Virtual Power Purchase Agreements (Ppas)

With a synthetic AAE, there is no physical supply of electricity to the buyer`s charging centers. In fact, the buyer will continue to pay his electricity bills, as they always do. A virtual AAE is a purely financial agreement that serves as a hedge for electricity prices. In addition, the buyer receives Renewable Energy Credits (RECS) under the VPPA, which allows the buyer to claim rights to their greenhouse gas reductions and the purchase of renewable energy. Those with a financial background will recognize this structure as a differential contract (CFD) or a fixed financial swap using floats. Virtual Power Purchase Agreements (VPPAs) is becoming increasingly popular with companies to achieve their renewable energy goals. Here is the 101 on VPPAs for anyone exploring this option for the first time on behalf of their company. The purchase of renewable energy off-site protects against financial risks. PPAs Versus VPPAs A physical PPP is when the company or a third party takes possession of the physical energy at a specific delivery point of the network. A virtual AAE is similar, but instead of the energy that physically goes from project to buyer, it takes the form of a financial contract that allows to sell energy on the wholesale market, where everyone can use it. Simply put, a VPPA contract is a financial transaction (commonly known as a „fixed floating swap“) that ensures that the project proponent will receive the fixed PPP for each megawatt hour of energy sold on the market, in exchange for which the company receives RECs generated by the facility.

Unlike the traditional UNbundled purchase of the REC, which always costs money, the VPPA swap offers UC at a price determined by the net difference between the fixed price of the VPPA and the wholesale price. A positive difference between the market price and the fixed price of the VPPA can result in significant positive cash flows. In many previous VPPAs, the fixed price of the VPPA was below or above the market price, and the buyer had to review the price forecasts to determine whether the project would ultimately provide a positive NPV. There are now markets and projects in which it is possible to guarantee a fixed VPPA price below the current market price, which means that the virtual PPP will generate a positive cash flow from day one.

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