Virtual Power Purchase Agreements in International Markets

As the world intensifies efforts to combat climate change, Virtual Power Purchase Agreements (VPPAs) have emerged as a key instrument driving renewable energy adoption in international markets such as the United States and Europe. By enabling corporations, municipalities, and institutions to support clean energy projects without direct electricity delivery, VPPAs provide a flexible, market-based approach to decarbonization. This article explores how VPPAs function in these regions, their benefits, challenges, and future prospects.

Europe has long been at the forefront of renewable energy adoption. The European Union’s Renewable Energy Directive mandates a 42.5% renewable energy share in final energy consumption by 2030, fueling the rise of VPPAs. Countries with liberalized energy markets, such as Spain, the United Kingdom, and the Nordics, have become hotspots for these agreements. Further, Europe’s established trading systems facilitate cross-border VPPAs, allowing companies to operate in multiple countries.

In Europe, the majority of cross-border clean energy Power Purchase Agreements (PPAs) seem to take the form of virtual PPAs (VPPAs). For example, in 2024, Companies within the Deutsche Telekom Group, including T-Mobile Czech Republic, Slovak Telekom, and CE Colo Czech Republic, have entered into cross-border VPPAs with Rezolv Energy, a Prague-based renewable energy company. The power for these agreements will be supplied by the 461 MW "VIFOR" wind farm, currently under construction in Romania by Rezolv and Low Carbon. These VPPAs are facilitating the development of the project’s initial phase, with a second phase planned to provide an additional 700 GWh of electricity annually for corporate clients.

The US has become a global VPPA leader, thanks to its vast renewable resources and deregulated electricity markets. According to BloombergNEF, the US remained the largest market for clean energy corporate PPAs, with 17.3GW of deals announced. A majority of these agreements were VPPAs. In 2022, VPPAs accounted for 12.5GW of deals of the total corporate clean energy PPAs of 17 GW. Texas, with its wind and solar potential, remains a dominant market, while regions like the Midwest and Southwest also see strong activity. Major corporations such as Walmart, General Motors, and Meta have all engaged in VPPA deals to secure clean energy and reduce emissions. The Inflation Reduction Act (IRA) of 2022 has further catalyzed the market, providing long-term tax incentives for renewable projects.

In the US, the availability of renewable energy sourcing options depends heavily on the type of market (regulated vs deregulated markets), though state-specific regulations also play a role. VPPAs are viable in both regulated regions, such as the Southwest, Northwest, and Southeast, and deregulated markets like PJM, NYISO, and MISO. Organizations operating in their local markets might encounter limitations, such as restrictions on utility green tariff programs. These limits, often determined by a state’s public services commission, can restrict the maximum megawatt capacity available annually. By utilizing a VPPA, buyers gain access to a broader range of markets with greater project availability, which can be especially advantageous for organizations facing tight deadlines to meet their renewable energy goals.

Further, smaller businesses often struggle to secure renewable energy contracts because their electricity needs are modest, typically accounting for a small percentage of a wind or solar farm’s output—too little to attract the interest of renewable energy developers. In the US, Platforms such as LevelTen Energy aggregate small buyers and connects them with suppliers to unlock access to deals typically reserved for larger, high-volume buyers. For example, 42.5 MW from a 100 MW solar project in North Carolina, developed by BayWa r.e., a global renewable energy firm, was allocated to a coalition of companies that jointly entered a VPPA, effectively serving as the primary buyer for a significant offsite renewable energy initiative.

VPPAs provide flexibility, allowing buyers to support renewable energy projects without being limited by geographical constraints. VPPAs also contribute to decarbonization by driving the development of new clean energy initiatives, which supports the achievement of net-zero targets. Additionally, these long-term contracts ensure cost stability by helping buyers hedge against fluctuations in electricity prices. From a corporate perspective, VPPAs enhance sustainability credentials, boosting a company’s Environmental, Social, and Governance (ESG) impact. Furthermore, many renewable energy projects funded through VPPAs are located in rural areas, where they create jobs and deliver economic benefits to less urbanized regions.

Innovations are fuelling the expansion of VPPAs by addressing diverse buyer needs and market dynamics. Shorter-term VPPAs, spanning 5-7 years, are gaining traction as they appeal to buyers wary of long-term commitments, reducing perceived risk. Meanwhile, multi-buyer agreements are enabling smaller organizations to collaborate and collectively tap into VPPAs, broadening access to renewable energy contracts. The integration of energy storage, such as batteries, with VPPAs is another advancement, improving grid reliability and offering greater financial consistency by smoothing out energy supply fluctuations. Additionally, VPPAs are expanding into new regions, both in the US and Europe, reflecting the increasing global adoption of this model.

Conclusion

VPPAs are revolutionizing renewable energy procurement in both the United States and Europe. By bridging the gap between sustainability-driven buyers and renewable developers, these agreements provide financial stability while accelerating the clean energy transition. Despite challenges such as regulatory complexity and market risks, ongoing innovations and policy support ensure that VPPAs will remain a cornerstone of the global push toward a greener, more resilient energy future.