Abstract
In order to be attractive to the capital market, companies are under increasing pressure to incorporate renewable energy (RE) targets into their business strategies. One of the most credible ways to demonstrate the renewable origin of electricity and to achieve a positive signalling effect is to enter into a power purchase agreement (PPA). A special form of this contract, the virtual PPA (VPPA), acts as a financial hedge, allowing the industrial buyer to achieve both a decarbonisation effect and a risk-minimising hedge. As the effect of a VPPA on the shareholder wealth of the electricity buyer has not yet been investigated in the literature, the purpose of this study is to fill this research gap. To this end, we analyse the abnormal stock returns of 89 VPPA announcements using a modified event study based on the Fama-French five-factor model (FFM5). Our results show significant positive abnormal returns around the announcement of a VPPA deal. This confirms the expectation that VPPAs are wealth-creating.
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