April 18, 2018
In the early stages of planning your company’s renewable energy plan, careful assessment of your energy needs and goals should always come first. Outlining your long-term energy needs and goals will set you up for success when constructing your contract with a renewable energy developer.
The market for Virtual Power Purchase Agreements (VPPA) is diverse and can be complicated. An important thing to consider when you begin your research is what type of VPPA your company prefers. There are generally two types of VPPAs: a single, large-scale VPPA, or an aggregated, small-scale VPPA. Both have the same core tenants:
– Companies virtually purchase power via a long-term contract (there is no physical delivery of power to the buyer)
– The buyer and seller agree on a strike price for the power, as well as a settlement schedule
– Companies receive the environmental attributes, or Renewable Energy Credits (RECs), produced by the project
– For more information about how VPPAs work, check out this blog entry.
What’s Right for My Company?
Aggregated and large-scale VPPAs both are attractive and favorable investments for companies because they require no capital investment, hedge energy prices, reduce electric expenses, help to attain corporate sustainability goals, and increase public relations, loyalty, and brand awareness.
The Differences: Single, Large vs Aggregated VPPAs
– A single, large-scale VPPA is a contract for the majority or the entire production of a single project. Companies that execute large-scale VPPAs are typically the only contracting partner or serve as the anchor offtaker (and the developer secures additional smaller offtakers for the small remaining portion of the project’s production).
– An aggregated VPPA is a contract for a portion of a larger project (typically 10 megawatt (MW) blocks). There are multiple offtakers in an aggregated VPPA and together, these contracts comprise the entire project’s production.
Despite their similarities, there are a few key areas that make each type of VPPA unique. Each of the unique qualities must be evaluated by your renewable energy team to determine which choice is a better fit for the individual needs of your company.
For example, if aligning your electric consumption location(s) with your contracted project’s location is important to your organization, consideration of large-scale vs aggregated VPPAs is important. Customers with large electric load that is consumed in a handful of locations might prefer a large-scale, singular VPPA from a project located near their electric consumption location. In contrast, customers with geographically distributed electric consumption might prefer multiple aggregated VPPAs from projects dispersed throughout their electric consumption locations.
The Benefits: Single, Large vs Aggregated VPPAs
– Aggregated VPPAs allow your company to purchase portions of projects at a low cost, take advantage of the economies of scale, provide an opportunity for your company to be a part of a coalition of like-minded corporations, and offer simplified contracts. However, because the contracted project has multiple VPPA offtakers, the contract likely cannot be as customized as a singular, large-scale VPPA.
– On the other hand, a large-scale VPPA gives the contracting company ultimate control as the single or anchor off-taker (such as branding and public relations), reduces pricing (as contracted MW increases, price decreases), and allows for a customized contract. The potential disadvantage of a large-scale VPPA is that it may take much longer to execute than an aggregated VPPA, given the increased customization and flexibilities offered in the contract.
Click on the image below for a flow chart regarding the details of large vs aggregated VPPAs.
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