1. Introduction

A Virtual Power Plant (VPP) is a coordinated system in which multiple distributed energy resources (DERs)—such as rooftop solar plants, batteries, electric vehicles, demand-response facilities, small generators, and flexible loads—are digitally aggregated and controlled so that they can operate collectively like a conventional power plant.

Unlike a traditional power station, a VPP is not necessarily a single physical facility. Its essential characteristics are aggregation, digital control, coordinated dispatch, metering, and market participation. CERC's expert-group work in India has described a VPP as an aggregated, spatially distributed power plant connected at multiple points and remotely controllable from a common control centre. CERC

The legal issue is therefore not simply whether a VPP can generate electricity. The central question is:

Can the law recognise a digitally coordinated aggregation of separate electricity resources as a legally accountable market participant or functional power plant?

Internationally, the United States has moved furthest toward legal recognition through FERC Order No. 2222, which requires regional electricity markets to facilitate participation by aggregations of DERs. Federal Energy Regulatory Commission

India has recognised many of the underlying legal components—distributed generation, renewable-energy participation, storage, open access, demand response and power-market regulation—but a comprehensive statutory status for VPPs is still developing.

2. Meaning and Legal Characteristics of a VPP

A VPP generally contains five elements:

1. Multiple DERs – solar PV, batteries, EVs, small generators, flexible loads, etc.
2. Aggregator/VPP operator – an entity coordinating the resources.
3. Digital control system – software determines when resources generate, consume, charge or discharge.
4. Metering and communication – individual resources and the aggregate must be measurable.
5. Market interface – the VPP can potentially provide energy, capacity, balancing or ancillary services.

For example, suppose 1,000 households each have rooftop solar and batteries. Individually, each household may be too small to participate directly in a wholesale market. A VPP operator can aggregate them and offer the combined capacity as a single market resource.

FERC Order No. 2222 adopts essentially this regulatory concept: individual DERs are combined into an aggregation, with the aggregator acting as the direct participant in the organised wholesale market. The Order requires market rules to accommodate aggregations as small as 100 kW, subject to applicable requirements. Federal Energy Regulatory Commission

3. Why Legal Recognition Is Necessary

Traditional electricity law was designed around relatively clear categories:

Generator → Transmission → Distribution → Consumer

VPPs disrupt this structure.

A single participant may simultaneously be:

• a consumer,
• a rooftop generator,
• an energy-storage operator,
• a demand-response provider, and
• a member of an aggregated wholesale-market resource.

Consequently, legal recognition is necessary for at least six reasons.

A. Market participation

The law must establish whether a VPP may sell electricity or ancillary services into organised markets.

B. Licensing

The regulator must determine whether the VPP operator requires a generation licence, electricity-trading licence, aggregation licence, or a new category of authorisation.

C. Responsibility

There must be a legally responsible entity when the VPP fails to meet its scheduled output.

D. Metering

Rules must determine how electricity produced or consumed by individual DERs is measured and attributed to the VPP.

E. Distribution-grid coordination

A VPP may simultaneously interact with the distribution utility and wholesale market operator.

F. Consumer protection

Households participating in a VPP need protection concerning contracts, payments, data, equipment control and withdrawal from the programme.

4. United States: FERC Order No. 2222

The most significant regulatory development concerning legal recognition of VPP-type arrangements is FERC Order No. 2222 (2020).

FERC required Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) to remove barriers preventing distributed-energy-resource aggregations from participating in organised wholesale electricity markets. Federal Energy Regulatory Commission

The rule covers resources such as:

• batteries;
• rooftop solar;
• demand response;
• energy efficiency;
• thermal storage;
• electric vehicles and charging equipment; and
• other distributed resources. Federal Energy Regulatory Commission

The legal significance is substantial: the law does not need to treat every rooftop solar installation as an independent power plant. Instead, the aggregation itself becomes the market-facing unit.

FERC required market rules concerning:

• minimum aggregation size;
• geographic/locational requirements;
• bidding parameters;
• metering;
• telemetry;
• data requirements;
• coordination with distribution utilities; and
• coordination with relevant retail regulators. Federal Energy Regulatory Commission

Thus, Order No. 2222 represents functional legal recognition of the VPP model even though the terminology used by the regulation is generally "DER aggregation."

5. Case Law: FERC v. Electric Power Supply Association

Federal Energy Regulatory Commission v. Electric Power Supply Association, 577 U.S. 260 (2016)

This Supreme Court decision concerned FERC's regulation of demand-response participation in wholesale electricity markets.

The Court upheld FERC's authority over demand-response transactions in wholesale markets, recognising that demand-response arrangements could directly affect wholesale-market competition and rates.

Relevance to VPPs

The case is important because VPPs frequently combine:

• generation,
• storage, and
• demand response.

It supports the broader proposition that electricity regulation cannot necessarily be confined to traditional generators when newer technologies and demand-side resources participate directly in wholesale markets.

The legal principle can therefore be extended to VPP regulation:

Where an aggregated resource participates in a federally regulated wholesale market, the regulator may regulate the market-facing activity even though the underlying resources may be physically distributed.

This principle provided important jurisdictional foundations for later FERC reforms.

6. National Association of Regulatory Utility Commissioners v. FERC

National Association of Regulatory Utility Commissioners v. FERC, 964 F.3d 1177 (D.C. Cir. 2020)

This case concerned FERC Order No. 841, dealing with participation of electric-storage resources in wholesale markets.

The D.C. Circuit upheld FERC's approach to enabling storage resources, including resources connected at the distribution level, to participate in federally regulated wholesale markets. The court accepted the distinction between:

• FERC's regulation of wholesale-market participation; and
• state authority over retail electricity and distribution systems. Justia Law

Significance for VPPs

The decision is particularly relevant because VPPs often include batteries and other storage devices.

It establishes an important regulatory principle:

Physical location on a distribution system does not automatically prevent a resource from participating in a wholesale market.

At the same time, state authorities retain significant authority over distribution systems and retail regulation. Justia Law

This creates the basic jurisdictional structure required for VPP regulation:

Wholesale market → federal regulation

Distribution system and retail matters → state/local regulation

7. Duke Energy Progress, LLC v. FERC

Duke Energy Progress, LLC v. FERC, 993 F.3d 1035 (D.C. Cir. 2021/2022)

The D.C. Circuit considered the treatment of battery storage under demand-side-management and demand-response provisions.

The dispute demonstrated that battery resources can have characteristics that do not fit neatly within conventional categories of generation or demand response. The court upheld FERC's interpretation permitting battery technology to participate within the applicable demand-side framework. Justia Law

VPP significance

A VPP may contain resources that:

• consume electricity;
• store electricity;
• generate electricity; or
• reduce electricity consumption.

Therefore, legal definitions based exclusively on the traditional distinction between "generator" and "consumer" are increasingly inadequate.

The case supports technology-neutral regulatory classification.

8. Recent Interconnection Jurisprudence

Another important development is Advanced Energy United v. FERC (D.C. Cir. 2026).

The case concerned FERC's reforms to the interconnection process under Order No. 2023. The D.C. Circuit upheld FERC's reforms concerning interconnection studies, deadlines and related procedures. Justia Law

Although not specifically a VPP case, interconnection is fundamental to VPP development.

A VPP may contain hundreds or thousands of DERs connected at different locations. Consequently, VPP regulation requires rules addressing:

• connection standards;
• network capacity;
• distribution constraints;
• study procedures;
• operational limits; and
• responsibility for upgrades.

Efficient interconnection regulation is therefore an essential part of a mature VPP legal framework.

9. Indian Legal Framework

India does not yet have a single comprehensive statute titled a Virtual Power Plant Act. However, VPPs can potentially operate through existing electricity legislation and regulatory powers.

The principal legislation is the Electricity Act, 2003.

Important provisions include:

• Section 3 – national electricity policy and planning;
• Section 61 – principles for tariff determination;
• Section 62 – tariff determination;
• Section 63 – tariff adoption;
• Section 66 – development of electricity market;
• Section 79 – functions of CERC;
• Section 86 – functions of SERCs;
• Section 142 – penalties for non-compliance; and
• Section 178 – CERC's regulation-making power.

The Act's broad regulatory architecture gives electricity commissions substantial capacity to accommodate technological developments.

10. PTC India Ltd. v. CERC

(2010) 4 SCC 603

This Constitution Bench decision of the Supreme Court of India is one of the most important authorities for understanding the regulatory authority of CERC.

The Court explained that CERC possesses both:

1. regulation-making powers, and
2. decision-making powers.

The Court recognised the distinct statutory functions of the Commission under the Electricity Act. Sci API

Relevance to VPPs

This principle is important because the absence of a specific "VPP Act" does not necessarily mean that a regulator has no ability to address VPP arrangements.

Subject to statutory limits, regulatory commissions can develop detailed regulatory mechanisms for emerging electricity-market structures.

Accordingly, VPP regulation could potentially be developed through:

• regulations;
• market rules;
• grid codes;
• tariff orders;
• ancillary-service frameworks; and
• pilot programmes.

11. Energy Watchdog v. CERC

(2017) 14 SCC 80

The Supreme Court's decision in Energy Watchdog v. CERC is important for understanding the relationship between statutory electricity regulation, contracts and regulatory jurisdiction.

The Court examined the contractual and regulatory consequences of changes affecting electricity-generation projects and emphasised the importance of the statutory framework governing electricity regulation.

Relevance to VPPs

VPPs will operate through complex contractual arrangements involving:

• VPP operators;
• individual DER owners;
• distribution companies;
• power exchanges;
• consumers;
• aggregators; and
• potentially system operators.

Energy Watchdog demonstrates why the contractual structure of a VPP cannot be separated from the statutory electricity framework.

A VPP contract must therefore clearly allocate:

• performance obligations;
• price;
• scheduling;
• deviation liability;
• force majeure;
• curtailment;
• data access;
• termination rights; and
• regulatory-change risks.

12. CERC and the Emerging Indian VPP Framework

India has already considered VPPs within regulatory discussions.

CERC's expert-group report proposed a VPP concept involving spatially distributed resources connected at multiple points and remotely controlled through a common control centre. CERC

More recent Indian regulatory developments also show movement toward digital and virtual electricity-market arrangements. For example, CERC currently lists regulations and regulatory initiatives dealing with renewable-energy certificates, power markets and related market instruments. CERC

An IIT Kanpur Centre for Energy Regulation publication discussing proposed VPP provisions describes a model under which a VPP could be registered with a distribution licensee and potentially provide services such as:

• energy supply;
• frequency regulation; and
• demand response. CER

This illustrates the direction in which Indian regulation could develop, although a proposal or regulatory discussion should not be confused with a presently enacted comprehensive VPP statute.

13. Legal Personality of a VPP

An important question is whether the VPP itself should be treated as a legal person.

Generally, the better legal model is not to treat the software-controlled VPP as an independent legal person.

Instead:

VPP resources → owned by different persons

VPP platform → operated by an aggregator

Aggregator → legally responsible market participant

This approach avoids the difficult consequences of giving artificial legal personality to autonomous software.

The VPP would therefore function as a regulated legal aggregation, rather than as a completely separate juridical person.

14. VPP Operator as Legal Aggregator

A future VPP framework should identify the VPP operator/aggregator as the primary regulated entity.

Its statutory obligations could include:

Registration

The operator should be registered with the appropriate market/system authority.

Technical compliance

The operator should demonstrate:

• communication capability;
• cybersecurity;
• telemetry;
• forecasting;
• dispatch capability; and
• metering compliance.

Financial responsibility

The aggregator should bear responsibility for:

• market settlement;
• deviations;
• penalties;
• imbalance charges; and
• applicable market fees.

Consumer protection

Where residential consumers participate, the operator should disclose:

• compensation;
• control rights;
• duration;
• exit rights;
• equipment obligations; and
• data practices.

15. Scheduling and Deviation Liability

A major legal problem is determining who bears responsibility when the VPP does not deliver its scheduled electricity.

Suppose a VPP promises 100 MW at 6:00 p.m., but its aggregated batteries and solar installations provide only 75 MW.

A regulatory framework must answer:

Who pays the deviation charge—the individual household, the battery owner, or the VPP aggregator?

The most workable model is generally to make the aggregator the market-facing responsible entity, while allowing its private contracts to allocate financial responsibility among participating DER owners.

This is consistent with the general aggregation model under FERC Order No. 2222, where the aggregator serves as the direct participant in the wholesale market. Federal Energy Regulatory Commission

16. Double Participation and Double Compensation

Another important issue is double counting.

For example, a battery could receive:

• a distribution-level incentive;
• a capacity payment;
• a demand-response payment; and
• a wholesale ancillary-service payment.

Without appropriate safeguards, the same service could be compensated twice.

FERC Order No. 2222 specifically requires appropriate restrictions to prevent double counting where DERs participate in retail programmes and wholesale markets. Federal Energy Regulatory Commission

A future Indian VPP framework would similarly need:

one physical service → transparent attribution → appropriate compensation

17. Data Protection and Cybersecurity

VPPs are highly dependent on digital infrastructure.

A VPP operator may have access to:

• household electricity consumption;
• battery state of charge;
• EV charging patterns;
• solar-generation data;
• customer identity;
• location information; and
• real-time operational data.

Therefore, VPP regulation must incorporate:

• cybersecurity standards;
• data minimisation;
• access controls;
• encryption;
• incident reporting;
• consumer consent;
• third-party access restrictions; and
• system-operator security requirements.

The legal identity of the VPP operator should therefore be connected to clear cybersecurity responsibility.

18. Competition and Market Power

Large VPP aggregators could potentially control substantial quantities of flexible capacity.

Competition law and electricity-market rules may therefore need to address:

• market concentration;
• strategic bidding;
• withholding;
• manipulation;
• discriminatory access;
• preferential treatment; and
• information asymmetry.

VPP regulation should preserve competition without preventing aggregators from achieving economies of scale.

19. Consumer Protection

Residential VPP participation introduces a new category of electricity contract.

A consumer may authorise the VPP operator to:

• discharge a battery;
• reduce consumption;
• delay EV charging;
• export rooftop solar;
• alter appliance operation.

The law should therefore establish minimum consumer rights.

These should include:

1. informed consent;
2. transparent remuneration;
3. withdrawal rights;
4. limits on remote control;
5. protection against unreasonable penalties;
6. complaint mechanisms; and
7. protection of personal and energy-use data.

This is especially important because VPP participants may simultaneously remain ordinary retail electricity consumers.

20. Grid Reliability

A VPP can provide valuable reliability services because thousands of small resources can collectively respond to system conditions.

Possible services include:

• frequency regulation;
• peak shaving;
• reserve capacity;
• voltage support;
• demand response;
• balancing;
• congestion management; and
• emergency response.

However, the regulator must ensure that an aggregator does not promise more flexibility than the underlying DERs can reliably deliver.

Consequently, VPP accreditation should be based on measurable and demonstrable capability.

21. Suggested Indian Regulatory Model

A comprehensive Indian VPP framework could contain the following structure:

22. Key Case Laws and Their Relevance

23. Challenges to Legal Recognition

Several unresolved issues remain.

1. Jurisdictional fragmentation

A VPP may simultaneously fall within:

• CERC;
• SERC;
• DISCOM;
• SLDC;
• RLDC;
• power exchanges; and
• other regulatory authorities.

2. Lack of uniform terminology

Terms such as VPP, DER aggregation, aggregator, demand response aggregator and virtual power plant may be used differently across jurisdictions.

3. Cybersecurity

A cyberattack on a VPP could affect thousands of distributed resources simultaneously.

4. Attribution of responsibility

It may be difficult to determine whether a failure originated from:

• the individual DER;
• aggregator software;
• communication infrastructure;
• distribution network; or
• market operator.

5. Consumer participation

Residential participation requires a stronger consumer-protection framework than traditional generation projects.

24. Conclusion

Legal recognition of Virtual Power Plants represents a shift from regulating individual physical electricity assets toward regulating coordinated electricity functions.

The emerging legal model does not necessarily require the VPP itself to become a separate legal person. Instead, the law can recognise the VPP aggregation and its operator as a regulated market structure, while individual DERs retain their existing ownership and legal identities.

The United States provides the clearest example through FERC Order No. 2222, which requires organised wholesale markets to facilitate DER aggregations. Federal Energy Regulatory Commission Judicial decisions such as EPSA, NARUC v. FERC, and Duke Energy Progress v. FERC provide important foundations concerning demand response, storage and the federal-state division of electricity jurisdiction. Justia Law

In India, the Electricity Act, 2003, together with CERC and SERC regulatory powers, provides a potential legal foundation for VPP development. PTC India Ltd. v. CERC is particularly significant because it confirms the broad regulatory and decision-making functions of electricity commissions. Sci API CERC's earlier expert work has already contemplated a VPP consisting of spatially distributed, remotely controllable resources operating collectively as a power plant. CERC

Thus, the principal legal task for India is not merely to "legalise" VPPs, but to create a coherent framework governing aggregation, registration, market access, scheduling, metering, deviations, cybersecurity, consumer rights, distribution-system coordination and settlement. Such a framework would allow distributed solar, batteries, EVs and flexible demand to participate in electricity markets without requiring every small resource to satisfy the regulatory requirements designed for a conventional power station.