Decarbonizing with virtual power purchase agreements

Companies across the U.S. are trying to “decarbonize” by reducing emissions of greenhouse gases—what they use directly in vehicles and machinery and electric power that is generated using fossil fuels. One increasingly popular decarbonizing strategy is the virtual power purchase agreement. With VPPAs, companies can get credit for purchasing renewable energy that do not actually use. Compared to some renewable energy sourcing methods, VPPAs are quick and scalable. They can also be structured to mitigate the impact of price fluctuations.

However, VPPAs are complex and require careful design and implementation. Like all financial instruments, VPPAs entail financial risk, which varies depending on the exact terms of the contract. Another consideration for entering into VPPAs is how much is being contributed to the decarbonization of the local grid. If the renewable energy developer is based in a different power market, the VPPA may technically not be contributing to the local power market’s grid decarbonization. Standards setting organizations are looking to make sure VPPAs actually add to the use of renewables.

In this paper, KPMG helps energy users navigate the shifting VPPA and GHG reporting landscape. We outline practical approaches to managing existing VPPAs, assessing relevant energy markets, and staying on the right side of evolving regulations.