Evaluate Potential Regions and Technologies - American Cities Climate Challenge

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Virtual PPA

Evaluate Potential Regions and Technologies

There are five critical dimensions to understanding the market in relation to a potential VPPA: renewable resource availability, PPA pricing, market pricing, hedge value, and your local grid profile. The latter is important for understanding the environmental attributes of your grid’s electricity, such as greenhouse gas (GHG) emissions and other pollutants. 

To better understand your market, you may want to research:

  • Wind and Solar Resources

    The location of a wind or solar farm will have a significant impact on both the expected output and PPA price. Typical wind or solar resources can vary significantly across geographies—even between two locations in the same state. NREL’s Resource Maps provide summaries of the available wind, solar, and other resources available in the United States.

  • PPA Prices

    To understand current PPA prices in different US wholesale markets, see LevelTen’s price index. LevelTen collects data on projects and pricing from a variety of developers and periodically shares it in an aggregated format. Lawrence Berkley National Laboratory’s annual wind and solar reports provide historical data on PPA pricing and trends in different parts of the United States.

  • Electricity Market Prices

    VPPA prices need to be compared to the relevant wholesale market prices to determine possible financial implications for your city. You should first clarify which wholesale market the project sits within; this map should help address this question. You can download historical wholesale electricity prices here (for most markets); here for PJM; or here for the Southern Power Pool.

  • Hedge Value

    VPPAs can help cities stabilize their overall energy expenses, as illustrated in the table below. The two left-most columns show a city’s expenses with and without a VPPA in the current year; in this example, having a VPPA reduces the city’s overall expenses. The three right-most columns illustrate possible scenarios for what would happen if electricity prices rise. If no VPPA is in place, the city simply pays more for electricity, as shown in the third column, labeled “No VPPA”. In the fourth column, labeled “Effective VPPA Hedge,” the city has signed a VPPA in a market where wholesale prices, and therefore VPPA revenues, have also risen, thereby stabilizing the city’s expenses and providing the city with an effective hedge. However, not all VPPAs offer effective hedges; the fifth column, “Ineffective VPPA Hedge,” illustrates how a VPPA could further increase the city’s costs if the project is in a location where prices have fallen. If hedging is a priority for your city, you should plan to work with a renewable energy expert to find projects that offer effective hedges (see “Build a Deal Team” for more information). As a rule of thumb, a VPPA hedge will generally be more effective if the project is geographically close to your city and generates at the same time of day as when your city facilities use the most electricity.

  • GHG Emissions Reduction Impact in Your Market

    Renewable energy production reduces GHG emissions if it displaces fossil-fuel energy. which otherwise would have been needed to meet electricity demand. The EPA’s eGrid data provides information on average emissions per MWh in your local electricity market. While these data include state-level emissions, we recommend using your eGrid subregion rather than state-level data, as subregion boundaries are more meaningful with respect to grid operations. If you’re interested in a more nuanced and accurate assessment of the potential GHG impacts of a project, you may wish to consider working with a group like WattTime, which calculates more accurate emissions figures on an ongoing basis.

  • Local Economic Impact

    If a VPPA is signed with a renewable energy project in your state or region, there may be an opportunity to use its development to promote local jobs and economic impact. As an example, the City of Philadelphia requested that proposers for its PPA offer mechanisms to include the City’s local workforce in the project development and construction. However, these opportunities may be limited or non-existent for projects that are developed in other states or regions.

Value vs. Price

As a buyer, it’s easy to focus exclusively on the PPA prices quoted by developers and simply choose the project with the lowest price. However, with VPPAs, it’s vital to consider not just the price, but the overall value of a deal. A VPPA with a low price per MWh can still lose money if the project is located in an area with very low electricity prices; meanwhile, a relatively expensive VPPA can be profitable if the project is located in a region with high electricity prices.