What is a Virtual Power Purchase Agreement (vPPA)? Sustainability Simplified Glossary

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Virtual Power Purchase Agreements (vPPAs) are financial contracts used to procure renewable energy between a renewable energy developer (such as a wind or solar farm) and a buyer (such as a corporation or large energy consumer) without the physical transfer of electricity. The buyer secures environmental attributes and renewable energy certificates (RECs) without directly purchasing the electricity from the renewable facility. It's a tool allowing corporations to meet sustainability targets, cut carbon footprint, and contribute to renewable energy growth and investment.

The agreement often stipulates a fixed price or a price structure, allowing the buyer to hedge against potential future electricity price fluctuations and ensures a stable cost for the renewable energy attributes over the contract duration. A vPPA is generally a long-term contract, often spanning 10 to 20 years. This contract length provides financial stability to the renewable energy project by guaranteeing a buyer for its electricity output. 

In most vPPA deals, companies structure the volume as "pay as produced." This leaves financial aspects, like the price hedge and green claim, to rely on the actual production volume of the renewable asset. The buyer commits to purchasing variable renewable energy, linking their financial commitment directly to the project's actual energy output. This structure provides flexibility, as the buyer’s financial obligations are based on the actual energy generated. It establishes a direct link between the produced volume and the buyer's financial benefits and environmental claims. This promotes transparency and alignment between the buyer and the project’s performance.

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