / Facilitator (optional): For portfolio-level deals

REC Registry: To track and verify renewable credits (e.g., POSOCO, IEX)



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🔹 8. How long do VPPAs usually last?

Most VPPAs have 10–15 year tenures, allowing companies to benefit from long-term pricing stability and secure RECs over time.


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🔹 9. Can small or medium-sized companies sign VPPAs?

Yes—through aggregated VPPAs or green energy trading platforms, smaller companies can pool demand and benefit from economies of scale.


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🔹 10. How does India’s carbon market relate to VPPAs?

India is developing a compliance carbon market, and VPPAs with REC tagging will likely be eligible for Scope 2 emissions offsetting, helping companies comply with upcoming mandates.