With a synthetic AAE, there is no physical supply of electricity to the buyer`s charging centers. In fact, the buyer will continue to pay his electricity bills, as they always do. A virtual AAE is a purely financial agreement that serves as a hedge for electricity prices. In addition, the buyer receives Renewable Energy Credits (RECS) under the VPPA, which allows the buyer to claim rights to their greenhouse gas reductions and the purchase of renewable energy. Those with a financial background will recognize this structure as a differential contract (CFD) or a fixed financial swap using floats. A virtual AAE is actually a form of price backup. A company enters into a contract to pay a renewable energy project at an agreed starting price. The renewable energy project sells electricity produced on the basis of distributors on the local wholesale market. The project is paid by the company when the electricity is sold on the market above the agreed price and the company pays the difference to the project when the electricity falls below the agreed price.
Step 3: After the construction period, the developer begins to sell the energy produced in the electricity market. Now, remember, the buyer of the company has agreed to pay a fixed price for renewable energy; The developer (including the seller) is subject to variable market prices. When a company signs a VPPA, it agrees to pay a fixed price for a specified period of time for each electrical unit produced in a wind or solar facility. The developer then sells this electricity on the wholesale market. The point of sale is a pre-selected place from which the public can access electricity generated by renewable energy. It is important to note here that VPPa need market liquidity – where the project is allowed to sell its energy directly on the grid at the prevailing wholesale price. This is generally only possible in organised markets such as a regional transport organisation (RTO) or an independent network manager (ISO) acting as third-party operators independent of the transport network. Since the VPPA economy is based on the difference between the fluctuating market price and the VPPA price, it is important to have the transparency of an RTO/ISO market.