Virtual Power Purchase Agreements in Singapore

Rising pressure to move towards net-zero carbon emissions has resulted in an increasing number of large corporations entering into physical power purchase agreements (PPA) and/or virtual power purchase agreements (VPPA) for renewable energy.

In resource-scarce Singapore, solar energy remains the main source of locally generated renewable energy. Recently, Singapore unveiled one of the world’s largest floating solar panel farms, but due to Singapore’s land constraints, the majority of the solar photovoltaic systems are deployed on building rooftops. Under a PPA arrangement, a corporation with rooftop space enters into a long-term offtake agreement to purchase power from a solar generator at a pre-agreed price based on a specific delivery schedule. This arrangement is commonly referred to as “solar leasing” in Singapore since the project developer will typically lease the rooftop from the corporation to install solar panels.

However, PPAs are often not feasible when dealing with constraints like limited rooftop space or where energy demands are in excess of rooftop energy generation. In such situations, we have seen more corporations turn to VPPAs to meet their sustainability goals.

We set out below a brief overview on VPPAs, including some of the key issues that, in our experience, parties to a contract often encounter.

Virtual Power Purchase Agreements

A VPPA is generally understood as a purely financial instrument where no renewable energy generated from a project is physically delivered to the offtaker. It consists of:

  • A price hedge mechanism for the renewable energy produced and sold to the grid by the project developer; and
  • The sale of environmental attributes associated with the renewable energy produced, most often in the form of Renewable Energy Certificates (RECs).

Under the price hedge mechanism, a fixed price and a floating price are agreed upon between the parties, with the floating price determined based on a certain price index, such as the Uniform Singapore Energy Price. The settlement amount is then determined by taking the floating price and subtracting it from the fixed price.

Given the nature of RECs, the offtaker has the flexibility of retiring the RECs to allow them to be counted towards their sustainability goals or to sell them in the REC market.

VPPAs are becoming increasingly popular for corporate entities looking to fulfil their sustainability and climate-change goals in exchange for providing the renewable energy project developer price security. It is indeed a win-win situation for both parties.

Key Issues for the Offtaker

Given that an offtaker is not required to take delivery of the energy produced by the project, no changes are required to the offtaker’s operational arrangements with regard to its purchase of electricity from its existing provider. Unlike on-site options or PPAs, with a VPPA, the project can be located in a different region from where the offtaker’s operations are located.

Some of the provisions in a VPPA that an offtaker should be mindful of are as follows:

  • Project timelines: Project timelines should be set out clearly to provide certainty on when the project achieves financial closing and commences commercial operations, especially when the project has yet to be built. To mitigate construction-related risks, the offtaker should negotiate adequate termination and withdrawal rights as well as damages payable by the project developer to the offtaker for significant delays incurred in that respect. Offtakers can also require security in the form of a guarantee from the project developer’s holding company or a bank guarantee to ensure adequate protections are in place in the event of delays.
  • REC requirements: RECs should be carefully defined to align with internationally recognised REC standards (e.g., the International REC Standards). The project developer should (i) undertake to create and register all RECs generated from the project timely and regularly, and (ii) ensure it obtains and maintains all authorisations or accreditations required to enable the creation of RECs.
  • Excess RECs: If the offtaker only commits to buying a specified percentage of the RECs created from a project, purchase rights to the balance RECs generated from the project could also be negotiated. This can provide the offtaker with the flexibility to have a right of first refusal to purchase the balance RECs.
  • Assignment rights: Assignment rights of the parties under the VPPAs should be reviewed carefully as the project developer is typically allowed to assign and transfer its rights and obligations under the VPPA for the purposes of obtaining project financing without having to obtain the offtaker’s prior consent.

Key Issues for the Project Developer

VPPAs are typically long-term contracts spanning 12-20 years, which gives the project developer the ability to secure the financing required to build the project. A firm, long-term VPPA with fixed contracted prices allows for a reliable method of generating the funds that a project developer needs to repay its loans.

Some of the factors that the project developer should consider in terms of ensuring the bankability of a VPPA include the market for the project’s output, the price at which the energy generated will be sold (including how the floating price is to be determined and the price index to which it is pegged) and how the offtaker’s obligations under the VPPA are secured.

In addition, some of the provisions in a VPPA that a project developer should be mindful of are as follows:

  • Project timelines: Project developers should ensure that any milestones in the project timeline contain sufficient buffers, with the ability to extend deadlines in the event of force majeure and/or changes in law.
  • Energy output guarantee: Generally, project developers will be required to provide minimum generation commitments in relation to the energy output of the project during the term of its commercial operations. Any shortfall in meeting the level of energy output guaranteed may result in damages payable to the offtaker by the project developer. If such guarantees are agreed to, project developers should ensure the requirements are reasonably achievable and that the VPPA provides for cure rights.
  • Force majeure: Having a clearly defined force majeure provision that sets out force majeure events, excluded force majeure events (e.g., certain types of construction delays) and the consequent termination rights of the parties following a force majeure event. This would cover project delays in relation to the commencement of commercial operations, as well as delay or failure by the project developer to deliver on the contracted energy capacity.
  • Material contract risks: Project developers may consider including a provision for material contract risks, which are specific to the sale of RECs, such as (i) significant increases in the costs of creating, selling, supplying, registering or transferring RECs and (ii) changes to applicable laws relating to regulations concerning the sale and purchase of RECs, which adversely affect the performance of the project developer’s obligations under the VPPA.
  • Financing arrangements: Assessing the creditworthiness of offtakers is an important aspect for the project developers. While an offtaker may not be required to provide any form of security towards its obligations, it is always advisable to negotiate materiality thresholds that may trigger the need for an assessment or an obligation for the offtaker to provide security on its payment obligations.
  • Change of control: It is extremely important for project developers to be well advised (from both a tax and legal perspective) on adequate corporate structures from a bankability perspective prior to entering into a VPPA. In particular, due to customary restrictions on assignment rights in VPPAs, adequate carveouts should be considered to capture assignments to related entities or any change of ownership (direct or indirect) arising as a result of any foreseeable financing arrangement.


While VPPAs in the Southeast Asian region are a relatively new concept, we have seen increasing interest in the adoption of such arrangements as companies seek to build on their environmental and sustainability targets. In light of the sensitivities involved for corporate offtakers and project developers, it is extremely important to have carefully drafted VPPAs to capture the commercial and environmental goals of the parties.

For More Information

If you have any questions, please contact Ramiro Rodriguez, Suilyn Yip, Priyank Srivastava, any of the attorneys in our Singapore office or the attorney in the firm with whom you are regularly in contact.

About Duane Morris & Selvam LLP

Duane Morris & Selvam LLP (DMS) is a joint law venture between international firm Duane Morris LLP (DM) and Singapore-based firm Selvam LLC. DMS runs a unique Latin American-Asian practice out of Singapore, with a team of international lawyers qualified in multiple jurisdictions including Singapore, the US, the UK, Canada, Mexico and Colombia, with substantial experience in international transactions and disputes. DMS also has a wide cooperation network with some of the best Latin American and Asian law firms.

Disclaimer: This article has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm’s full disclaimer.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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