A synthetic power purchase agreement, also known as a virtual power purchase agreement, is a relatively new concept in the renewable energy industry. It allows entities such as corporations, universities, and municipalities to purchase renewable energy credits (RECs) from a wind or solar farm, without physically receiving the energy. The purchased RECs represent the environmental benefits of the renewable energy produced, such as avoided greenhouse gas emissions and reduced reliance on fossil fuels.
This arrangement allows buyers to claim the environmental benefits of the renewable energy, while the physical power generated is sold to the electricity grid. The power generated from renewable energy sources is indistinguishable from that produced by non-renewable sources, so the RECs serve as a “virtual” representation of the renewable energy’s environmental benefits.
In a synthetic power purchase agreement, the buyer and the renewable energy project enter into a contract which outlines the sale and transfer of the RECs. The buyer may also negotiate the price of the RECs, as well as the size and duration of the agreement.
There are several advantages to synthetic power purchase agreements. Firstly, they allow organizations to achieve their sustainability goals without having to invest in their own renewable energy infrastructure. This is particularly attractive for organizations that don’t have the resources or land available to install solar panels or wind turbines.
Secondly, synthetic power purchase agreements can provide price stability for the buyer. Renewable energy is subject to fluctuations in energy prices, but the buyer can lock in a fixed price for the RECs, providing certainty in their energy costs.
Finally, synthetic power purchase agreements can have a positive impact on the environment by supporting the development of renewable energy projects. The demand for RECs can provide a financial incentive for renewable energy developers to build more wind and solar farms.
It is important to note that synthetic power purchase agreements are not without their limitations. Critics argue that they do not provide the same level of impact as physical power purchase agreements, where the buyer directly sources their energy from a renewable energy project. Additionally, there is a risk that the RECs being purchased may not be subject to rigorous certification standards, which could undermine the credibility of the arrangement.
Overall, synthetic power purchase agreements offer a new and innovative way for organizations to meet their sustainability goals. As renewable energy continues to grow in importance, it is likely that we will see more organizations embracing this alternative approach to power purchasing.