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A brief guide to valuation for virtual power purchase agreements (VPPAs)
When VPPAs may require fair value and why getting it right can be challenging
Virtual power purchase agreements (VPPAs) can advance renewable goals and manage power-price exposure, but accounting and valuation are often complex. Some require recurring fair value measurement, demanding robust models with unobservable inputs, and increasing audit focus.
How VPPAs work
A financial settlement plus renewable energy certificates
Under a VPPA, the project sells power to the grid at market prices while the buyer gets the project’s renewable energy certificates (RECs). The contract then settles financially against the fixed VPPA price. If market price is higher than the fixed price, the project pays the buyer the difference. If market price is lower, the buyer pays the project the difference.
When VPPAs may need to be valued
Start with derivative and embedded derivative considerations under your reporting framework
Why VPPA valuation can be hard to get right
VPPAs can feel high stakes. With terms that can run up to 20 years, pricing and assumptions often require more judgment, and even small power-price moves can drive noticeable fair value swings and added scrutiny. Valuation is typically specialized, too, relying on robust forecasts, curve construction, and options-style modeling. The goal is not a one-time estimate, but a repeatable process that can be applied consistently each close for VPPAs.
Matt Davis
Helen Deng
Adam Weingarten
