Virtual corporate PPA
In a virtual corporate PPA, a power generator supplies renewable energy credits directly to an offtaker. The generated power, however, is sold separately, typically in the wholesale market. As such, the offtaker needs to procure power itself from its retailer.
Key advantages and disadvantages
- No need to involve a retailer in the PPA contract; the offtaker can continue buying power through its existing retail contract
- No need to use at a specific consumption site
- Locating power plants in an area different from the renewable energy credit consumption site does not lead to an increase in costs
- Settlement more complex than that of physical PPAs due to the need to settle the difference between the wholesale market price and the fixed PPA price
- One of the contract parties needs to take on imbalance risk
Virtual PPA vs. other models
| Model | Physical (on-site) | Physical (off-site) |
Physical (hybrid on-/off-site) |
Virtual | Self-wheeling |
| Offtaker receives | Power + RECs | Power + RECs | Power + RECs | RECs only | Power + RECs |
| REC type | J-Credit, Green Power Certificate, or I-REC | Non-fossil certificate | See on-site and off-site information | Non-fossil certificate | J-Credit, Green Power Certificate, or I-REC |
| Retailer required as a PPA party | No | Yes | Yes | No | No |
| Renewable power promotion surcharge | No | Yes | Off-site portion | Indirectly (when procuring power) | No |
| Wheeling charges | No | Yes | Off-site portion | Indirectly (when procuring power) | Yes |
| Limiting factors | Availability of suitable space at consumption site | Availability of suitable land and grid connection | Availability of suitable space at consumption site and grid connection | Availability of suitable land and grid connection | Availability of suitable land, grid connection, and power plant ownership |
Key stakeholders' roles and responsibilities
Generator
Power plant development and ownership: Planning, securing financing and land for, and constructing the power plant; owning the power generation equipment.
Power plant O&M: Day-to-day operations and maintenance of the power plant.
REC sale: Sale of the renewable energy credits generated at the power plant to the offtaker.
Power price difference payment: Paying the difference between the wholesale market and PPA prices when the former is higher than the latter.
Offtaker
Fixed fee payment: Paying the agreed upon price (generally fixed JPY per kWh) to the PPA provider for the supplied renewable energy credits.
Power price difference payment: Paying the difference between the wholesale market and PPA prices when the former is lower than the latter.
Power plant considerations
Location: Power plants used for virtual PPAs are located away from the consumption site. Because the power is not delivered directly to the consumer but rather sold in the wholesale market, the power plant and consumption site can be in different T&D areas without significantly increasing the complexity of the deal.
Technology: With limited exceptions, all of the virtual PPAs in Japan are using solar generation. That said, virtual PPAs using wind generation might become more common once wind assets under the FIP scheme start being commissioned.
Output: Because of the structure’s flexibility in terms of power plant location, virtual PPAs in Japan range from small ones around 1MW all the way to the country’s largest disclosed PPA to date, a 115MW deal between RENOVA and Murata Manufacturing.
Financial structure considerations
Long-term fixed renewable energy price: A virtual PPA generally allows an offtaker to secure long-term power supply (15 to 30 years) at a fixed price per kWh and a PPA provider to secure stable long-term revenue.
Contract for difference: Because the generated power is sold in the wholesale market, the difference between the wholesale market price for a specific period and the PPA price needs to be settled regularly. If the wholesale market price is higher than the PPA price, the generator needs to pay the difference to the offtaker and vice versa.
FIP subsidy: Power plants that are part of virtual PPAs are eligible for the FIP subsidy paid based on the difference between a fixed FIP price and the wholesale market price.
Renewable power promotion surcharge: The generated volume is subject to the renewable power promotion surcharge, which is recalculated once a year and is currently around 3.5 yen per kWh. You can see the development of the surcharge from when it was introduced to this year here.
Wheeling charges: Since the power generated through a virtual PPA is delivered to the wholesale market participants through the grid, the generated power is subject to wheeling charges. The wheeling charges vary depending on the involved T&D area(s).
JEPX transaction fees: Selling power in the wholesale market is subject to transaction fees. The fees are 0.03 yen/kWh or fixed 1,000,000 yen/month for day-ahead market transactions and 0.1 yen/kWh for intra-day market transactions.
Imbalance risk: Because the power is supplied to the power grid, either the generator or the offtaker need to assume imbalance risk resulting from inaccurate forecasts.
Other considerations
Offloading imbalance risk: While either the generator or the offtaker need to assume imbalance risk, the risk is generally offloaded to a third party.
Retailer does not need to participate: Renewable energy certificates can be traded between a PPA generator and an offtaker without the need to involve a retailer in the middle. This rule applies for all renewable energy certificates generated from April 2022 onward.
Japan's largest disclosed virtual PPAs
Click on each PPA to see more details.
Japan's most recent disclosed virtual PPAs
Click on each PPA to see more details.
Example virtual PPAs
Click on each PPA to see more details.
