By Rajasekhar Devaguptapu, Specialist – Energy Policy
As of April 2025, India’s installed renewable energy capacity exceeded 175 GW. While this capacity generates a substantial volume of energy, the majority of it is transacted through long-term power purchase agreements (PPAs). Only a limited portion is routed through the power exchanges.
However, with the advent of the green day-ahead market (G-DAM) and green term-ahead market (G-TAM) segments, the volume of renewable energy traded via exchanges reached approximately 8.3 BUs in FY 2024-25, a significant increase from the 2.5 BUs in FY 2023-24. Notably, a large share of this trade occurred between July and October 2024, coinciding with favourable solar and wind generation conditions.
Despite this growth, renewable energy participation in the exchange market remains modest in terms of capacity. Developers continue to prefer long-term PPAs due to various issues associated with the merchant market, challenges in forecasting and scheduling, and the absence of firm despatch capability.
The Central Electricity Regulatory Commission (CERC) recently initiated discussions on introducing a virtual power purchase agreement (VPPA) framework. Once this framework is finalised and implemented, it is expected that VPPAs will facilitate broadening of market access for renewable energy generators and enhance the tradability of green power on the exchanges.
Trends in price discovery
Renewable energy trading through power exchanges, primarily via G-DAM and G-TAM, has shown steady growth, both in the volume and diversity of participants. Corporates, discoms and independent green energy suppliers have increasingly engaged in these platforms. A key trend is that prices in green segments are becoming more competitive.
Price discovery in renewable energy trading is significantly influenced by time-of-day generation patterns. For instance, solar energy peaks during midday, often resulting in temporary oversupply. In the absence of a fully developed VPPA framework (currently under discussion at the CERC) and limited reliance on renewable energy certificates (RECs) by discoms for compliance, the non-PPA renewable energy market still lacks depth.
However, the growing interest from commercial and industrial (C&I) consumers, enabled by the green open access rules, is fostering competitive pricing in the green segments of power exchanges. Over time, increasing participation, improved forecasting, dynamic demand patterns and enhanced grid flexibility are expected to drive more robust and efficient price discovery, paving the way for the greater integration of renewable energy into market-based platforms.
Trends in uptake of merchant power plants
The concept of merchant renewable energy refers to renewable energy generators selling electricity directly in the market without long-term PPAs. This has recently gained traction, driven by green open access reforms, increasing interest of C&I consumers for sustainable energy, etc. In addition, regulators have also pushed discoms to comply with their obligations, thereby positively impacting the demand. However, the absolute number of pure merchant renewable energy capacities still remains very low.
Certain hybrid models are also emerging, where developers combine long-term contracted capacity with merchant exposure for surplus energy.
The trend is expected to grow further, as more flexibility is likely to come through storage integration. This can help merchant generators optimise despatch and earnings.
Another emerging trend is the co-location of renewable energy generation with storage, which enables time-shifting of supply and enhances despatchability, which is key for merchant trading. However, challenges persist. From a financing standpoint, merchant renewable energy projects carry higher risk profiles, and lenders remain cautious due to revenue uncertainty.
Going forward, better forecasting tools, a mature VPPA framework and the integration of storage solutions may enhance the bankability of merchant renewable energy generation. In particular, flexible hybrid systems such as solar or wind coupled with storage are expected to drive the next phase of merchant market development, especially in high-demand time blocks.
Need for accurate forecasting and scheduling of renewables
Accurate forecasting and scheduling are critical to integrating renewable energy into the power exchanges. Enhanced accuracy improves the variability of renewable energy generation, thereby reducing deviations and associated penalties. It also increases the reliability of supply schedules, making participation in market-based mechanisms more viable and building investor confidence.
Current challenges stem from the limited adoption of advanced forecasting tools, particularly by smaller generators. These technologies often involve high costs, making them less accessible to smaller players. That said, initiatives under the Green Open Access Rules, 2022, and regulatory push by the CERC and state agencies have elevated the importance of accurate forecasting. With improved granularity and reliability of forecasts, renewable energy generators are increasingly able to participate not only in the G-DAM but also likely to enter the regular DAM space, further enhancing market integration.
From a power market perspective, improved forecasting facilitates better integration into the DAM (not just G-DAM). The entry of firm renewable energy in the regular DAM is likely to alter market dynamics. Overall, forecasting cannot be considered a mere technical requirement – it is a strategic enabler for renewable energy to unlock the full potential of power exchange-based trading.
Future outlook
The long-term outlook for renewable energy on power exchange markets in India is highly optimistic, provided structural reforms continue to evolve. As the country targets 500 GW of non-fossil fuel capacity by 2030, reliance solely on long-term PPAs may no longer be sufficient. Renewable energy generators must increasingly leverage exchange-based trading platforms to ensure flexibility, efficiency and competitiveness.
The proposed VPPA framework is a promising development, with the potential to unlock new avenues for renewable energy generators by enabling virtual contracting while selling power in the market. Simultaneously, maturing segments such as G-DAM, G-TAM and RECs are expected to gain further traction with improved liquidity.
Additionally, the growing interest among corporate consumers in the green open access regime is expected to accelerate demand for green power. Coupled with the advent of hybrid and storage renewable energy projects, the ability of green power to provide reliable, despatchable energy will strengthen its space in the power markets. In the long run, power exchanges are poised to become critical to India’s green transition. They will offer a transparent, technology-driven and competitive marketplace for green power, aligning with both climate goals and evolving electricity market structures.
