Corporate renewable energy sourcing: A game-theoretic analysis of PPAs and VPPAs

Many firms are committing to zero-carbon emissions by replacing traditional energy consumption with renewable sources such as wind and solar. Compared to renewable energy certificates (RECs), corporate power purchase agreements (PPAs) and virtual PPAs (VPPAs) are playing increasingly important roles. Under a PPA, the firm directly transacts with a power producer, while under a VPPA, both parties interact with their respective local spot markets and later settle the price difference. This paper examines the corporate buyer’s preference between PPAs and VPPAs with the goal of minimizing energy procurement costs. We develop a game-theoretical model involving a firm and a power producer. Our results show that contracts associated with either a sufficiently high local spot market price or a stable energy supply lead to greater capacity installation. Moreover, when the installed capacities under PPAs or VPPAs are relatively small, the firm prefers to source renewable energy through one of these contracts. However, if they result in a significantly large installed capacity, the firm is more likely to rely on RECs instead. Regarding the choice between PPA and VPPA, if the installed capacities under both contracts match the firm’s purchasing quantity, the firm prefers the one with a more stable energy supply. If the installed capacities differ, the firm prefers the contract that offers both a smaller installed capacity and greater generation stability. Furthermore, we demonstrate the role of key parameters—particularly local spot market price and generation intermittency—in affecting the firm’s preference between PPA and VPPA.