Building Your ESG Narrative: Leveraging Virtual Power Purchase Agreements (VPPAs)

wind turbines

Date Published

11/01/2021

In recent weeks, we have analyzed how a diverse energy mix and renewable energy certificates (RECs) can strengthen your organization’s ESG positioning by promoting and capitalizing on clean energy – without having to be directly connected to a renewably power source.

Virtual power purchase agreements (VPPAs) can open new doors in this same space, enabling organizations to go fully renewable without having to create onsite generation or directly source from renewable power.

Here is a closer look at what VPPAs are, how they work, and the key benefits they can provide organizations looking to further develop their ESG narratives.

What are VPPAs?

Virtual power purchase agreements (or VPPAs) are purely financial contracts that provide RECs from specific renewable energy projects to a company or organization. Under a VPPA, no physical electricity is delivered from the energy project to your facility. Instead, the electricity from the project is delivered to the grid.

How do VPPAs work?

A VPPA is essentially a way to fix the price of a portion of power usage wherein a company (ABC) enters into a contract to pay a renewable energy project at an agreed upon price. If an energy project needs financing, it might enter into a VPPA with ABC in order to acquire the funding it needs. ABC could then guarantee the project developer a certain fixed price for the electricity it sells to the grid on a merchant basis.

If the electricity sells to the grid at a higher price than was agreed upon in the contract, the developer will pay ABC.

If the electricity sells to the grid for less than the guaranteed amount, ABC would pay the difference to the project developer.

What are the benefits of a VPPA?

VPPAs have a number of benefits in bringing sustainability and additionality to your ESG. In the above example, the VPPA deal structure provides the developer with the price security it needs to acquire financing for its project, while also affording company ABC the opportunity to manage risk  and to claim credit for bringing renewable energy to the grid.

VPPAs also:

  • Allow companies to go 100% renewable without having to create onsite renewable generation or directly source energy from renewable power
  • Secure large amounts of carbon-free electricity at scale
  • Add new renewable energy facilities to the grid
  • Generate local jobs and economic growth, particularly in rural and low-income communities
  • Increase state and local tax revenues
  • Help insulate companies against rising electricity costs over time by locking in a fixed price at today’s rates
  • Allow smaller buyers and those without energy trading expertise to participate in renewables
  • Enable many companies to make significant progress toward ambitious renewable energy goals

Build your ESG narrative with Compute North

Compute North is playing a leading role in the industry-wide shift toward sustainability and renewables. As part of our power purchasing approach, we can enter into VPPAs on your behalf to help manage power costs and acquire the RECs you need to bolster your sustainability report.

Some things to be aware of when considering a VPPA for mining operations:

  • It is a much more involved process to enter into a VPPA than simply purchasing RECs
  • The agreement is a long-term commitment (e.g., 10+ years) and has certain credit requirements for which not everyone will qualify
  • The structure of a VPPA could trigger derivative accounting
  • The renewable asset in the VPPA needs to sell into a wholesale power market (if you are not in the same market, you may have basis risk)

VPPAs are just one way of enhancing your ESG message. Colocating your mining equipment with us is yet another way to boost your ESG since you would be leveraging our renewable-heavy energy mix. Investing in renewables is not only good for the sustainability of the planet, but it also looks good to ESG investors and the greater public audience.

Contact us today to start exploring hosting solutions for your operation.

Date Published

11/01/2021

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