Corporate PPA Explained. Structure, Benefits, and Key Risks

If you work in renewable energy or project finance, you have likely heard the buzz.

Everyone is talking about Corporate Power Purchase Agreements (PPAs).

A decade ago, these deals were rare. Only massive tech giants like Google or Amazon touched them. Today is different. Companies of all sizes are rushing to lock in clean energy.

In fact, corporate clean power buying has seen sustained growth. Data from BloombergNEF highlights that the market hit record volumes recently. This momentum positions the market strongly for 2026 and beyond as demand from data centers and electrification grows.

But here is the problem.

These are not simple electricity supply contracts. Many of them, especially virtual structures, behave like complex financial derivatives. If you do not understand the structure, you cannot model the risk.

Whether you are an analyst building a model or a sustainability manager pitching a deal, you need to know how these agreements actually work.

Let’s break down the Corporate PPA.

What is a Corporate PPA?

At its core, a Corporate Power Purchase Agreement is a long-term contract.

It is an agreement between two parties:

1. The Seller: A renewable energy project (e.g. wind, solar, battery, or some combination).
2. The Buyer: A corporation (also called the “offtaker”).

The Buyer agrees to purchase electricity, or the economic value of it, from the Seller for a set period, typically 10 to 20 years. In exchange, the project gets a guaranteed revenue stream. This helps secure financing to build the project.

According to the World Business Council for Sustainable Development (WBCSD), these agreements allow companies to hedge against volatile power prices while meeting sustainability targets.

It sounds simple. However, the complexity lies in the delivery.

Corporate PPA Structure: Physical vs. Virtual

This is where many people get confused.

You might assume a PPA means a direct wire runs from a solar farm to a factory. That is sometimes true. But more often it is not.

There are two main structures you need to understand.

1. Physical PPA

This is the traditional method. The project and the offtaker are usually on the same electricity grid network.

The project generates power which is physically delivered to the Buyer’s facility through the grid. The Buyer pays a set price per megawatt-hour (MWh). This replaces the electricity they would have bought from their local utility or electricity retailer. Physical PPAs are often used for rooftop or other on-site solar and battery systems built at or near to a Buyer’s facility. However, it may not always be feasible to build large-scale renewable projects near industrial facilities, and most large corporates operate facilities across broad geographic areas. This has led to the rise of an alternative structure: the Virtual PPA.

2. Virtual PPA (VPPA)

This is the dominant structure for large corporates with fragmented operations.

A Virtual PPA is a financial instrument. It does not involve the physical delivery of power. The US Department of Energy defines this clearly. Electrons generated by the project never actually reaches the corporate offtaker’s facility.

Instead, a VPPA functions as a Contract for Difference (CfD).

Here is how the cash flow works:

1. The project sells its power into the local open market at the floating market price.
2. The corporate Buyer pays continues to buy their power from their local utility at their local price.
3. Two hedge payments between the Buyer and Seller are calculated:
   • The Buyer’s payment to the Seller is equal to the VPPA “Strike Price” times the quantity of energy generated
   • The Seller’s payment to the Buyer is equal to the revenue revenue received from open market energy sales

The two parties settle the difference financially, with only one party paying the other each period based on the Strike Price and market prices. If the market price is higher than the Strike Price, the Seller pays the Buyer. If the market price is lower than the Strike Price, the opposite happens.

This structure allows companies to support green energy projects anywhere in the country. Fairfax County’s guide explains this well. It decouples the physical flow of electricity from the financial flow of money.

Corporate PPA Benefits

Why go through this trouble?

Companies usually have two motivations:

1. Sustainability and Reputation: Many corporates have adopted renewable energy procurement goals. When they sign a PPA (virtual or physical), they typically receive the Renewable Energy Certificates (RECs) associated with the energy. This allows them to substantiate their environmental claims to investors and customers.
2. Budget Certainty: Energy markets are volatile. A PPA offers a fixed or structured price for 10 to 20 years. It provides budget stability. If power prices skyrocket in the future, the company is protected because their PPA Strike Price is fixed under the contract.

Corporate PPA Risks in 2026

Now we need to talk about the risks.

This is the part that keeps financial modelers awake at night.

The market in 2026 faces new pressures. While the extreme volatility of previous years has settled in some regions, BloombergNEF analysis has previously highlighted how inflation and interest rates drive up PPA prices.

If you are modeling these deals, you must account for specific risks.

Basis Risk

This is critical in Virtual PPAs.

Remember that idea of a “Contract for Difference”? In that structure, settlement payments depend on the floating market price at the project’s electricity grid node or location.

But what if the price at the generator’s node crashes while the price at the corporation’s load center stays high? The hedge breaks. The corporation might end up paying the developer a settlement payment while also paying high prices to their local utility.

Shape Risk and Cannibalization

Solar generates power when the sun shines. Wind generates power when the wind blows.

If everyone builds solar in the same region, there is too much supply at noon. The price of power drops. It can even go negative.

This is called “cannibalization.” The project produces power, but the market value of that power is zero or less. If your PPA requires you to settle against a weighted average price, this can destroy the project’s economics.

Operational and Market Risk

Can the developer actually build it?

Supply chain delays and financing costs remain real challenges. We see many projects stall because the initial financial model was too optimistic. The Rocky Mountain Institute (RMI) emphasizes that understanding “market standard” terms is critical to ensure the deal is actually bankable.

Why Modeling Matters

A Corporate PPA is not just a handshake. It is a massive financial commitment.

If you get the assumptions wrong, the financial impact is severe.

We see analysts confuse “generation profile” with “market pricing profile” all the time. They assume the project earns the average 24-hour price. It usually does not. It earns the price captured during generation hours. In a solar-heavy grid, that captured price is often lower than the average.

You need to model the cash flows precisely. You need to stress-test the basis risk. You need to understand exactly what happens if market prices drop for three years straight.

Summary

Corporate PPAs are powerful tools. They support the building of new infrastructure and stabilize energy budgets. But they are complex. You need to look past the marketing brochures. You need to understand the mechanics of the Contract for Difference. You need to assess the specific risks of the market.

Most importantly, you need to ensure the numbers work.

Do you need to model a PPA correctly?

At Pivotal180, we teach you how to build these structures from scratch. We don’t just talk about theory. We teach the concepts behind actual transactions and the Excel logic required to model them.

Check out our Renewable Energy Project Finance Modeling Course or view all courses to begin mastering these concepts today.

If you have questions about which training is right for your team, please contact us directly.