What is a virtual power purchase agreement?
A Virtual PPA (VPPA), often referred to as a ‘contract for differences’ is a financial contract where the buyer does not physically receive electricity from the contracted solar project. The buyer agrees to purchase a solar plus energy storage project’s output and associated Renewable Energy Credits (RECs) at a set fixed price. Lightsource bp sells the project energy at the market price and settles based on the comparison of market price and the contract’s strike price. When the market price is greater than the fixed VPPA price, Lightsource bp passes the upside to the energy buyer. When the market price is less than the fixed VPPA price, buyer must true up or pay Lightsource bp the difference.
In a VPPA, Lightsource bp and the energy buyer agree to a “strike price” that Lightsource bp will receive for its delivery of electricity generated and sold into the wholesale market. Thereafter, any difference between the strike price and wholesale market price is exchanged between the two parties, such that the Lightsource bp in net always receives the strike price for its sales of electricity. The renewable energy certificates (RECs) generated by the solar project are typically contractually conveyed to the energy buyer in the Financial PPA. The RECs entitle the buyer to exclusive rights to make claims about using the green power produced by the solar project and the associated reductions in scope 2 emissions. No electricity, however, is physically conveyed from the generator to the buyer.