Virtual Power Purchase Agreements on the Rise: Benefits, Challenges, and Credit Considerations
Summary
This commentary explores virtual power purchase agreements (Virtual PPAs), which have shown significant growth and offer benefits to both electricity buyers and sellers, but there are some downsides as well. We also highlight the key differences between Virtual PPAs and physical delivery PPAs (Physical PPAs).
Key Highlights
— The Virtual PPA is a flexible tool for both project developers and corporate buyers in the renewable energy sector, capturing about 60% of the global PPA market share.
— Basis risk and minimum volume obligations are some of the major challenges in assessing the credit profile of a renewable energy project operating under a Virtual PPA.
— The incremental credit risk can be mitigated to a degree through conservative debt sizing and additional transaction enhancements.
“We expect the Virtual PPA market to grow substantially in the coming years, given the flexibility of these agreements and the declining market of Physical PPAs. From a credit risk perspective, we believe Virtual PPAs are generally riskier than Physical PPAs because of basis risk and the complexity of some contracts, which can increase cash flow volatility,” said Jiaona Quan, Assistant Vice President, Corporate Ratings, Project Finance.
The post Virtual Power Purchase Agreements on the Rise: Benefits, Challenges, and Credit Considerations first appeared on Informed Infrastructure.
Summary This commentary explores virtual power purchase agreements (Virtual PPAs), which have shown significant growth and offer benefits to both electricity buyers and sellers, but there are some downsides as well. We also highlight the key differences between Virtual PPAs and physical delivery PPAs (Physical PPAs). Key Highlights — The Virtual PPA is a flexible…