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Virtual PPAs, Being Proactive in a Seller’s Market



The virtual power purchase agreement (VPPA) market has changed. Today there is a steep market imbalance; there are “five-to-seven IG offtakers for every one VPPA project.”


How did we get here?

A significant market shift occurred over the past 12-18 months. Unsurprisingly, this is due to the age-old factors of supply and demand.


Demand for renewable energy has grown exponentially in recent years, especially as corporate ESG commitments proliferate.

This demand will further expand as electrification increases. Further, there has been a broader attention and appetite shift to clean energy sources and assets within the current macro-economic and geopolitical environments. This growing demand for renewable energy has prompted scarcity.


Simultaneously, supply has not kept pace with demand.

The pace and volume of project development have been held back. Regulatory challenges have plagued the market for years. Lengthy permitting processes and interconnection queues have resulted in waiting periods that can exceed 36 months. This means that it takes years for projects to go live. Supply chain challenges are pervasive – from market availability and pandemic-related supply contractions, to limits in panels that meet ethical manufacturing requirements, to onshore panel availability and concerns about meeting new domestic content requirements – equipment procurement hurdles abound. Finally, every corner of the market is affected by inflation and the broader macroeconomic environment. Inflationary costs have been added in all components of the value chain from input costs for silicon, to transportation, to labor costs. Taken as a whole, these supply challenges result in challenging project economics as costs rise across the board.


Simply put, limited supply is compounding the impact of unprecedented demand. Today this environment affords developers the luxury of selecting from a variety of investment-grade offtakers, However, this environment is unlikely to persist. Transactions and offtaker identification will not always be this easy.


Preparing for long-term success

A long-term view and intentional strategy can help. As corporates reach pledge targets and market obstacles ease, supply and demand will return to balance. Sophisticated developers today understand this and are engaging in pipeline planning to remain competitive in the future market.

The offtake market for VPPAs is diversifying as it expands

Demand from unrated and sub-investment grade counterparties is increasing. The ability to address this demand requires intentional planning and structuring. Bankability of long-term energy agreements with unrated or sub-investment grade offtakers will require increased collateral and/or security requirements. Corporate procurement teams and sustainability advisors need to be aware of emerging market solutions, and leading developers are being proactive.


Experienced developers see credit emerging as a procurement barrier for a large segment of the market

They are already scoping solutions that will allow them to support the sub-IG market segment, viewing it as a significant component of their future development plans. A few strategies leading developers are pursuing are:

  • Proactively building long-term relationships with clients with substantial energy needs who are not viewed as top-tier offtakers in today's environment. Many of these current and prospective clients will increase demand for clean energy and efficiency solutions, especially if they have franchise locations and/or subsidiaries that are often unrated or sub-investment grade.

  • Assessing project structures that can ease the transaction process when the need to move downstream arises, for example; parent guarantees, multi-offtaker load subscription to decrease cashflow dependence on any single obligor, increased buyer credit supports, stronger security rights, offtaker reserves

  • Assessing external risk mitigant products like credit sleeves and credit insurance products

Overall, developers are planning ahead to increase confidence in offtake from traditionally unbankable counterparties so that they will be well equipped to meet the needs of a notoriously underserved market.


The clean energy ecosystem will benefit from increased project development. Developers need all the help they can get from market participants to ensure viable project economics and offtake. We’re calling on all participants – developers, suppliers, financiers, advisors, and buyers – to collaborate and solve alongside eachother to increase the competitiveness of projects. Are you already contributing to this effort? Tell us how!

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Have questions on how Energetic Insurance can help increase the bankability of projects, contribute to a lower cost of capital, and expand market access? Contact us here.   

This article does not constitute and is not intended by Energetic Insurance to constitute financial advice or a solicitation for any insurance business.   

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