Retail Solar PPA

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What Is A Sleeved PPA?

As a large organization, a Power Purchase Agreement (PPA) is often the most accessible and effective way for an organization to procure large amounts of renewable energy. The two most common types of PPAs are sleeved PPAs, also called a direct PPA or retail PPA, and Virtual Power Purchase Agreements (VPPAs). According to the Business Renewables Center, about 20% of large-scale corporate renewable energy deals are sleeved PPAs. 

In a sleeved PPA, an intermediary utility company handles the transfer of money and energy to and from a renewable energy (RE) project on behalf of the buyer. The utility takes the energy directly from the RE project and “sleeves” it to the buyer at its point of intake, for a fee. If the purchased renewable energy isn’t enough to meet the buyer’s energy needs, the utility is also responsible for supplying the additional power required. 

A Sleeved (Direct) vs. Virtual PPA

If you’ve weighed the risks and benefits of a VPPA for your renewables purchase and are uncomfortable with the level of risk, a sleeved PPA may be a good option to explore. Unlike a VPPA, in a sleeved PPA:

  • The buyer does not need to be intimately familiar with wholesale power market dynamics; and 
  • The buyer is not subject to wholesale power market price fluctuations because the utility bears the market risk

Additionally, a sleeved PPA is the best renewables purchase option available when:

  • The buyer is not set up to be able to purchase balancing power — power that’s needed when renewable energy isn’t available due to weather conditions or time of day
PPS Direct Retail

Some very large and sophisticated organizations have set up mini utility models to avoid having to purchase balancing power, but this requires a large investment of both capital and time to gain expertise.

  • The buyer is in a regulated electricity market that does not have a Regional Transmission Organization (RTO) or Independent System Operator (ISO) — like the Southeastern U.S.
  • The buyer is in a deregulated energy market, like Maryland or Pennsylvania,  where the sleeved PPA mirrors an electricity supply contract.

Sleeved PPAs in Regulated vs. Deregulated Markets

Given their nature, sleeved PPAs are much more common in deregulated markets, but they can also exist in regulated wholesale power markets as well.

How Sleeved PPAs Work in Deregulated Markets

If you operate in a deregulated electricity market, a sleeved PPA — also referred to as a Direct PPA or Retail PPA — is a great tool for purchasing renewable energy to meet corporate sustainability goals. They’re particularly advantageous for organizations with large, fragmented loads or limited onsite opportunities. By sleeving your PPA with a utility supplier, you gain key benefits while reducing your organization’s exposure to market risks:

  1. The utility assumes the market (price), volume and shaping, and basis  risks
  2. Reliability of power supply – power when the renewable project is not producing
  3. Long term, fixed rate for power
  4. Control over power-pricing relationship vs. paying a tariff set by the utility
  5. Easier verification that energy is procured from a particular renewable source
  6. No upfront costs or capital expenditure requirements
  7. Option to claim additionality — indicating that your organization is driving the construction of new RE projects

Sleeved PPAs generally have few drawbacks, with the most common ones being:

  • The contract involves three parties — Energy Buyer, Utility, RE Project
  • The buyer must pay the utility a fee for management, sometimes called a ‘sleeving fee’

Sleeved PPAs in Regulated Markets

The most common way a buyer can enter into a sleeved PPA within a regulated power market is through a Green Tariff. With a Green Energy Tariff, the utility supplies the customer with up to 100% renewable power from projects controlled by the utility. Green Tariffs come in many forms, so take time to look at a Green Energy Tariff comparison, to familiarize yourself with the differences between each.

The most common type of Green Energy Tariff explained

The most common type of Green Tariff in the utility scale renewables market is the type where the utility passes the terms and structure of a PPA with a RE project through to a customer. In most cases, they avoid shifting costs and risks to non-participating customers. And typically, the customer can purchase Renewable Energy Credits (RECs) and other environmental attributes from the contracted RE projects. Unlike deregulated markets, when entering into a sleeved PPA through a Green Energy Tariff, the buyer gives up much more control to the utility.

Explore Your PPA Sleeving Options

If your company is looking for a risk-averse solution to meeting its sustainability goals, a direct PPA is worth exploring. Learn more about how you can meet your energy needs while simultaneously reducing your collective carbon footprint. Contact Urban Grid Solar today.

Virtual Solar PPA (VPPA)

Solar Power from the Sun

A Virtual Power Purchase Agreement (VPPA), also known as a Synthetic PPA, or Contract for Differences, is a popular type of renewable energy contracting structure that provides a financial hedge against future energy fluctuations.

The VPPA structure supports bringing new, clean renewable energy onto the grid on behalf of the offtaker, and opens the door for meeting an organization’s sustainability goals as well as additional marketing opportunities. While the Virtual PPA can be a complicated undertaking, working with a partner like Urban Grid will help ensure your organization achieves their renewable energy goals, while limiting exposure to unnecessary risks.

What is A Virtual PPA?

A Virtual PPA is a contract structure in which a power buyer (or offtaker) agrees to purchase a project’s renewable energy for a pre-agreed price. In this agreement, the utility-scale solar project receives the market price at the time the energy is sold. If the market price is greater than the fixed VPPA price, the offtaker/buyer receives the difference. If the market price is less than the fixed VPPA price, the offtaker/buyer pays the project to make up the difference. In this way, a Synthetic PPA acts as a financial hedge against volatile electricity prices. Typically, the buyer receives the project’s Renewable Attributes, or Renewable Energy Certificates (RECs). Because there is no physical delivery of power, the VPPA is a great option for large electricity consumers with a fragmented/distributed electric load to support  the development of new renewable energy resources.
Virtual Solar PPA (VPPA)

Benefits of a Synthetic PPA


A Synthetic PPA guarantees the project a fixed price for its output, which is critical for developers that are looking to finance new projects. The energy and bundled RECs acquired through a VPPA are directly attributable to new “additional” renewable energy facility which is adding new clean energy to the grid and displacing fossil fuels. The project would not happen “but for” the VPPA and it is thus truly “additional” and impactful. As corporate renewable energy procurement and reporting on energy use and emissions faces increasing scrutiny, procuring bundled RECs will be the best practice for meeting corporate renewable energy goals.


Organizations exploring the VPPA structure are typically focused on sustainable business practices, reducing carbon footprint, and investing in renewable energy. Just as with any investment, the impact of these “green” initiatives is important in evaluating their true return of investment. For example, purchasing unbundled RECs is a low impact solution for achieving renewable energy goals. These RECs are easily attainable, may come from new or existing resources anywhere in the county, from any “renewable” energy resource. Signing a Synthetic PPA with a new solar project is substantially more impactful as the long-term contractual commitment to buy the project’s energy enables the development of the project and the inclusion of the Bundled RECs recognizes the clean power production. This enables organizations to claim that their renewable energy purchase has a direct and meaningful impact on the addition of a new renewable energy project. This impact translates to significant marketing and branding opportunities and organizations are certainly jumping on board.

Positive Net Present Value

Unlike a traditional Unbundled REC purchase, which always costs money, the VPPA swap provides RECs at a price determined by the net difference between the fixed VPPA Price and the wholesale market price. A positive difference between the market price and the fixed VPPA price can lead to significant positive cash flows. In many earlier VPPAs, the fixed VPPA price was at or above the market price, and the buyer had to look to price forecasts to determine if the project would eventually provide a positive NPV. Now, there are markets and projects where it is possible to secure a fixed VPPA price which is below the current market price, meaning that the Virtual PPA will generate positive cash flow beginning day one.

Ability to Offset Dispersed Load

VPPAs are flexible and can help companies aggregate their load to a single renewable energy project under a single PPA, regardless of where their individual facilities are located. The VPPA is a separate financial contract that, in fact, does not affect the traditional electricity supply for an organization directly. The organization continues to purchase electricity from the utility, in addition, enters the VPPA for renewable energy.


By entering a long term Synthetic PPA, the buyer is locking in a price for Bundled RECs based on the wholesale market price of electricity. If wholesale prices rise, then the buyer’s conventional energy supply costs will also likely rise. The buyer will likely make money on the VPPA deal and the profits made can offset higher conventional energy costs. Conversely, if the VPPA price is greater than the wholesale market price, the buyer will be paying the net difference to the project to provide their required fixed revenue stream, but they will also likely realize lower conventional energy costs. In this regard, the VPPA acts as a hedge against rising conventional energy costs.

VPPA Structure: Legal, Accounting and Regulatory

Power purchase agreements, especially VPPAs, can raise internal accounting issues. While we cannot provide accounting advice in this blog, there have been numerous VPPA’s structured and executed by all types of organizations. We recommend discussing the accounting impacts with your accountant early on to ensure proper internal accounting treatment.

Another important regulatory consideration to ensure you understand when evaluating a VPPA is the impact of the Dodd-Frank Act. Because a VPPA is a fixed for floating swap, it is subject to Dodd-Frank, which requires registration and reporting of the transactions. In most cases, the renewable energy project owner will perform these tasks on your behalf, but it is important to confirm this in the negotiation of the VPPA. If you are a financial services firm, you may be subject to additional obligations for filing under Dodd-Frank. Again, we recommend involving your internal legal and accounting team early in the process to answer these questions. A good VPPA partner can help with understanding the contract structure and how it’s unique terms may impact your organization.

Advancing Renewable Energy Is Good Business Leadership

If your company is looking for impactful ways to reduce your collective carbon footprint, that also includes financial and marketing benefits, the Virtual PPA may be a workable option for a growing number of companies.

Interested in learning more about how your company can make a difference with renewable energy? Contact Urban Grid Solar.