Virtual Power Purchase Agreement Definition

As there is no physical power supply, the VPPA is a great option for large electricity consumers with a fragmented/distributed electrical load to support the development of new renewable energy sources. In the past, developers found a distribution company or a large company to buy most of the energy, and then, when there was energy left, they signed an ECA with a small company. This made it extremely difficult for a small business to find a developer willing to sell them the right amount of energy. A virtual ECA is essentially a form of price hedging. A company enters into a contract to pay for a renewable energy project at an agreed starting price. The renewable energy project sells electricity produced from distributors to the local wholesale market. The project is paid to the company if the electricity is sold to the market above the agreed contract price, and the company pays the difference to the project if the electricity falls below the agreed price. Unlike a traditional unbundled REC purchase, which always costs money, the VPPA swap offers RECs at a price determined by the net difference between the VPPA fixed price and the wholesale market price…