What to Know Before Getting Started with Virtual PPAs for Renewable Energy

What to Know Before Getting Started with Virtual PPAs for Renewable Energy

VPPAs Separate Renewable Investments from Energy Procurement, But Require Careful Consideration of Market Factors

Second, because the off-taker does not take physical delivery of the power, the VPPA allows corporations to invest in projects with the best economics, not necessarily those located closest to their load. Further, you won’t have to limit the size of your purchase or navigate the complexity of delivering power to your account, as in a traditional power-purchase agreement, which establishes the VPPA as a go-to lever for purchasing large chunks of power and quickly achieving renewable energy goals. You could conceivably meet a 100% renewable energy goal with one large purchase in Texas, even if your load is centered in Ohio—and  you’d certainly make headlines for it.

Despite the attractiveness of this kind of “big splash” approach, that kind of move would be a big gamble unless you’ve done the analysis to correlate wholesale market prices in Ohio with those in Texas. While underlying fundamentals like the price of natural gas play a role in guiding the prices in most US electricity markets, many other local factors contribute as well, such as grid rules, transmission and pipeline constraints, large plant retirements, and changes in the supply resources mix of coal, nuclear, natural gas, and renewables. Because these market correlations can change over the term of the VPPA, you should very carefully consider market risks for any investment in a generation facility that exceeds your load in the same market.

VPPAs Are a Good Way to Ensure Additionality—But Will They Always Be?

Finally, for organizations that require additionality in their approach to renewables, VPPAs provide a fixed rate of return for new wind and solar projects which would otherwise not get financed and built. As corporate renewable energy procurement pioneers like Google have stated, their position as a VPPA counterparty enables their projects to get off the ground, thus adding to the installed base of renewable energy on the grid near their facilities. This theme continues to resonate as organizations pursue their first large renewable power contracts.

But as sourcing renewables becomes more and more ubiquitous, and numerous buyers seek offtake from developers’ projects, it will become harder to prove the additionality caused by any single company’s actions.

The virtual PPA model has certainly been a boon to renewable energy projects in need of customers, and a useful structure for enterprises to secure clean energy. Last year, three out of four off-site wind and solar PPA deals announced by RMI’s BRC members were virtual. Together with a balanced portfolio of demand-side management, on-site generation, traditional PPAs, and ownership of off-site renewables (and, yes, renewable energy certificates), virtual PPAs will continue to allow corporations to achieve audacious renewable energy goals. But exactly how big of a role the virtual PPA should play in your organization’s strategy depends on your ability and desire to manage risk.

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