Virtual vs Physical PPA: What’s Right for Your Business?
As the pressure to decarbonize intensifies, more businesses are turning to Power Purchase Agreements (PPAs) to lock in renewable energy and meet their sustainability goals. But there isn’t just one kind of PPA—there are two main types: Virtual PPAs (VPPAs) and Physical PPAs.
Understanding the difference is essential to making the right strategic choice for your business.
What Is a Physical PPA?
A Physical PPA is a contract where your business buys electricity directly from a renewable energy generator. The power is delivered to your facilities via the grid, and you physically consume the energy.
Companies with large on-site energy needs and the ability to manage physical energy delivery—typically in locations where wholesale energy markets are accessible.
What Is a Virtual PPA?
A Virtual PPA (also known as a Financial PPA) doesn’t involve the physical delivery of electricity. Instead, it’s a financial contract for differences. Your company agrees to pay a fixed rate for renewable energy, and the generator sells the actual power into the market. The difference between the fixed PPA rate and market price is settled financially.
You still receive the Renewable Energy Certificates (RECs) associated with the energy, allowing you to claim the environmental benefits.
Key Features:
- No physical delivery of power
- Financial settlement based on market rates
- Flexible and accessible even for companies in regulated markets
- Supports off-site renewable energy development
Which One Is Right for Your Business?
Choose a Physical PPA if:
Your business has steady, high electricity usage, access to competitive wholesale markets, and the infrastructure to manage physical energy delivery.Choose a Virtual PPA if:
You operate in multiple regions, want a more flexible solution, or can’t access physical delivery options due to market or logistical constraints.