Accounting For Virtual Power Purchase Agreement

Fees In a virtual AAE, companies do not receive the electricity generated by developers themselves, but in a physical AAE, the energy of the renewable energy project is physically delivered to the buyer`s energy sites – a process that buyers can either supervise themselves (if they have the corresponding certifications from the Federal Energy Regulatory Commission) or delegate to a licensed electricity distributor. In the latter case, the intermediary electricity distributor charges the purchaser a fee for its services, which means that “the company has additional costs,” Anderson says. As a result, corporate ASAs generally meet the definition of an IFRS derivative. Professional accounting IFRS should be aware of this difference from U.S. GAAP, especially when it is necessary to double reports to US GAAP and IFRS standards. Many other contracts could be subject to derivative accounting. Like a traditional vPPA, the SGA and the VFA may require complex accounting analysis and the application of the corresponding financial accounting requires not only a clear understanding of the nature of the transaction and the rights and obligations of their parties, but also the ability to navigate appropriately by coding the Financial Accounting Standards Board`s Accounting Standards (CSA). VPP companies allow companies to catalyze the flow of electricity to the grid without having to produce renewable energy themselves. The alternative taste of AAEs is physical. A business buyer must provide the power. The vast majority (3.2 gigawatts) come from contracts to purchase physical and virtual energy, as companies try to manage volatile energy costs and reduce their ecological footprints. A virtual power agreement (VPPA) is a financial contract between a business buyer and the developer of a potential renewable energy project for two purposes. The project can enable companies to achieve their sustainable development goals and facilitate decarbonisation across the electricity grid.

Under a VPPA, buyers guarantee a fixed price for each electrical unit produced by the developer (usually expressed in dollars per megawatt-hour) over a specified period in exchange for renewable energy certificates. Companies are not responsible for the production of renewable energy and do not receive physical electricity from developers. Instead, the developer produces and sells electrical units to local power grids at the prevailing market prices, as business buyers continue to meet their energy needs through their current energy suppliers. With this agreement, a VPPA buyer “will not invest its own capital to facilitate the [renewable] energy project in terms of “construction, but also operations and maintenance,” said Dave Anderson, executive vice president of Ameresco, an energy efficiency and renewable energy developer in Massachusetts.