August 11, 2020
Leading high-credit corporate buyers in the U.S. are now charting profitable paths to 100% renewable electricity through Buyer Organized Aggregated Virtual Power Purchase Agreements (VPPAs), what SR Inc has styled “the VPPA 2.0.” These VPPAs provide Purchaser-Caused Bundled renewable energy credits (RECs) from new, large scale, renewable energy projects in the most favorable deregulated electricity markets in the U.S. These RECs can be used to offset the GHG emissions of the corporate buyers’ facilities, even if they are leased and geographically dispersed across the U.S. When these VPPAs are well analyzed, structured, developed, and negotiated, they can provide credible Purchaser-Caused Bundled RECs, a positive NPV, as well as a hedge against future energy prices.
Many publicly-traded, fast growth technology firms are achieving their initial goals of 100% renewable electricity through just a year of planning and one or two VPPA 2.0 transactions. High-credit buyers can reasonably lock in deals that are profitable in year one, have a conservatively modeled substantial positive NPV, and have only a very small likelihood of financial loss in any year of the term. One reason for these favorable economics is that developers provide only a portion of their projects to corporate off-takers who are attractive to them in part because they are willing to take the renewable energy produced by the project “as generated.” Other reasons for the favorable economics are historically low interest rates and substantial but declining federal tax subsidies. In a growing number of deregulated wholesale markets in the U.S., the price of developing and delivering new renewable energy is substantially below the prevailing local marginal price.
Moreover, through these VPPAs, consortiums of corporate off-takers are winning better deal terms including lower prices, shorter terms, and robust legal protections against downside financial exposure. There are, however, risks inherent in VPPAs that must be identified and managed, such as market price risk, operational risks, and legal & regulatory risks. The full Member Briefing includes a detailed section on this topic.
The Member Briefing begins by describing the astounding growth in renewable energy in the last decade and the RECs that have underpinned this growth. The report then details the mechanisms of the Utility-Scale Direct PPA, the VPPA, and the Buyer Organized Aggregated VPPA and includes an in-depth discussion of the risks inherent in the VPPA and how to best mitigate them. This guidance is driven by the experience of SR Inc’s Member-Clients and the report includes case studies of executed Buyer Organized Aggregated VPPAs by Member-Clients Akamai, Bloomberg, Cisco, and Intuit. The report concludes with tips and stepwise guidance for developing a strategy and executing a Buyer Organized Aggregated VPPA.
