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Explore our PPA insights within the renewable energy industry.


Energy Studies | 13th Feb, 2023

Understanding Virtual PPAs

Virtual Power Purchase Agreements (VPPAs) are on the rise in the electricity market due to the possibilities they create for both offtakers and producers. 

Reading time : 2 min

Written by

Tomás Oliveira

In this post, we explain why these market participants are likely to achieve a higher success rate through VPPAs.

What is a Virtual Power Purchase Agreement (VPPA)?

A bilateral agreement between a renewable energy producer and an offtaker that doesn't involve the physical delivery of the traded electricity.

Also known as Financial PPA, Synthetic PPA, or Contracts for Difference (CfD).


How do they work?

First, a producer agrees to sell an amount of its electricity to an offtaker for a fixed price (the strike price).

Second, the electricity is sold through a market agent in an energy exchange for the spot price.

Third, the power producer and offtaker settle their positions according to the differences between the strike and spot prices.


How are the settlements calculated?

When the spot price is below the strike price, the buyer pays the difference to the producer.

Line chart illustrating the Strike and Spot price fluctuations


Whenever the spot price is above the strike price, the producer pays the difference to the buyer.

Line chart illustrating the Strike and Spot price fluctuations


Why are VPPAs becoming increasingly popular?

Increased flexibility for market participants

Also, check out the video we elaborated on this topic:


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