If the retail price on the buyer market and the wholesale price of the developer`s market are not correlated, the buyer is subject to volatility when purchasing retail energy. However, if market conditions are highly volatile, the buyer may be exposed to price spikes. A significant proportion of renewable energy in the grid would generally increase this risk, as prices tend to be higher when renewable resources are low. A business buyer will focus on the fact that the seller must do his best to remedy the delays or negative effects caused by a force majeure event. The buyer also requires the right to obtain electricity from an alternative source if necessary. Depending on the characteristics of the project and the energy needs of the user, the different risk reduction strategies are less or more appropriate. For example, an energy-intensive production company, concerned with variable electricity prices, might be more likely to follow an AAE with a price floor and a collar. Akamai Technologies, a cloud services company, reportedly won a floor price with its 7 MW wind project in Texas. (The report on the RMI scenarios takes this into account) However, for small businesses with a smaller energy footprint and lower price guarantee requirements, the benefits of reducing basic risk may not be worth negotiating a price floor and a pass. In general, developers will almost always benefit from a highly predictable long-term pricing mechanism, while lenders want a fixed price to ensure that project revenues are safe and will be sufficient to repay the loans. The parties may also agree to set the price at a fixed discount on the fluctuating price of wholesale electricity, perhaps with a ceiling and floor, so that if the wholesale price falls below the floor, the buyer pays the floor and if the wholesale price exceeds the ceiling, the buyer only pays the ceiling. Insurance Innovation However, the AAE coverage market is still relatively small and the limited number of products does not cover the full range of risk factors that may affect business AAEs. Thus, not all contractual structures will be able to find an appropriate safeguard solution.

This needs to change to support the business AAE market and the wider deployment of green energy. We need more innovation from the insurance industry. The VPPA will successfully play a hedging role if the market prices faced by the project company (the „node price“) and customers (the „retail price“) are correlated and combined, as revenues from wholesale electricity generation under the VPPA protect the customer from exposure to changing retail prices. In the end, the buyer can pay more under the VPPA, for example if the ancillary prices fall relative to the retail price. This uncorrelated price movement is called „basic risk.“ The more an asset contributes to the imbalance of the energy system, the higher the cost of the imbalance.