Virtual PPA Volatility: Why 2024 Blindsided Buyers and What to Expect in 2025

Introduction 

Sarah Golden: Welcome. When organizations sign a virtual power purchase agreement, they’re making a bet on future power prices. In 2024, that bet went sideways for a lot of companies. Volatility in energy markets, unexpected generation outcomes, and opaque forecasting practices left clean energy buyers scrambling to explain performance gaps to finance and leadership teams. Today we’ll explore what happened to virtual PPA performance in 2024, how virtual PPA buyers can adapt their forecasting and internal processes, what to expect from energy markets in 2025, and how data and transparency can help virtual PPA buyers regain confidence and control.

VPPA Basics: How the Structure Works 

Shehzad Wadalawala: Let’s start with the fundamentals. A virtual PPA is a financial contract between a renewable energy developer and a corporate buyer. The developer sells power into the wholesale market — the system operator, like ERCOT or PJM — and separately settles financially with the corporate buyer based on a fixed-for-floating price structure. The corporate buyer continues to purchase electricity independently through their utility or retailer. These two relationships are completely separate. 

Shehzad Wadalawala: The financial settlement works as follows: the corporate buyer agrees to pay a fixed price for the renewable energy output. In exchange, they receive the floating wholesale market price as revenue. The net settlement is the difference between those two. In months when the market price exceeds the strike price, the corporate buyer receives a net payment. When the market price falls below the strike price, the corporate buyer pays the developer. On top of that financial settlement, the buyer receives the environmental attribute credits — renewable energy certificates — associated with the generation. The key takeaway: a virtual PPA does not affect your electricity contract with your utility. It is a side financial contract. 

Why 2024 Was a Difficult Year: Energy Market Context 

Shehzad Wadalawala: Energy markets are inherently volatile. To illustrate: across a representative set of North American settlement points, annual average power prices have ranged from near historic lows in 2020 — during the pandemic demand collapse — to significant highs in 2021 and 2022, driven respectively by Winter Storm Uri and the post-pandemic energy price surge. A virtual PPA strike price of roughly $40 per megawatt-hour has historically been a reasonable reference point. In both 2020 and 2024, average prices across many markets were well below that level. In 2022, they were well above it. That range of outcomes across just a few years reflects the core challenge: these markets are genuinely uncertain. 

Shehzad Wadalawala: The single most important driver of electricity prices in U.S. markets is natural gas. Gas-fired generators are typically the marginal unit — the last unit needed to balance supply and demand — and therefore the price of gas directly sets the clearing price for electricity. In 2021 through 2023, the average Henry Hub natural gas price was above $4 per MMBtu. In 2024, it averaged around $2 — near historic lows. Going into 2025, including January and February actuals and the forward curve through year-end, prices are back above $4. That move from roughly $2 to $4 represents a doubling of generation cost for marginal generators, which translates directly into higher electricity prices and significantly improved virtual PPA revenue expectations. 

Sam Cotterall: To put numbers to that: for a representative 100-megawatt virtual PPA, the market revenue improvement from 2024 to 2025 — based on forward prices — ranges from approximately $3 million for a Southwest Power Pool solar project to approximately $7 million for an ERCOT wind project. These are the floating revenues that the asset earns in the market, which determine the net settlement for the corporate buyer. virtual PPAs that were net costs in 2024 may become net positive in 2025 simply due to the natural gas price recovery. 

Demand Growth and the Cannibalization Effect 

Shehzad Wadalawala: Beyond natural gas prices, there are two structural trends reshaping virtual PPA economics over the medium and long term. 

Shehzad Wadalawala: The first is demand growth. The developed world experienced roughly two decades of flat electricity demand. That has ended. ICF and other forecasters project U.S. electricity demand growing 25% by 2030 and 78% by 2050. Data centers are the largest single driver — WRI estimates they represent over 40% of demand growth in North America — but industrial electrification, transportation electrification, and shifts in manufacturing are also contributing. This demand growth is a structural change, not a temporary spike, and it is already reshaping price formation in high-growth markets like ERCOT. 

Shehzad Wadalawala: The second is the cannibalization effect. As renewable penetration grows, the revenues earned by renewable assets in the market tend to decline — not because the assets generate less, but because when they generate, so does every other similar asset in the region. Wind in ERCOT West Hub is a clear example: when wind is strong, all wind assets generate simultaneously, flooding the market, depressing prices, and in some cases pushing them negative. California experienced this with solar years ago — initial solar buildout coincided with historically high midday prices, but as solar penetration grew, midday prices collapsed. ERCOT is following a similar trajectory on roughly a five-year lag. The implication: revenues from a virtual PPA today are not necessarily a good predictor of revenues five or ten years from now in the same market, as renewable penetration continues to increase. 

Why Forecasting Is Hard — and How to Do It Better 

Sam Cotterall: A virtual PPA settlement is conceptually simple: price times quantity equals revenue, minus the fixed strike price equals net settlement. But both the price and the quantity are highly variable, and forecasting either with precision is genuinely difficult. 

Sam Cotterall: The standard industry approach uses a P50 8,760-hour generation profile — a single expected annual generation estimate based on long-term weather averages — combined with a fundamental power price forecast. Fundamental forecasts are designed to project market conditions decades into the future for investment decisions. They are updated infrequently, typically twice a year, and paint a deliberately smooth picture. They are not designed to capture near-term market dynamics. 

Sam Cotterall: The problem is that energy markets move constantly. To illustrate the price component: looking at ERCOT North Hub futures for August 2025 — tracking the same delivery month as expectations evolved over a six-month period — the expected around-the-clock price nearly doubled, from roughly $78 to approximately $153. That kind of movement, within a single year for a single delivery month, dwarfs the variation in generation forecasts. A forecasting approach that updates twice a year will miss this entirely. 

Sam Cotterall: On the generation side, a representative 100-megawatt ERCOT wind project might see a monthly generation range of 26,000 to 40,000 megawatt-hours between a P90 and P10 scenario. At a net settlement rate of $10 per megawatt-hour — which is illustrative — that’s a swing of over $1 million in a single month from generation variability alone. Multiply that uncertainty across 12 months and it is the difference between a well-funded program and a scramble to explain budget overruns. 

Sam Cotterall: What a better approach looks like: updated market prices as frequently as possible, real-time weather modeling, and machine learning models that incorporate historical asset performance to generate a more reliable near-term generation estimate. The goal is a dynamic forecast that adjusts as conditions change — not one that anchors to assumptions made six months ago. 

What Good VPPA Management Looks Like 

Sam Cotterall: Beyond forecasting, there are three areas where organizations can meaningfully improve how they manage operational virtual PPAs. 

Sam Cotterall: Invoice validation: developer invoices are typically prepared manually in Excel. Data errors occur. Ensuring the right node prices are applied, the correct intervals are included, and contract-specific terms like price floors, basis adjustments, and availability guarantees are correctly calculated is something many organizations are not doing systematically. Errors that go undetected can have significant financial consequences. 

Sam Cotterall: Real-time accruals: rather than waiting 30 to 45 days for a developer invoice to understand what happened last month, organizations with telemetry integrations can track generation and calculate estimated settlements in near real time. This means that by mid-month, you have a reasonably precise view of what the invoice will say — enabling proactive communication with finance and leadership rather than reactive explanation after the fact. 

Sam Cotterall: Analytics and portfolio strategy: understanding root causes of past performance is the foundation for better decisions going forward. Are capture rates declining because of increasing renewable penetration in your market? Is there basis congestion specific to your node? Are there financial products — collars, swaps, storage additions — that could reduce volatility or lock in outcomes? These are questions that require data, and the right analytical tools to answer them. 

Managing Stakeholder Expectations 

Shehzad Wadalawala: Trust is fragile. For many organizations, the first virtual PPA is the most important one to get internal alignment — and the performance of that first contract shapes the credibility of the entire virtual PPA program. Two things matter most for maintaining that credibility. 

Shehzad Wadalawala: The first is proactive communication. When performance deviates from expectations, leadership wants to understand whether the issue is market-wide or specific to your project. If natural gas prices were low across all markets and all PPAs underperformed, that’s a defensible explanation. If your specific asset underperformed relative to comparable projects in the same market and the same technology, that requires a different conversation — including, potentially, one with your developer. Having the data to distinguish between those two situations is essential. 

Shehzad Wadalawala: The second is setting honest expectations from the beginning. There is a temptation when seeking internal approval for a new virtual PPA to present the favorable scenarios and downplay the risks. When the first bad year arrives — and it will, at some point — the credibility damage from having undersold the risks is far worse than the performance gap itself. Build your internal case on realistic scenario ranges, communicate the uncertainty explicitly, and frame the program around the long-term rationale — additionality, sustainability impact, a directional hedge against energy costs — not just the expected P50 financial outcome. 

Q&A 

Sarah Golden: How widespread was the underperformance in 2024, and what did the losses feel like for organizations that had signed these agreements? 

Shehzad Wadalawala: The market that surprised people most was ERCOT. ERCOT typically produces high-price summer events, and 2023 had been a strong year — so expectations going into 2024 were high. When the summer was more muted, many organizations that had communicated 2023 performance to leadership found themselves having to explain a significant reversal. For first-year operational assets, this was particularly painful, since year one gets the most scrutiny. The good news is that 2025 expectations are materially better. The forward curve improvements I described earlier are something you can take to management as a concrete positive outlook. 

Sarah Golden: I’ve heard virtual PPA explained as a hedge — if energy prices go up, you make money on the VPPA; if they go down, you get cheap energy from your utility. Where does that logic break down? 

Shehzad Wadalawala: The hedge logic is directionally correct but requires a holistic view of your energy portfolio to hold up. A virtual PPA is a hedge against the same natural gas prices that drive your utility rates. When gas prices are low and your virtual PPA is in the red, your utility bills are likely lower as well — so the net impact is more balanced than it appears when you look at the virtual PPA in isolation. The problem arises when the VPPA is evaluated in isolation from the rest of the energy portfolio. If leadership sees a large virtual PPA net spend without the context of lower utility costs, the program looks much worse than it actually is. Having a consolidated view of your full energy exposure is essential for communicating performance accurately. 

Sarah Golden: Why do a virtual PPA rather than just buying RECs? 

Sam Cotterall: The primary reason is additionality — the ability to say that a new renewable energy project exists because of your organization’s commitment. Before a developer can break ground, they typically need to demonstrate revenue certainty to lenders and tax equity investors. A long-term corporate PPA provides that certainty. Without it, many projects would not get financed or built. That impact story is fundamentally different from purchasing spot RECs, which do not drive new capacity. Beyond impact, a long-term virtual PPA also locks in a known cost structure for 12 to 15 years of renewable energy and environmental attributes, compared to the daily price volatility of the spot REC market. 

Sarah Golden: With capture rates declining as renewable penetration grows, what role does energy storage play? 

Sam Cotterall: Storage is essential to any renewable future, and corporations are increasingly recognizing it as a tool for managing virtual PPA economics. Collocation of storage with solar or wind allows the asset to shift generation to higher-value hours, directly addressing the cannibalization effect. In California, storage has become effectively required for new solar contracts. ERCOT is trending in the same direction. Standalone storage — now eligible for investment tax credits independently of a collocated renewable resource under the IRA — is also being procured by corporations alongside or separately from their PPAs. Some organizations use storage to optimize financial outcomes by shifting to high-price hours. Others use it to support 24/7 carbon-free energy matching goals, where the shape of generation matters as much as the total volume. We expect storage to play a growing role in corporate clean energy portfolios as costs continue to decline and cannibalization becomes more pronounced in key markets. 

Sarah Golden: How is the uncertainty around IRA tax credits affecting how organizations think about their virtual PPAs? 

Sam Cotterall: Tax credits for renewable energy are not new — they’ve existed for decades and have historically had broad bipartisan support, because a significant majority of renewable energy investment flows to states that benefit economically from that development. The current IRA-era credit structure provides more legislative certainty and a longer runway than anything that preceded it. That said, change-of-law provisions are now a standard and important part of PPA negotiations, allocating the risk of policy changes between buyer and seller. The uncertainty is real, but the underlying economics of renewables — wind and solar are now the cheapest new-build electrons in most energy systems globally — provide a foundation that is independent of any particular incentive structure. 

Sarah Golden: What advice do you have for energy procurement managers who need to explain underperformance to leadership without losing trust? 

Sam Cotterall: Proactivity over reactivity. If you have a dynamic view of the market and are updating your estimates as conditions change — not after the invoice arrives — you are communicating expectations rather than explaining surprises. The tools for this exist: daily generation tracking via telemetry, real-time market pricing, and rolling forecast updates. The organizations that maintained credibility through 2024 were the ones who could say, mid-month, here is what we expect this settlement to look like and here is why — and then deliver a number close to what they communicated. 

Shehzad Wadalawala: And being able to distinguish market-wide conditions from project-specific issues is critical. If your asset underperformed because natural gas was low across all markets, leadership can understand that. If your asset underperformed relative to comparable wind farms in the same market, you need to be having a conversation with your developer, and your leadership needs to know you’re having it. Data gives you the standing to have both conversations effectively. 

Sarah Golden: When running downside scenarios for VPPA revenues, what are the key assumptions to sensitize and by how much? 

Shehzad Wadalawala: Natural gas price is the starting point. The historical range is meaningful: 2024 averaged around $2 per MMBtu, 2022 touched near $9 to $10, and there have been spikes to $14 during major disruption events like Hurricane Katrina. Running scenarios at $2, $4, and $8 or higher captures a realistic range. After gas price, the next variable is the capture rate — the project-specific price relative to the hub average, which depends on congestion and the cannibalization dynamics we discussed. Then generation volume, driven by weather. Stack those in that order of typical impact and you have a reasonable downside scenario framework. 

Sarah Golden: What advice would you offer to organizations considering their first VPPA today? 

Sam Cotterall: Stakeholder alignment is everything. Understand what is driving your organization’s interest in a virtual PPA — sustainability commitments, investor expectations, product-level claims, a directional energy hedge — and make sure leadership understands what they’re signing up for. That means communicating the volatility explicitly: intra-month, intra-year, and across the 12-to-15-year contract term. Use scenario ranges, not point estimates. And make sure the program is built on a foundation of honest risk communication, not on an optimistic case that will require backtracking later. 

Shehzad Wadalawala: Be transparent about the risks when seeking internal approval. There is a real temptation to advance the program by downplaying uncertainty. But if the internal case is built on the premise that the virtual PPA will consistently save money, and it doesn’t in year one, you’ve put the whole program at risk. The stronger case is: here is the impact we’re making, here is the range of financial outcomes we expect, and here is how we will monitor and communicate performance over time. That foundation holds up through bad years as well as good ones. 

Closing 

Sarah Golden: Thank you both. This has been a genuinely illuminating conversation, and particularly timely given everything happening in energy markets right now. Thank you to Shazad and Sam at Verse, and to everyone who joined today. Resources including a blog on virtual PPA risks and a two-minute VPPA explainer video are available in the resources section. For more Trellis webcasts, visit trellis.net/webcasts.