Top Five Concerns Over India’s Draft Virtual PPA Framework

The Central Electricity Regulatory Commission’s (CERC) draft framework on Virtual Power Purchase Agreements (VPPAs), aimed at helping corporate buyers meet Renewable Consumption Obligations (RCOs), has raised a host of concerns among analysts and policy observers. While positioned as a flexible financial tool for clean energy procurement, experts warn that the mechanism could undermine renewable energy capacity addition, delay storage integration, and lead to greenwashing.

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Here are the top five concerns raised by stakeholders, including energy analysts and research bodies such as Ember:

1. Weak Incentives for Capacity Addition

Unlike traditional power purchase agreements (PPAs) that fund new renewable projects, VPPAs operate purely as financial instruments. Critics say this could convert renewable energy procurement into an accounting exercise. “The VPPA does not mandate physical delivery of power and may not directly contribute to new renewable generation capacity,” Duttatreya Das, Energy Analyst at Ember told Saur Energy.

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2. Grid Stability at Risk Without Storage Mandate

The absence of any requirement for pairing VPPAs with energy storage has alarmed experts. Ember, in its response to CERC, warned that the mechanism could deepen solar surpluses during midday and aggravate grid balancing challenges. “By bypassing actual delivery and integration costs, VPPAs create weak investment signals for storage, which is vital for a high-renewables grid,” the think tank said.

3. High Risk of Greenwashing by Corporates

Analysts warn that large industrial buyers may use VPPAs to boost their clean energy claims without altering their actual energy mix. Under the draft mechanism, buyers can financially settle power transactions and claim Renewable Energy Certificates (RECs), even if their physical power usage remains fossil-based. One is likely to pay extra for credits just to claim higher renewable usage — but without consuming actual green power.

4. Market Disconnect and Financial Risk

Industry observers say that VPPAs, while offering price certainty through fixed-rate agreements, may expose buyers to financial risk in a volatile energy market. A PwC study referenced in the consultation warns that fixed-price contracts could become liabilities if power prices drop, leaving companies at a cost disadvantage compared to competitors who buy at market rates.

5. Missed Opportunity for System-Level Reform

While the draft allows virtual transactions via power exchanges, experts argue that it does little to promote systemic reforms needed to expand renewables. “What’s missing is the emphasis on additionality — that is, the introduction of new clean energy into the system,” said Das. He emphasized that India’s current renewable growth is largely driven by government tenders and financial distribution reforms (FDRs), not market-based instruments like VPPAs.

Call for Policy Clarity

The proposed framework, which enables certificate trading and financial settlement between clean energy suppliers and corporate buyers, lacks detailed guidelines on accountability and long-term integration with the power system. Experts urge CERC to refine the policy to ensure it supports new capacity, integrates storage, and avoids becoming a tool for compliance-only decarbonization.

“As it stands, the draft VPPA looks more like a credit trading mechanism than a driver of clean energy transformation,” Das said.