New Delhi: The Central Electricity Regulatory Commission (CERC) has rolled out a pair of regulatory initiatives that signal a shift toward more flexible market structures and stronger grid support as India scales up renewable energy capacity.
One of the key changes is the formal introduction of a framework for virtual power purchase agreements (VPPAs), a contract model that allows large electricity consumers to meet clean energy obligations without changing their physical power supply. Under the arrangement, commercial and industrial buyers can enter into purely financial contracts with renewable energy producers. While the generator continues to sell electricity in the power market, the buyer settles the difference between the agreed contract price and the market price, gaining the environmental attributes of renewable energy without taking physical delivery.
CERC’s decision gives regulatory recognition to a structure that has been used in other markets but lacked legal clarity in India. The framework specifies that VPPAs must have a minimum duration of one year and cannot be transferred or traded, providing certainty for both buyers and sellers. For renewable developers, such contracts offer revenue stability amid price volatility, while energy-intensive users, including technology companies and data centre operators, gain a practical route to fulfil renewable purchase obligations and corporate sustainability targets without renegotiating existing supply contracts.
The regulator expects the move to widen participation in renewable markets and unlock financing for projects that have not secured traditional long-term power purchase agreements. By enabling large consumers to support clean energy capacity through financial contracts, CERC aims to attract incremental investment and accelerate progress toward national renewable energy goals.
Energy Storage
At the same time, the commission has proposed a detailed regulatory framework to bring energy storage into the core of India’s power system. Through the draft CERC (Second Amendment) Regulations, 2025, issued for public consultation, energy storage systems are recognised as regulated assets when deployed alongside thermal power plants or as part of inter-state transmission infrastructure.
So far, the absence of clear tariff and operational rules for grid-scale storage has limited development to small pilot projects. This gap has become increasingly problematic as renewable capacity has expanded. Although India has surpassed 250 GW of installed renewable energy, actual output remains constrained by low utilisation, while total storage capacity from pumped hydro and batteries stands at only about 5–5.5 GW.
Official estimates suggest that around 411 GWh of storage will be needed by 2031-32 to ensure grid stability. CERC’s draft amendments seek to address this by incorporating storage into the central tariff framework, treating it on par with generation and transmission assets.
The proposed regulations outline a separate tariff mechanism for storage, combining fixed charges with energy-based payments to ensure cost recovery and a regulated return on equity of 14%. They also set out performance parameters covering availability, efficiency, and auxiliary consumption, offering greater predictability for investors and lenders.
A two-step capital approval process has been suggested, under which developers would first obtain in-principle clearance for project costs and then seek final tariff approval shortly after commercial operations begin. Transmission licensees would be allowed to deploy storage to improve system reliability and defer network upgrades, with any additional revenues passed through to consumers in the form of lower transmission charges, while utilities retain incentives for outperforming prescribed benchmarks.
The draft framework also permits storage assets to provide services to external users under defined revenue-sharing rules and introduces a regulatory sandbox to allow controlled testing of new technologies and commercial models.
Together, the VPPA framework and the proposed storage regulations underline CERC’s effort to modernize power market rules, expand financing avenues for renewable energy, and equip the grid with the flexibility needed for a higher share of clean power in the years ahead.