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August 24, 2023
As VPPA costs increase, is it time to shift your renewable procurement strategy to unbundled RECs?
Over the last several years, forecasted VPPA economics have decreased due to upward pressure on PPA prices and downward pressure on long-term power price forecasts. As a result of this shift, VPPAs are projected to come at a premium on a per/REC basis in comparison to an unbundled REC purchase, particularly in markets like ERCOT, SPP and MISO, where unbundled REC prices are currently less than $3/MWh. In certain pricing scenarios, VPPAs are projected to come at 3-4 times this cost or more. As the cost gap between VPPAs and unbundled RECs has widened, many buyers are contemplating the additional value they receive through a VPPA.
While purchasing RECs can be an effective bridge solution for many buyers, VPPAs offer significant advantages over unbundled RECs. Some REC markets are illiquid due to their bilateral nature and shallow supply of RECs, and a long-term REC purchasing strategy – particularly to cover hundreds of thousands of MWhs or more – is subject to future supply risk. VPPAs not only provide organizations with a reliable, long-term supply of renewable energy but also contribute to the buildout of new renewable energy projects – a concept referred to as “additionality.”
Unlike unbundled RECs, VPPAs directly support the development and construction of new renewable energy facilities by allowing developers to secure financing for their projects, increasing the overall renewable energy capacity on the grid. This allows businesses to play an active role in the transition to a cleaner energy system, reducing their carbon footprint and thus demonstrating a genuine commitment to sustainability.
Beyond this, renewable energy project development creates meaningful community and societal impact that VPPA offtakers can directly contribute to. Renewable energy projects provide a range of benefits including job creation, training and workforce development, county tax benefits, local partnerships, local community donations and investments, and increased access to renewable energy.
Individual projects may have their own specific benefits that reach beyond this, including repurposing of brownfield land, or dual land use such as leveraging solar panels to create suitable habitats for pollinators. Renewable energy buyers may target specific projects or developers based on causes or communities that are particularly important to them.
Source: Buzzing Around Solar: Pollinator Habitat Under Solar Arrays | Department of Energy
Overall, corporations are charged with determining their own renewable procurement decisions based on factors like budget, business priorities, and requirements of clients and stakeholders. Some buyers may choose to shift away from the VPPA market to pursue less costly options, but many continue to view PPAs as a higher-value, higher-impact product that is worth the expected premium. We continue to see this demonstrated through significant and sustained buyer demand. While there is no “one-size-fits-all” solution, it is important to understand the potential value of different options in conjunction with the expected cost.
