Volumetric Production Payment (VPP) in Australia: 2025 Guide & Trends

In Australia’s dynamic resource sector, financing innovation is as important as geological discovery. Enter the Volumetric Production Payment (VPP)—a unique and flexible financing structure gaining traction as miners, energy producers, and investors seek smarter ways to unlock capital. With global commodity markets in flux and local regulations evolving in 2025, understanding VPPs is crucial for anyone invested in Australian resources.

What is a Volumetric Production Payment (VPP)?

A Volumetric Production Payment, or VPP, is a financing tool where an investor provides upfront capital to a resource producer (such as a mining or energy company) in exchange for the right to receive a specified share of future production—rather than equity or debt repayments. The arrangement is non-recourse: if production falls short, the investor’s recourse is limited to the output, not to the company’s other assets.

• Structure: The investor receives a fixed volume or percentage of resources produced (e.g., tonnes of iron ore, barrels of oil, or gigawatt-hours of electricity).
• Duration: Payments continue until the agreed volume is delivered or the pre-defined term expires.
• Off-balance sheet: VPPs typically don’t add to a producer’s debt load, appealing to companies wanting to preserve credit ratings or avoid dilution.

This model is already well-established in North American oil and gas, but Australian miners, renewables developers, and even agricultural firms are now exploring VPPs in 2025 as global capital tightens and ESG scrutiny intensifies.

Why Are VPPs Trending in Australia in 2025?

Several factors are driving renewed interest in VPPs across Australia’s resource landscape:

• Rising Cost of Capital: With global interest rates remaining elevated in early 2025, traditional project finance is more expensive. VPPs offer an alternative, often with more flexible terms.
• ESG and Green Financing: VPPs align with sustainability goals by tying investor returns directly to production, incentivising responsible resource management and offering transparency to stakeholders.
• Policy Shifts: Updates to Australia’s Corporations Act and ASX reporting requirements in late 2024 clarified the accounting treatment of VPPs, making them more attractive for listed companies wary of balance sheet implications.
• Energy Transition: The transition to renewables is accelerating VPP adoption in the electricity market, where solar and wind farm developers use VPPs to secure funding without diluting ownership.

For instance, a Queensland lithium miner recently secured a $60 million VPP deal, granting investors a percentage of future spodumene concentrate output—providing the miner with crucial development capital while preserving shareholder value.

How Do VPPs Work in Practice?

To illustrate, consider a gold miner in Western Australia seeking $20 million for expansion. Instead of issuing new shares or taking on bank debt, the miner offers a VPP: investors receive 5% of gold produced until a total of 15,000 ounces is delivered or five years have passed—whichever comes first. The payment is settled in-kind (physical gold) or at market value.

Key features of such a VPP deal:

• No equity dilution: Existing shareholders retain full upside.
• No direct debt: The VPP obligation is tied only to production, not to the company’s other assets.
• Risk sharing: If production lags, the investor shares the downside risk.

VPPs are also gaining traction in Australia’s energy sector. In 2025, several solar developers have structured VPPs with institutional investors, promising a defined share of future electricity output—often bundled with environmental credits—over a 10-year horizon.

Risks and Considerations for Australian Investors and Producers

While VPPs offer compelling advantages, they are not without complexity or risk:

• Commodity Price Volatility: Investor returns are directly linked to output and market prices; sharp downturns can reduce overall returns.
• Operational Risk: If the project underperforms (e.g., due to technical failures or regulatory delays), investors may not recover their capital.
• Regulatory Nuance: ASIC and ASX guidelines now require detailed disclosure of VPP terms and associated risks, including forward production assumptions and delivery mechanisms.
• Tax Treatment: The ATO clarified in its 2025 guidance that VPP proceeds are typically treated as revenue, not capital, for producers—affecting company tax profiles.

Informed structuring and due diligence are vital. Market participants should carefully consider off-take agreements, hedging strategies, and counterparty credit before entering a VPP.

The Future of VPPs in Australia

With capital markets evolving and resource companies seeking new funding models, VPPs are set to play a bigger role in Australia’s mining and energy sectors. As investor appetite grows—especially among super funds and ESG-focused institutions—expect to see more creative VPP deals across gold, lithium, gas, and renewables in 2025 and beyond.