An electricity purchase agreement (PPA) is a contract between an energy buyer and the developer of a renewable energy project that has not yet been built. In the contract, the buyer guarantees that the developer will receive a fixed price for his energy, and in exchange, the buyer will receive renewable energy credits (RECs) for every megawatt-hour of clean energy produced and sold. PPAs are long-term contracts with a duration of 12 to 20 years that allow the developer to provide long-term financing and build the project. Unlike a physical power purchase contract, a virtual AAE is a simple monetary contract. This is why it is also known as the Financial Power Purchase Agreement. A virtual energy sales contract is a long-term contract between a company and a developer. As the name suggests, there is no physical exchange of energy in a virtual energy sales contract. What it means: For many business buyers, there are accounting reasons for not defining the amount of energy a facility has to produce each month to maintain its contract. Instead, we usually enter into agreements on the number of times the facility must be open and capable of producing. We call this the availability guarantee.
Electricity supply agreements, particularly VPPa, can cause internal accounting problems. Although we cannot offer accounting advice in this blog, there are many structurings and executions of all kinds of organizations. We advise you to discuss the impact on accounting at an early stage with your accountant to ensure good internal accounting treatment. Once you have identified a renewable energy project that meets your organization`s requirements and are ready to continue with a Virtual Power Agreement for Purhase (VPPA), the terms of the contract will be indicated to you. By opening negotiations, you indicate your intention to obtain the energy generated by the project. In return, the project proponent will generally agree not to sell this portion of the energy to other buyers for 90 days, giving you time to verify the technical information related to their installation and negotiate the legal and financial terms of the contract that are important to your organization. With a synthetic AAE, there is no physical supply of electricity to the buyer`s charging centers.