PPA/VPPA/CFD’s
WOR HQ LTD sources and vets renewable energy projects & developers internationally while negotiating key points of the PPA/VPPA to maximize profitability while reducing exposure/risk. By partnering with the top developers/suppliers/financiers and clients we are focused on sustainability and renewables ranging from PPA’s/VPPA’s/REC’s to the supply of the commodity both to large industrial/commercial users to the individual homeowner.
Since 2019, WOR HQ LTD helped broker/consult/facilitate over 300 MW’s of renewable energy projects.
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WHAT IS A PPA/VPPA/CFD?
A power purchase agreement, at its core, is a contract between two parties where one party sells both electricity and renewable energy certificates (RECs) to another party. In corporate renewable energy PPAs, the “seller” is often the developer or project owner, the “buyer” (often called the “offtaker”) is the C&I entity. C&I renewable energy PPAs can take two primary forms – physical or financial (the latter often referred to as “virtual”). The best structure depends on the markets where the offtaker and projects are located, as well as the goals, priorities, and risk tolerance of the offtaker.
Virtual (or Financial) PPA
Unlike a physical PPA, a virtual PPA (VPPA) is a financial contract rather than a contract for power. The offtaker does not receive, or take legal title to, the electricity and in this way, it is a “virtual” power purchase agreement.
In a VPPA, an offtaker agrees to purchase a project’s output and associated RECs at a set fixed price. The developer then liquidates the energy at market pricing and passes the revenue through to the offtaker. More specifically:
Similar to a physical PPA, the seller in a VPPA is oftentimes a developer who builds, owns, and operates a project and delivers the energy output to the specified point.
The offtaker agrees to pay the seller a fixed price for renewable energy delivered to a specific point, typically a market hub or project busbar. This fixed price set by the VPPA is the guaranteed price the developer will receive – no less and no more – irrespective of the floating market price.
The seller generates and liquidates a project’s energy at market pricing. When the floating market price exceeds the fixed VPPA price, the developer passes the positive difference to the offtaker. When the converse is true, the market price is below the VPPA fixed price, the offtaker must pay the developer the difference.
The offtaker retains all of the RECs associated with the delivered energy, as long as that is specified in the contract.
This type of structure is called a contract for difference (CFD). See the graphic below for an illustration.
Contract for Difference
