In the case of a virtual AAE, the energy does not physically pass from the project to the buyer. It is simply a financial contract, which is why it is often referred to as a financial PPPA. In a VPPA, energy is sold on the wholesale electricity market in a defined billing location (nodes, trading platforms or charging area). The buyer continues to receive his electricity from his utility at his supply rate. For more information on the differences between a physical PPA and a virtual PPP, see „4 questions to ask before choosing a contract to purchase physical or virtual energy.“ The share of wind or solar generation you end up through an AAE depends on how your company uses energy, while any gaps in the wholesale market can be filled. It also means that any excess production can be resold on the market at the spot price. In addition, companies that support companies` renewable PPPs generate significant investments in renewable energy projects in Australia. In fact, only 670 SMEs would be needed to engage in renewable AAEs to encourage investment in more than 1845 MW of renewable production. Renewable energy sources are now the cheapest source of new production and fill the void left by the closure of aging coal-fired power plants. Interest rates are low, but competition to guarantee renewable AAEs is strong.
This is why companies will see greater financial benefits if they sign AAEs earlier and not in two or three years. Simply put, AAEs benefit businesses. They provide affordable and safe renewable energy for long-term periods and enable businesses to achieve sustainable development goals while supporting the renewable project pipeline in Australia. There is only one snag – the launch of renewable generators, which are secured by retailers like Flow Power, is limited, and once it is sold, PPAs with some wind and solar farms will no longer be available. There are two players who come to the table in a VPPA: the business buyer and the developer of the renewable energy project. Business buyers want to achieve their renewable energy goals by providing bundled RECs and new clean production projects (so-called „additionalities“). Developers try to sell their energy at a price that allows them to achieve their internal performance. If the developer can find a buyer who will guarantee that he will receive this award for 10 years, he can get the financing he needs to build the project. In a virtual AAE, the company that develops the renewable energy project sells the electricity to the grid once the project is completed.
To obtain financing, the developer enters into a virtual PPP with a third party – let`s call the ACME Co. ACME Co.dem owner of the renewable project guarantees a certain fixed price for the electricity it sells to the grid. If the electricity is sold for less than the guaranteed amount, ACME Co. will pay the difference; If electricity is sold to the grid for more than the fixed price, ACME Co. will actually earn money. In this arrangement, there are some advantages for all concerned: the developer of the solar installation or wind farm has the price security he needs to get funding for the project, and ACME Co. has the opportunity to earn money. When a company decides to follow an AAE, the two most common options are a physical or virtual AAE.
With a physical AAE – as the name suggests – the company or a designated third party takes possession of the physical energy at a specific delivery point of the electrical grid. The physical energy can then be transferred from that indicated delivery point to the company`s energy account or meter.