Rather than having their own renewable energy technology installed, more and more companies are choosing to comply with aggressive industry emissions targets by purchasing large amounts of renewable energy via VPPAs.
Through a VPPA you can protect yourself against rising energy prices and meet your renewable energy goals in a single stroke by agreeing the purchase Renewable Energy Credits with a local solar project, wind energy farm, or similar project in your local area.
If grid electricity prices rise over the 10-15 years that your VPPA is in place, you will still only pay the fixed VPPA price initially agreed for your energy. Even better, as the contract is virtual and you are buying RECs rather than electricity itself, this energy can be used anywhere, meaning you don’t need to worry about getting a new contract if you move premises or diversify.
This means that you make an agreement on the purchase of a certain amount of wholesale electricity generated over a number of years.
In that time, if the market price of electricity is higher than the VPPA contract price, the developer will pay you the difference, and you will receive a nice financial boost alongside all the energy that you require.
Bear in mind, however, that if the market price drops and the wholesale market price is lower than PPA prices, you will need to pay the developer the difference. Due to the general trend of electricity market fluctuations, this rarely happens, especially considering that most VPPAs set the initial fixed ‘strike’ price below market rates as an incentive to businesses such as yours.
When you agree a VPPA, there is no change in your existing contract with your energy supplier, this simply means that you will receive Renewable Energy Credits or Renewable Energy Certificates from a renewable energy project located off-site, usually in the nearby area.
These RECs are tradable and represent 1 MWh generated by an eligible renewable energy resource. These credits vary in value depending on market demand and market price.
Rather than receiving your energy directly from the renewable energy generator, you will receive RECs that can then be exchanged for electricity from the grid itself. If you are paying more 1 REC than 1 unit of energy costs from the grid you are losing a small amount of money and your VPPA is considered ‘out of the money’ and if you are paying less for 1 REC than the market price of 1 unit, you are considered in the money.
This means that electricity generated by your contracted facility is sent into the national grid, rather than your property itself.
You receive credits representing this energy that can then be exchanged for electricity from the grid. The virtual aspect comes from the fact that the contract is not tied to a single physical premises, meaning that if you move, or you expand, and want to use power generated through your VPPA on a different site or split it between multiple locations, this is easily achieved.
This is a huge benefit of VPPAs to major companies with multiple sites, and to smaller companies looking to expand over the 10-15 year period whilst the contract is still in place.
No matter where the physical delivery of electricity is directed, under a VPPA your company can claims credit for using renewable energy and this energy will count towards all recognised sustainability goals, as well as saving you money.
No renewable energy project will allow you to reduce your energy emissions faster than a VPPA. These agreements allow you to access large quantities of carbon-free electricity in a short period of time.
If you are looking to meet emissions reduction goals as quickly as possible VPPAs are a smart choice and this is the main benefit that attracts most organisations to the agreement.
Purchasing years’ worth of electricity at a set contracted price protects companies against market price rises in the future.
A virtual power purchase agreement will normally lock prices at today’s rates for a period often exceeding 10 years, meaning that if we see another shape jump in the cost of electricity, your organisation will not be affected.
On average, electricity prices will rise over time, and hedging against this through a VPPA will almost always save companies money in the long term. This is known as hedging and will allow you to make more confident financial predictions and budget accordingly.
Entering into a VPPA contract will result in more investment in renewable technology in your local area.
This will result in economic growth in the community, something that is only ever going to benefit your business in the long-term.
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We help companies across the UK save money and reduce their grid power consumption through the installation of and investment in clean energy.
We will advise you on if you are eligible to purchase electricity at a fixed price via a virtual PPA, and which renewable energy facilities, such as a local wind farm, you may wish to enter into a financial contract with.
