Focus: Entering into a virtual power purchase agreement (VPPA)

Switching to renewable energy is a key measure we have taken to reach our emissions reduction goals. This is one of the reasons why we have helped launch the RE100 initiative as a founding member.

To date, Swiss Re has obtained its renewable energy mainly by purchasing Energy Attribute Certificates (EACs). These EACs are “unbundled”, meaning they are not linked to the actual creation of new renewable power generation capacity. As a result, unbundled EACs are no longer seen as having a sufficient environmental impact.

As part of our Greenhouse Neutral Programme, we are committed to covering 100% of our power consumption from renewable sources by 2020. Through a “virtual power purchase agreement” completed in 2018, we help fund the construction of a new wind farm in the US and get access to renewable energy supplies at steady prices.

This is why we entered into a virtual power purchase agreement (VPPA) for the first time in 2018, partnering with Apple, Akami and Etsy. In this way, we want to secure high-quality EACs for the total power consumption of all our offices in North America.

A VPPA is a financial contract rather than a contract for physical power. Under it, Swiss Re will pay a developer a fixed price for a fixed amount of power produced by a renewable energy asset for a defined period of time. However, this power will never actually be delivered physically to our offices and we will not pay the strike price directly to the developer. Instead, the developer sells the energy from the project to the market at prevailing prices. When the variable market price is lower than the fixed VPPA price, we pay the difference to the developer – and the other way round when the market price is higher than the fixed VPPA price.

Such VPPAs combine an environmental benefit with a financial one. Firstly, a long-term contract with a fixed price for the electricity produced allows the developer to secure financing for the construction of new renewable energy capacity. Our partnership with Apple, Akami and Etsy has helped secure financing for the Green River wind farm in Illinois, as well as giving us access to renewable energy produced at competitive prices.

Secondly, a VPPA allows for the hedging of variable energy market prices. When market prices increase, our offices will incur higher expenses but will receive funds (the difference between market price and fixed price) from the VPPA – and vice versa. As the fixed amount of power covered by the VPPA is equivalent to our expected total energy consumption in North America, shifts in energy prices should roughly balance out within this area.

The innovative character of the VPPA approach has been recognised by both peers and the media.