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Virtual Power Purchase Agreements Draw Increasing Interest from Corporations

Virtual power purchase agreements are drawing increased interest from U.S. corporations looking to grow their renewable energy portfolios.

With a virtual PPA contract, the corporate buyer does not own and is not responsible for the physical electrons generated by the project, energy group RMI notes.

In a report released in February examining global renewable energy purchase trends, BloombergNEF said that private companies and public institutions signed contracts to secure a record 36.7 gigawatts of renewable power to power their operations in 2022, up 18% from 2021.

“In the U.S., companies embraced the virtual PPA model under which a clean power project sells directly into the wholesale market to capture the spot price, rather than literally delivering its electrons directly to the customer,” the report said. “Such contracts are comparatively easy for buyers to sign and allow them to hedge against power price spikes,” BloombergNEF said.

The primary advantage of a virtual PPA lies in its flexibility, the American Cities Climate Challenge notes on its website. The American Cities Climate Challenge, sponsored by Bloomberg Philanthropies, was formed with an investment of $70 million “to enhance the work already being done by mayors across the U.S. and to support cities in the fight against climate change,” it says.

The flexibility offered by virtual PPAs “has made them the favored large-scale renewable energy procurement mechanism for large companies in the U.S.”

McDonald’s, Other Corporations Enter Virtual PPAs

McDonald’s has been a major player among corporations entering into virtual PPAs.

In late 2019, McDonald’s announced the signing of two long-term, large-scale virtual power purchase agreements under which McDonald's agreed to buy renewable energy generated by Aviator Wind West, a wind power project located in Coke County, Texas and a solar project located in Texas.

More recently, McDonald’s entered into a number of virtual PPAs in 2022.

In September of that year, EDF Renewables North America announced a 15-year virtual PPA with McDonald’s tied to a solar project in Texas that is scheduled to come online in 2024.

In December 2022, McDonald’s and all five members of the restaurant chain's North American Logistics Council signed agreements with Enel North America to purchase renewable energy and the associated renewable energy certificates from Enel Green Power's Blue Jay solar project in Grimes County, Texas.

The virtual PPAs are for 189 MW from Enel's Blue Jay solar project, which is expected to be fully operational in 2023.

In February, EDF Renewables North America announced the execution of a 20-year virtual power purchase agreement with Thermo Fisher Scientific. The virtual PPA covers the full output of the 200-MW Millers Branch Solar Project, which is located in Texas and slated for commercial operation in December 2025.

Another corporation embracing virtual PPAs is Campbell Soup. In November of last year, Campbell Soup and Enel North America announced a 12-year virtual renewable PPA.

Through the agreement Campbell will purchase the electricity and the associated renewable energy credits from a 115-MW share of Enel’s Seven Cowboy wind project in Oklahoma.

Meanwhile, earlier this month, Duke Energy Sustainable Solutions reported that the 250-MW Pisgah Ridge Solar project in Navarro County, Texas, came online.

Charles River Laboratories International has a virtual power purchase agreement for 102 MW of the project over the next 15 years. Midwest retailer Meijer signed a separate 15-year virtual PPA agreement for 83 MW of solar energy generated by the Pisgah Ridge Solar project. One other company has a third 15-year virtual PPA agreement. Together, the three agreements account for more than 90% of the facility’s output.

All three virtual PPAs associated with the site will settle on an as-generated basis tied to the project’s real-time energy output.

Why Texas?

“Several factors have made Texas an attractive market for renewable energy development and virtual PPAs,” Greg Rizzo, Head of PPA and Renewable Energy Solutions at Enel North America, told Public Power Current.

Strong solar and wind resources, land availability, transmission investments “and straightforward permitting have enabled Texas to produce more renewable electricity – and associated RECs – than any other state. Texas’ deregulated, wholesale market with spot power prices has facilitated a robust market for VPPAs,” he said.

“However, this environment may be jeopardized by pending legislation in the Texas Legislature, which would undermine the state’s nation-leading renewables sector by increasing regulation and costs,” Rizzo said.

Fixed-Priced Virtual PPA

In February, Ever.green announced that it was partnering with Watershed, a climate platform, to launch the first fixed-price virtual PPA.

The long-term commitments of Watershed customers including Samsara, Stripe, and TaskUs will help build a new solar plant in Laredo, Texas.

The new fixed-price virtual PPA developed by Ever.green and Watershed allows companies to fix their long-term costs. This eliminates exposure to the volatile pricing inherent to a traditional virtual PPA, while still increasing a project’s likelihood of full financing by lowering the project’s overall financial risk, Ever.green said in a blog.

 Ever.green helps companies fund new solar projects through long-term contracts for Renewable Energy Certificates and a marketplace for transferable clean energy tax credits.

Pro-Public Power Group Raises Concerns About Michigan City Pursuing Virtual PPAs

Meanwhile, Ann Arbor for Public Power, a group formed to support the creation of a public power utility in Ann Arbor, Mich., recently came out in opposition to the city’s possible pursuit of virtual PPAs.

Virtual PPAs appear in the Ann Arbor Office of Sustainability and Innovation’s draft budget for the Community Climate Action Millage.

Ann Arbor for Public Power endorsed this millage and supports other initiatives in this draft budget, but does not support the funding of virtual PPAs. Virtual PPAs “are financial arrangements which are easy to frame as effective tools of decarbonization, but are complex, making them difficult to understand, and prone to pitfalls that undermine their effectiveness,” the group said, adding that it believes the costs of virtual PPAs outweigh the benefits.

Ann Arbor for Public Power said that while virtual PPAs may allow for the construction of new wind or solar, they will not reduce carbon emissions unless they replace fossil fuel generation.

“If there's not enough demand for the energy where it's built, building it at all actually increases carbon emissions,” the group said. It said that pursuing a virtual PPA “also means the financial and legal firms which will facilitate the deal charge the city a fee that could otherwise be more effectively used for decarbonization.”

The group said the money OSI is considering allocating to virtual PPAs “should instead be used for programs that make direct, local change to reduce carbon emissions, such as building local solar and energy efficiency programs.”