Virtual Power Purchase Agreement Accounting

Organizations that study the structure of the VPPA generally focus on sustainable business practices, reducing the carbon footprint and investing in renewable energy. As with any investment, the impact of these “green” initiatives is important in assessing their real return on investment. For example, the purchase of unbundled UC is a low-solution solution to meet renewable energy targets. These RECSs are easily accessible, can come from new or existing resources anywhere in the county, from any “renewable” energy resource. The signing of a synthetic AAE with a new solar project is much more efficient, because the long-term contractual obligation to purchase the project`s energy allows the development of the project and the inclusion of the grouped UC recognizes the production of clean electricity. This allows companies to assert that their purchase of renewable energy has a direct and significant influence on the addition of a new renewable energy project. These effects lead to significant marketing and branding opportunities, and organizations are certainly jumping with it on board. With a synthetic AAE, there is no physical supply of electricity to the buyer`s charging centers. In fact, the buyer will continue to pay his electricity bills, as they always do. A virtual AAE is a purely financial agreement that serves as a hedge for electricity prices. In addition, the buyer receives Renewable Energy Credits (RECS) under the VPPA, which allows the buyer to claim rights to their greenhouse gas reductions and the purchase of renewable energy.

Those with a financial background will recognize this structure as a differential contract (CFD) or a fixed financial swap using floats. A corporate AAE, sometimes called a virtual power purchase contract, is a hybrid contract that includes a difference contract and an agreement to provide the project`s renewable energy credits. As part of a business AAE, there is no physical supply of electricity. On the contrary, the agreement provides for a regular payment based on the difference between an agreed fixed price and a variable market price, usually in a market or project node. VPAPs are flexible and can help companies aggregate their load into a single renewable energy project under a single AAE, regardless of where their individual facilities are located. The VPPA is a separate financial contract that does not directly affect an organization`s traditional electricity supply. The organization continues to purchase electricity from the distribution company, in addition to the VPPA for renewable energy. PPAs can be quite complicated and represent some unique and interesting accounting challenges. This e-newsletter takes into account certain factors relevant to readers` awareness.

Derivative valuation considerations should be taken into account in the accounting of corporate data purchase contracts (“CORPORATE PPAs”) in both U.S. GAAP and IFRS. Like a traditional vPPA, the SGA and the VFA may require complex accounting analysis and the application of the corresponding financial accounting requires not only a clear understanding of the nature of the transaction and the rights and obligations of their parties, but also the ability to navigate appropriately by coding the Financial Accounting Standards Board`s Accounting Standards (CSA). Most commercial and industrial buyers of renewable energy use a contractual structure known as the virtual power purchase contract (“vPPA”) that exposes them to significant financial volatility fuelled by commodity prices, project performance and weather conditions.