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Virtual Power Purchase Agreements

Finalize Your Financial Analysis and Prepare Your Presentation

Your final financial analysis should calculate how much you expect the VPPA to cost your city over its lifetime and present the results in terms of net present value (NPV). As noted previously, given the complexity of this modelling, many buyers choose to hire external consultants to perform this analysis.

When you present your financial analysis to your city’s CFO or equivalent, you should also note the potential benefits of VPPAs, such as the following:

  • Virtual PPAs can stabilize a city’s energy expenses in some cases, making energy costs more predictable over a long period.
  • Off-site PPAs, including VPPAs, are signed with large projects and therefore benefit from economies of scale that are difficult if not impossible to achieve through on-site or community-solar projects. As a result, these deals can often provide renewable energy at the lowest possible cost.
  • VPPAs are geographically flexible, allowing cities to site projects to optimize against a range of goals such as emissions reductions, financial returns, hedge protection, etc. For example, MIT signed a VPPA in North Carolina based in part upon its desire to maximize greenhouse gas reductions. Moreover, this flexibility allows cities to sign VPPAs in other states even if these transactions are not feasible in their local utility regulatory environment. 
  • Up-front construction costs to build the project are covered by debt and equity investors, meaning that the city will not have to provide any up-front capital investment.

You may also wish to mention or explicitly include the “value” of any ancillary benefits this deal would provide to your community in addition to GHG emissions reduction impact. These values might include local workforce development or local air quality and health benefits. See the Prioritize Specific Renewable Energy Initiatives section in “Getting Started” for links to tools that can help quantify these benefits. Financial Model:
NREL’s System Advisor Model (SAM) is an excellent tool to understand the potential costs of renewable energy systems given certain inputs. NREL published the Excel model which lies behind SAM’s utility-scale project calculations here

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