6 Huge Benefits of Virtual PPA’s for Green Businesses

As more and more consumers start factoring sustainability into their purchase decisions, the focus of businesses increasingly shifts toward eco-friendliness. There are a lot of things that you should do if you want to run a green business.

One recent survey showed that 62% of customers are trending toward going green with their products and services, which in turn pushes companies to move toward greener practices. Also, a study from KPMG showed that 96% report on sustainability goals compared with 79% in 2022, showing increased commitment to environmental responsibility. This trend reflects the increased importance of corporate transparency and action in driving down GHG emissions.

Continuing to move their sustainability journey forward, companies are using Virtual Power Purchase Agreements that enable organizations to support renewable energy projects without taking ownership. At the end of 2022, 326 companies had contracted 77.4 gigawatts of wind and solar energy. As more corporations begin to realize the several benefits of renewable energy, these agreements are about to surge. Not only do VPPAs help an organization meet renewable energy targets, but they also offer price stability and carbon footprint reduction-a solution that works quite nicely for both businesses and the planet.

If you are scratching your head and thinking, “What is a virtual PPA?”-well, you are not alone. The world of energy agreements is riddled with abbreviations and buzzwords. This is something we need to learn as move to a future guided by renewable energy.

But don’t worry, we’ve got you covered.

In simple terms, a Virtual Power Purchase Agreement is a financial contract between a renewable energy producer and a corporate buyer that doesn’t require the direct delivery of electricity. Instead, it is all about financial settlement and supporting green energy projects.

Think of this as your corporate commitment to sustainability-no need to have a wind turbine in your backyard.

Let’s dig a bit deeper and see how virtual PPAs work, with some real-world examples to bring the concept to life.

What Exactly is a Virtual PPA?

A VPPA is basically a long-term contract whereby a corporate offtaker agrees to purchase renewable energy from a project at a pre-agreed price.

Here’s the rub: instead of actually taking the electricity, the energy is sold into the grid at the market price. If the market price is higher than the agreed price, the corporate offtaker receives the difference. If it’s lower, the buyer pays the difference.

Why would anyone do this?

Virtual PPAs allow companies to claim the renewable energy credits (RECs) associated with the project, supporting their sustainability goals without logistical headaches. It’s like buying a share in a renewable energy success story—you’re part of the solution without needing to manage the operations.

How Do Virtual PPAs Benefit Companies?

Here are six ways VPPA’s are benefiting the corporate world and wider market:

1. Sustainability Goals: Virtual PPAs are a powerful tool for meeting your company’s environmental targets. By investing in renewable energy projects, companies can significantly reduce their carbon footprint and demonstrate their commitment to fighting climate change. These agreements help corporations take tangible steps toward net-zero emissions, aligning with global sustainability initiatives like the Paris Agreement.
2. Price Stability: The energy market is notoriously volatile, with prices influenced by everything from geopolitical events to natural disasters. A virtual PPA provides a hedge against this uncertainty by locking in a fixed price for electricity over the contract’s duration. This stability allows companies to plan their energy budgets with confidence, avoiding unpleasant surprises in their operational costs.
3. Brand Image: In today’s competitive market, a strong commitment to sustainability is more than just a moral choice—it’s a strategic advantage. Consumers and investors increasingly favour brands that prioritise environmental, social, and governance (ESG) factors. By signing a virtual PPA, companies can showcase their leadership in renewable energy adoption, enhancing their reputation and building trust with stakeholders.
4. Corporate Social Responsibility (CSR): A virtual PPA isn’t just about financial benefits; it’s also a statement of corporate values. Supporting renewable energy projects demonstrates that your company cares about more than just profits. It’s a clear message to employees, customers, and communities that you are actively contributing to a sustainable future.
5. Regulatory Compliance and Incentives: Governments around the world are implementing stricter regulations and offering incentives to encourage the adoption of renewable energy. A virtual PPA can help companies stay ahead of regulatory requirements and even qualify for financial benefits like tax credits or grants. By acting proactively, businesses can avoid penalties and capitalise on available opportunities.
6. Support for Renewable Energy Development: By entering a virtual PPA, companies provide renewable energy developers with the financial assurance needed to build new projects. This support accelerates the transition to a cleaner energy grid, creating a ripple effect that benefits the entire planet.

Virtual PPA Success Stories

Let’s take a look at some real-world examples of virtual PPAs in action:

1.    Estée Lauder and Renewable Energy

In 2019, Estée Lauder signed a virtual PPA for wind energy from a project in Oklahoma. This agreement helped the company achieve 100% renewable electricity for its global operations.

By committing to a virtual PPA, Estée Lauder not only reduced its environmental impact but also set a powerful example for sustainability leadership in the beauty industry.

2.    Estée Lauder and Renewable Energy AXA and European Renewable Energy

AXA, a global insurance leader, has committed to the development of renewable energy in Europe through virtual PPAs. The company signed agreements to support solar and wind projects, helping to accelerate the transition to clean energy while ensuring a stable supply for its operations.

AXA’s initiative underlines its dedication to sustainability and sets a benchmark for the financial services industry.

How Do Virtual PPAs Support Renewable Energy Development?

Virtual PPAs allow developers to have financial security in developing the projects. Because they provide predictable revenue, this helps projects access financing and begin generating clean energy. In one word, your PPA dollars are fuel for the green revolution-one wind turbine or solar panel at a time.

Should an organization consider a Virtual PPA? Organizations should ask themselves the following questions:

• Does your company have ambitious sustainability targets?
• Are you looking to mitigate energy price volatility?
• Do you want to enhance your brand’s reputation as a sustainability leader?

If answered “yes” to any of these, a virtual PPA might be the perfect solution.

Take the Next Step Toward Renewable Energy Expertise

Want to master the ins and outs of Power Purchase Agreements?

Redcliffe Training is a leading provider of bespoke, highly technical, practical, and case-study-heavy courses, for bankers, lawyers, private equity houses, corporate financiers, M&A advisors, accountants and corporates.

Our comprehensive Power Purchase Agreements course is the perfect place to learn everything you need to know about virtual PPAs, contract structures, and renewable energy financing.