Why it matters
A virtual PPA is a financial contract for difference. No power passes between the parties. You keep buying from your supplier, the generator keeps selling into the market, and the difference against an agreed strike price is settled in cash.
Because it is a financial instrument rather than a purchase of something you use, it will generally be treated as a derivative under IFRS 9, measured at fair value with movements running through profit and loss. A ten to fifteen year contract on a volatile underlying can therefore introduce meaningful earnings volatility, entirely disconnected from operations.
Nothing has gone wrong when this happens. It is what the instrument is. But a finance director seeing it for the first time at signature stage will stop the deal, and they will be right to.
What to establish early
- Whether your reporting framework and your auditors treat the contract as a derivative, and how the fair value would be determined.
- Whether hedge accounting is available and whether you want it, given the documentation and effectiveness testing it requires.
- What the earnings impact looks like under a reasonable range of forward curves, modelled rather than assumed.
- Where the contract sits if it crosses a currency, which adds a second source of movement.
- Who owns the ongoing valuation work internally, because it does not stop after year one.
The alternative
If the accounting treatment is the blocker rather than the economics, a physical structure may solve it. A sleeved PPA is a purchase of electricity you actually consume, and it typically avoids derivative treatment where the own-use exemption applies. It is less flexible across a portfolio and it ties you to a supplier relationship, but it does not put a mark to market line in your accounts.
That trade is worth making explicitly rather than discovering it late.
The practical sequence
Get your finance team and your auditors into the room at the point you are choosing a structure, not at the point you are choosing a counterparty. It costs an hour of their time and it is the single highest-return hour in the whole process.