INTRODUCTION TO THE VIRTUAL POWER PURCHASE AGREEMENT

This guide from the Rocky Mountain Institute (RMI) introduces the Virtual Power Purchase Agreement (VPPA), explaining its mechanism as a financial instrument for corporate renewable energy procurement. It distinguishes VPPAs from physical PPAs, detailing how they allow companies to support new renewable energy capacity and meet sustainability goals without taking ownership of physical electricity or altering their existing utility relationships.

• Virtual Power Purchase Agreements (VPPAs) are purely financial transactions that differ from physical PPAs in that the corporate buyer does not own or manage the physical electrons generated by a project. Instead, a VPPA involves exchanging a fixed-price cash flow for a variable-priced cash flow and renewable energy certificates (RECs), allowing the buyer to maintain their existing retail utility relationship.
• VPPAs have become the fastest-growing transaction structure in the corporate renewable energy market because they are scalable and accessible to smaller buyers or those lacking energy trading expertise. They enable companies with distributed electricity loads or those operating in regulated markets to efficiently achieve sustainability goals; for instance, Fifth Third Bank met its 100% renewable energy goal through a single VPPA.
• The VPPA mechanism functions as a 'contract for differences' or a fixed-for-floating swap. The buyer guarantees a fixed price per megawatt-hour ($/MWh) to a renewable energy project and receives RECs. The project sells the electricity into a wholesale market at a variable market price; the financial settlement between the buyer and seller is based on the delta between this actual market price and the agreed-upon fixed price.
• The location where a VPPA is 'settled'—either at a 'node' (a specific pricing point on the grid) or a 'hub' (a virtual aggregation of nodes)—is a key point of negotiation that determines the allocation of risk between the buyer and the seller. Hubs are generally more liquid than individual nodes, which influences the level of risk the buyer carries.

APA

KANSAL, R. (2018). INTRODUCTION TO THE VIRTUAL POWER PURCHASE AGREEMENT. RMI. https://rmi.org/app/uploads/2018/12/rmi-brc-intro-vppa.pdf

Chicago

KANSAL, RACHIT. INTRODUCTION TO THE VIRTUAL POWER PURCHASE AGREEMENT. RMI, 2018. https://rmi.org/app/uploads/2018/12/rmi-brc-intro-vppa.pdf.

Wikipedia

{{cite report |last1=KANSAL |first1=RACHIT |title=INTRODUCTION TO THE VIRTUAL POWER PURCHASE AGREEMENT |publisher=RMI |date=November 2018 |url=https://rmi.org/app/uploads/2018/12/rmi-brc-intro-vppa.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{kansal2018introduction, author = {KANSAL, RACHIT}, title = {{INTRODUCTION TO THE VIRTUAL POWER PURCHASE AGREEMENT}}, institution = {RMI}, year = {2018}, month = nov, url = {https://rmi.org/app/uploads/2018/12/rmi-brc-intro-vppa.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }