November 13, 2020
A power purchase agreement is a buying structure for the purchase of renewable energy. It’s a straightforward, effective way for organizations to procure large quantities of renewable energy. A PPA is an agreement between two parties, the solar developer and the consumer/host, wherein the developer takes care of the entire solar panel installation process on the host’s property. This comes at little cost, or sometimes no cost, to the host, who is basically purchasing the services of the solar system, as opposed to purchasing the system itself. The benefit to the host/consumer is a reduction in their energy costs. YSG Solar is one of many renewable energy companies offering power purchase agreements throughout the United States.
Below, we will examine the two main types of off-site power purchase agreements on the renewable energy market in 2020—physical power purchase agreements and virtual power purchase agreements. The core difference between the two concerns ownership of the electrons produced by the renewable energy project.
Physical Power Purchase Agreement
In a physical PPA, the buyer takes ownership of the electrons produced by the renewable energy project and, as such, is responsible for monetizing/selling those electrons. Generally, the buyer will monetize the electrons by selling them into the wholesale electricity market. Depending on the structure of the contract in question, the buyer may also pay transmission charges.
Virtual Power Purchase Agreement
In a virtual PPA, the buyer does not take ownership of the electrons produced by the renewable energy project. Thus, unlike the physical PPA, the buyer is not responsible for monetizing/selling the electrons. Instead, a VPPA is a purely financial transaction. A VPPA exchanges fixed-price cash flow for variable-priced cash flow and renewable energy certificates (RECs). With a VPPA, the buyer must still meet its electricity load via traditional channels, and so the buyer’s relationship with its utility remains on changed at retail level.
For more information about Virtual Power Purchase Agreements, click the link below to download a one-page PDF explaining VPPAs.
Virtual Power Purchase Agreements | YSG Solar
Typically, physical PPAs had been the most popular of the two, but in recent years virtual PPAs have become more commonplace. Indeed, VPPAs are one of the most rapidly-growing transaction structures on the market, likely because they allow for the participation of smaller buyers and companies lacking energy trading expertise. Additionally, owing to the scalability of VPPAs, many buyers are able to hit sustainability targets with just a small number of VPPA deals.
This highly-informative report from the Rocky Mountain Institute offers an excellent introduction to Power Purchase Agreements. Click here to view it.
Solar Farms and Power Purchase Agreements
Power purchase agreements are a popular financing mechanism for the creation of solar farms, allowing consumers/hosts to generate additional revenue with minimal effort on their part. YSG Solar will transform your land into a solar farm, taking care of the entire process from start to finish, ensuring a stable, consistent income stream for you and your family for the duration of the contract, which is generally in the region of 20 to 25 years. To learn more about solar farms, check out some of our most popular solar farm articles below:
YSG Solar provides solar energy power purchase agreements for institutions, commercial businesses, industrial properties, municipalities, schools, universities, and other large energy users. YSG offers virtual and physical power purchase agreements on a national basis. Some of the most popular states for solar power purchase agreements include:
New York
New Jersey
Massachusetts
Vermont
Rhode Island
Connecticut
If you’re interested in pursuing a power purchase agreement then reach out to YSG Solar today. Send us an email or call at 212.389.9215 to learn more about PPAs.
YSG Solar is a project development vehicle responsible for commoditizing energy infrastructure projects. We work with long-term owners and operators to provide clean energy assets with stable, predictable cash flows. YSG's market focus is distributed generation and utility-scale projects located within North America.
Sources:
https://rmi.org/insight/virtual-power-purchase-agreement/
https://www.seia.org/research-resources/solar-power-purchase-agreements
Featured Photo by Moritz Kindler on Unsplash.