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Virtual Power Purchase Agreements

Negotiate the Contract and Obtain Final Approval

Negotiating the contract will be an iterative process. You should rely heavily on your legal counsel and team to finalize the agreement. Some issues that may be important at this stage include:

  • Restrictions around the sale of the project

    You will want to have a process in place to ensure that the project is not sold to an entity that lacks the financial resources or capabilities to properly maintain and operate it.

  • What happens if the project falls behind schedule

    You should consider whether and how the city should be compensated if the project is not operational by specific deadlines, particularly if your city has relatively short-term sustainability requirements. You may also want to build in contractual obligations for the developer to provide regular construction updates.

  • Invoicing procedures

    It can be useful to identify a mutually agreed upon template for the developer to send monthly financial statements and invoices to the city.

  • Communications protocols

    As discussed in the next section, it is important to align with the developer on what information should be released publicly and when it can be released. You may want to specify some norms or communication protocols in the contract itself to avoid misunderstandings later on.

Note that you may need to revise your financial analysis during this process to incorporate changes in PPA prices or other key variables that arise during the negotiation process. Once you have reached a mutually agreeable contract, it is time to request final approval from your city leadership.

As described previously, it is important to involve key decision makers early and often to ensure their support throughout this process. Your final presentation to your city’s leadership should build upon the support you have generated. To make the final decision as easy as possible, you should aim to have approvals from each internal department and any key internal advisors (e.g., the mayor’s chief of staff) before approaching the mayor, city manager, and city council.

While every city and every deal is different, here are some key topics that you should be prepared to cover:

  • Your rationale for this deal

    Be prepared to describe the thought process that led you to select a VPPA as a part of your city’s strategy and articulate the set of goals, priorities, and evaluation criteria that led you to select this project.

  • High-level deal terms

    Understand your deal length, VPPA price and escalation rate, project size, location, and timeline for project development.

  • Deal economics

    Bring the results of the economic analysis to these discussions. Having the finance lead sign off on the model may be enough for some mayors/councils, but some may want a more granular picture of the project economics and different sensitivities. You may find it useful to compare any additional cost from a PPA with what the city would otherwise have to spend to purchase unbundled RECs to meet its sustainability goals.

  • Communications opportunities

    What can your city claim after this project has been completed? What potential headlines, big-win stories, or publicity might come from this project? Are there any potential negative consequences or fallout that the city should anticipate?

  • Outstanding issues and project risks

    Are there still any outstanding issues with the project developer (e.g., permitting processes, financing, etc.)? It may be important to highlight what outstanding items remain and if you anticipate needing additional sign off in the future.

  • Approvals

    The names and approvals of each person who has approved the deal in its final form.

Outcome

  • A signed contract which has been approved by all key stakeholders

Learn More

Even if you expect your VPPA to be profitable, you should avoid trying to sell the project purely on its financial merits. Instead, you should focus on why the PPA is the best means to achieve your city’s sustainability targets.

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