May 15, 2018
We know that corporate sustainability goals benefit the environment by supporting projects that improve the Earth’s air and water quality – sustainability makes social sense. But many companies are now discovering that investing in renewable energy also makes financial sense.
Virtual Power Purchase Agreements (VPPA) for renewable energy projects offer protection against rising future electric prices. They also offer predictable electricity budgets and may even present a profit based on the net present value of the contract.
How Does a VPPA Protect a Company Against Future Electric Cost Increase?
Affordability – With current tax incentives set to expire in coming years, the time has never been better to invest in renewable energy. Companies that take advantage of the reduced prices offered as a result of the Production Tax Credit (PTC) and the Investment Tax Credit (ITC) now stand to gain affordable, long-term clean energy in the future. Plus, thanks to technology advancements, both wind and solar energy prices have decreased significantly in recent years, making renewable energy VPPAs even more affordable.
Predictability – With a VPPA, the buyer and seller agree to a fixed market price (strike price) for the power produced by the contracted project. Over the life of the VPPA, as wholesale energy market prices change, settlements are paid out based on the fixed price to either the buyer or the seller. This VPPA hedge, in turn, stabilizes the net price for the company over the life of the agreement, allowing for increased predictability and decreased volatility.
Profitability – With a VPPA, there is no upfront investment. Best of all, most companies find that the net present value (NPV) of their contract savings actually offers a profit in the here and now.
VPPAs offer buyers the benefits of affordability, predictability and profitability. Sustainability and renewable energy contracts are no longer just mechanisms for social change and environmental stewardship. Clean energy projects and VPPAs are methods for companies to save money, cut costs, and plan for the future.
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