The difference between a physical PPA and a virtual PPA is often described as whether power is delivered. That is true and mostly unhelpful. What actually decides the outcome is the settlement mechanics — and specifically, who holds which risk.
Before signing either structure, five questions do most of the work.
1. Where does the deal settle?
A virtual PPA is a contract for differences against a reference price at a defined hub. If the project generates at one location and the offtaker's exposure sits at another, the spread between them — basis — is a real, recurring cost or benefit that has to be assigned to someone.
Ask explicitly: what reference price, at what node, and who bears the difference between that and the physical reality?
2. Who holds shape and volume risk?
Generation is not shaped like load. A wind-heavy portfolio produces at night; an industrial load does not. Whoever holds shape risk is exposed to the mismatch between when power is produced and when it is needed.
Decide whether the structure passes that risk to the buyer, retains it with the seller, or hedges it with a third contract. "We'll figure it out later" is a decision to hold it by default.
3. What happens when the project underperforms?
Production estimates are estimates. The contract should say what happens when actual generation misses the modeled case — whether that is a seller shortfall, a buyer top-up obligation, or simply a shared disappointment. The answer changes the economics more than most negotiators assume.
4. Does the offtake actually secure the financing?
A PPA is frequently used as collateral for the project loan. That means the contract's tenor, credit support, termination provisions, and change-in-law language all matter to the lender, not just to the two counterparties. A structure that reads well to the buyer but does not finance is not a structure.
5. Who is the credit, and for how long?
The financial value of the agreement is a function of counterparty credit over the full term. A buyer with a strong balance sheet can negotiate economics a weaker one cannot; a developer with a thin balance sheet may not be able to support the terms the buyer wants. Match tenor and credit honestly at the start, not during documentation.
The through-line
Physical and virtual structures are both legitimate. What makes them work is not the label but a clear-eyed allocation of basis, shape, performance, financing, and credit risk — decided before the term sheet, not renegotiated in the documents.
The right question is never "PPA or VPPA?" It is "who holds each risk, and are they paid to hold it?"
Working through something like this on a live portfolio?