India is rapidly advancing toward its renewable energy targets, with solar power playing a pivotal role in its decarbonization journey. Amid evolving corporate sustainability goals and dynamic electricity markets, Virtual Power Purchase Agreements (VPPAs) have emerged as a strategic tool for clean energy procurement in the country. A VPPA allows corporates to support solar energy projects and claim Renewable Energy Certificates (RECs) without taking physical delivery of electricity—offering flexibility, risk management, and sustainability branding.

What is a VPPA?

A Virtual Power Purchase Agreement is a financial contract for difference (CfD). Unlike traditional (physical) Power Purchase Agreements (PPAs), where a company directly buys electricity from a renewable energy developer, a VPPA is a hedging mechanism. Under this structure:

1. A solar project sells its electricity into the local grid at the prevailing market price.
2. The corporate buyer agrees to a fixed price for the power generated.
3. If the market price is lower than the agreed fixed price, the buyer pays the difference to the generator. If the market price is higher, the generator pays the difference to the buyer.
4. The corporate also receives the environmental attributes, like RECs or I-RECs, which help meet sustainability and ESG goals.

VPPA in the Indian Market

While VPPAs are well-established in the U.S. and Europe, India is at a nascent stage of adopting them. The Indian Electricity Act and open access regulations largely support physical PPAs, but recent efforts in market liberalization and REC reforms have created an enabling environment for VPPAs.

Major Indian corporates like Infosys, Wipro, and Tata Motors, as well as multinational giants like Amazon and Microsoft, have expressed growing interest in off-site renewable energy procurement models like VPPAs to meet RE100 commitments.

Key Drivers

• Corporate Sustainability Goals: With increasing pressure from stakeholders, Indian corporates are aligning with global net-zero ambitions.
• Grid Decarbonization: VPPAs allow corporates to contribute to new renewable capacity even if they cannot physically consume the power due to location constraints.
• Financial Hedging: VPPAs can protect buyers from market volatility in power prices, offering long-term cost predictability.

Challenges in India

• Regulatory Ambiguity: Lack of clear guidelines under India’s Electricity Act for financial PPAs.
• Limited Liquidity in REC Market: Inconsistent demand and supply of RECs affect the attractiveness of VPPAs.
• Accounting and Taxation: Complexities in recognizing VPPA transactions under Indian financial laws.

Outlook

As India transitions toward a market-based power system—with initiatives like Green Energy Open Access Rules (2022) and the Green Day-Ahead Market (GDAM)—VPPAs are expected to gain traction. The government’s push for decentralized solar and digitalization can further simplify the framework for virtual transactions.

While VPPAs in India are currently in an early experimental phase, they present a high-potential opportunity for corporates to decarbonize their operations, drive solar investments, and hedge against future energy price risks. For developers, it unlocks a broader base of credit-worthy customers beyond DISCOMs. To fully realize this potential, regulatory clarity and standardized VPPA frameworks tailored for the Indian context will be critical.