PPA and VPPA: Taking advantage of sustainable financial benefits

John Mark Respeto

John Mark Respeto

Sustainability and Quality Director

PPA and VPPA: Taking advantage of sustainable financial benefits

Often, sustainability initiatives are viewed as sunk-cost projects, and earning a “Sustainable Business” badge is viewed as just an ornament or proof of compliance. But what if there’s a sustainability initiative that can help you protect your energy costs from fluctuating prices and also generate incentives on the side? Sounds enticing? Are you willing to give it a try? Great, then hear me out!


Ever heard of the Power Purchase Agreement (PPA) and Virtual Power Purchase Agreement (VPPA)? In the simplest terms, these Renewable Energy (RE) agreements allow a business to fix the price (“RE Price”) of their energy consumption and earn Renewable Energy Credits (RECs) as they finance and support renewable energy projects.


How it works? 

Under both PPA and VPPA, a Company enters into an agreement with a Renewable Energy Project Contractor to purchase renewable energy at a fixed price (often lower than the market price of traditional sources) over a long period of time. Put simply, the Contractor provides the Company with the energy it needs, and the Company pays the Contractor a fixed amount per unit of consumption.


Under a PPA, the on-site Renewable Energy Project (REP) directly supplies the Company with renewable energy. If the agreement covers the Company’s entire energy needs, then the Company no longer needs to purchase energy from the traditional grid.


In contrast, under a VPPA, the REP is located elsewhere and supplies the energy to the Grid. The Grid pays the REP Contractor at the market price. The Company continues to source its energy from the Grid and pays the Grid the market price. If the market price is lower than the RE Price, the Company pays the REP Contractor the difference. If the RE Price is lower than the market price, the REP Contractor pays the Company the difference. Additionally, this arrangement entitles the Company RECs supplied by the REP Contractor.


The Company can use these RECs to offset its carbon emissions and meet goals or regulatory requirements. Any excess RECs can also be sold to third parties or returned to the REP Contractor.


Again, let’s recap the benefits that can be gained from these agreements:

  • Improved Cash Flows – the fixed price set by these agreements allows for better cash management and protection against fluctuating energy prices.
  • Avoid Penalties – for industries subject to carbon emissions regulations, the RECs provided for under these agreements ensure compliance resulting in financial savings. Integrating these measures into your broader risk and SOX compliance strategy can further strengthen your organization’s ability to meet regulatory requirements while minimizing potential exposure to financial or reputational risks.
  • Other income – Excess RECs can be sold for additional cash after meeting regulatory requirement
  • Get that Sustainable Business Badge – meet your sustainable goals, improve your brand reputation, support your local communities, and ultimately, protect the environment.


Take a moment and consider these matters! 

I know you are excited to take advantage of the benefits, but you might be concerned about operational and technical considerations. Well, I get you, so let me give you some matters to consider.

  • How reliable is your local grid? Check their energy source, current price, and market price forecast. Some grids are already struggling to manage their supply and their customers’ demand which will be a concern for you in the long run.
  • Are you located in an area rich in renewable energy sources? This is a big factor in determining whether a PPA or a VPPA suits your case.
  • Setting the fixed RE Price. Determining the proper RE price suited to your market and your needs is very crucial to maximizing financial savings.
  • Check your emissions. You must first determine your emissions to determine the total RECs you need to generate from the agreements.
  • Financial and Accounting Considerations. As usual, any business transaction requires a proper understanding of how it will impact your financial reports and how each component of your agreement will affect your bottom line

Nevertheless, don't fret! 

While there’s a list of matters to consider, the benefits of PPAs or VPPAs still outweigh their cost. The number of PPAs and VPPAs has been growing rapidly in recent years.


You just need the right partner to help you navigate these matters and further your sustainability goals.


How Scrubbed Can Help

Scrubbed brings together sustainability, accounting, tax, and corporate finance expertise to support every stage of your sustainability journey. From managing PPAs and VPPAs to emissions accounting, financial scenario planning, and sustainability tax assessments, our specialists help your business navigate complex regulations, maximize available incentives, and make informed decisions with confidence.

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