By Tony Hudgins
Virtual power purchase agreements (VPPAs) have emerged as a popular way to procure renewable energy. VPPAs allow companies to contract with renewable energy projects, typically wind or solar farms, to purchase renewable energy credits (RECs) and hedge against rising electricity costs.
However, VPPAs are complex and typically only manageable by very large energy buyers who can offtake the entire output of a utility-scale renewable project. Smaller companies with more modest energy needs have been left out. One emerging solution is the aggregated VPPA.
How Aggregated VPPAs Work
In an aggregated VPPA, a group of renewable energy buyers team up to collectively purchase the output of a utility-scale renewable project. The buyers negotiate together with the developer under the same contract terms. However, each buyer signs their own contract for their slice of the total project capacity based on their energy needs.
For example, imagine a 200 MW solar farm. A large anchor buyer may contract for 150 MW, while 3-4 smaller buyers may contract for 10-20 MW each to make up the balance. The developer signs separate PPAs with each off-taker. Once the project is operational, the developer manages each contract individually, invoicing each buyer for their contracted amount.
The key is the buyers aggregate their demand to reach the scale needed to contract the entire output of a cost-effective renewable project. The aggregation itself is a temporary arrangement to enable the deal. After the contracts are signed, each buyer manages their own agreement with the developer.
Pros and Cons of Aggregated VPPAs
The clear benefit of aggregation is it makes large-scale, cost-effective renewable projects accessible to smaller energy buyers. By teaming up, companies with modest energy needs can still make a big impact, contracting new wind and solar farms that displace fossil fuel generation and reduce emissions. However, while aggregation spreads costs across multiple buyers, it actually makes the process more difficult, requiring more coordination between buyers and their individual decarbonization objectives.
Aggregated deals can be complex to execute because the buyers need to be aligned on key terms like project location, technology, price, volume, and risk tolerance. Negotiations and approvals also need to move forward on a similar timeline to avoid delays. Ideally, there is a clear leader, either a large anchor buyer or a third-party advisor, who coordinates the process.
Without close collaboration, aggregated deals can easily fall apart. Buyers may also have less influence over contract terms compared to negotiating their own VPPA. So while aggregation lowers the barrier to entry, it still requires significant time and effort to complete a deal.
Corporate Aggregation in Action
Several pioneering companies have successfully used aggregated VPPAs to procure renewable energy:
- In 2018, Apple, Akamai, Etsy, and Swiss Re teamed up to contract 290 MW of wind and solar power from new projects in Illinois and Virginia. By aggregating, Etsy was able to contract just 4.5 MW, the smallest corporate VPPA on record.
- In 2019, Bloomberg, Cox Enterprises, Gap Inc., Salesforce, and Workday partnered on a 100 MW solar project in North Carolina. The group used a uniform VPPA contract to streamline negotiations.
- In 2021, working with Sustainability Roundtable, MilliporeSigma, Akamai, Synopsys, and Uber entered an aggregation deal to purchase 111 MW Of Wind Energy From Enel Green Power. Each taking a portion of 350 MW from the Azure Sky wind project in Texas.
These examples show that aggregated VPPAs can be a viable option for companies of all sizes to procure renewable energy. But they also highlight the importance of having shared priorities, a clear structure with anchor buyers taking the lead, and strong coordination to navigate the complexities.
An aggregation alternative without the complexity or multi-buyer coordination is the AREC Market. The AREC market aggregates supply from new "yet-to-be-built" projects and demand from any number of buyers. So companies can procure "additional" renewable energy at a fixed price comparable to a VPPA, without having to source other buyers, structure a multi-party deal, and take on a long-term contract. The AREC Market handles aggregation behind the scenes, enabling buyers to transact in amounts as low as 10,000 MWh to meet their specific decarbonization needs.
The Bottom Line
Aggregated VPPAs have opened the door for more companies to procure renewable energy and make a meaningful climate impact. But they still require significant effort to execute. Newer options like the AREC Market now make it possible to gain the benefits of aggregation, including access to cost-effective new projects, without the complexity of structuring multi-party deals. As the corporate renewables market evolves, simpler and more flexible procurement options will help accelerate the clean energy transition.
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