The virtual power purchase agreement (VPPA) was, for a long stretch, an elegant solution to a genuinely difficult problem. Companies that wanted to support renewable energy development and claim the associated environmental attributes could do so without the complexity of physical delivery. The structure worked by contracting with a project in a favorable geography, letting the energy flow into the regional grid, and settling the financial difference between the agreed strike price and the wholesale market price. Clean, simple, scalable.
That simplicity rested on assumptions about the grid that are not holding as cleanly as they did when most of these contracts were structured.
How Grid Congestion Is Widening VPPA Basis Risk in ERCOT and PJM Markets
Basis risk, the difference in price between where the renewable project delivers into the grid and where the corporate buyer receives power, has always existed in VPPA structures. Sophisticated procurement teams have always modeled for it. What's changed is the magnitude and volatility of that basis differential, particularly in regions experiencing rapid load growth and transmission congestion.
When a wind farm in West Texas delivers power into a congested node, the nodal price it receives may be significantly below the hub price the corporate buyer uses for settlement. During peak congestion events, nodal prices can go negative, meaning the project is effectively paying to deliver power the grid can't absorb. That event passes directly into the financial settlement, creating an outcome the contract's strike price was never designed to hedge against.
BloombergNEF's 2025 analysis of U.S. corporate PPA performance found that basis risk exposure widened significantly in 2023 and 2024 across multiple regions, with ERCOT and parts of PJM showing the most acute spread between project-level and hub-level prices. For companies that structured VPPAs in 2020 or 2021 based on historical basis assumptions, the realized financial performance of those contracts has in some cases fallen meaningfully short of projections.
Why Interconnection Queue Delays Are Undermining VPPA Additionality Claims
Beyond financial performance, the additionality argument for VPPAs, the claim that the corporate contract is directly enabling new renewable capacity to be built, is becoming more complicated in a constrained grid environment. When interconnection queues are backlogged by years, new projects may be contracted but unable to connect. A VPPA tied to a project that spends three years in the interconnection queue before it can deliver power isn't generating the additionality its corporate buyer is claiming in the interim. Sustainability reporting frameworks that treat VPPA-backed RECs as equivalent to delivered renewable power are creating disclosure risk that regulators and investors are starting to examine more closely.
FERC Order 2023, which mandated reforms to the interconnection process, was partly motivated by exactly this dynamic: the recognition that the gap between contracted renewable capacity and deliverable renewable capacity was becoming a credibility problem for clean energy markets broadly.
The Order was updated on March 21, 2024, with the issuance of Order No. 2023-A, which acts as a ruling on rehearing and clarification. This update largely upheld the original rule’s "first-ready, first-served" cluster study approach to streamline generator interconnections while providing specific clarifications on withdrawal penalties and compliance deadlines
How to Structure Corporate Renewable Energy Contracts for Current Grid Conditions
None of this means VPPAs are the wrong tool. It means they need to be structured for current grid conditions rather than selected based on the relative ease with which they've historically been executed.
Procurement teams rethinking their approach are doing a few things differently. Some are shifting toward physical PPAs in markets where delivery infrastructure is more reliable, accepting added complexity in exchange for eliminating basis exposure. Others are building multi-project, multi-node portfolios rather than concentrating VPPA exposure in a single project or region, which distributes the basis risk geographically. A smaller but growing segment is incorporating on-site and behind-the-meter generation into the mix, creating a baseline of physical energy delivery whose financial performance doesn't depend on grid conditions at all.
The questions that used to be optional are now the baseline for responsible energy contracting: Where does this project deliver? What has nodal pricing looked like at that delivery point over the past three years? What is the interconnection queue status? How does this contract perform if basis widens significantly? Asking those questions before the contract is signed is meaningfully cheaper than discovering the answers during settlement.
