VPPA (Virtual Power Purchase Agreement)

A VPPA is a financial contract in which a data center operator agrees to pay a fixed price for electricity generated by a specific renewable project — usually wind or solar — without physically taking delivery of that power; the generator sells its output into the wholesale market at the prevailing price, and the two parties settle the difference against the contracted strike price. Because no power actually flows to the buyer's facility, a VPPA can be signed for a renewable project located anywhere on the same grid, letting an operator claim renewable energy certificates and emissions offsets for a Singapore or Virginia campus by contracting wind capacity hundreds of miles away. Hyperscalers including Microsoft, Google and Amazon have used VPPAs to underwrite gigawatts of new wind and solar capacity, since the long-term, 10-20 year fixed-price contract gives developers the revenue certainty needed to secure project financing. A VPPA differs from a standard PPA in that it is purely financial hedging rather than a physical electricity supply contract.