Crypto Mining Strategies Power Purchase Agreements Podcast

In this episode of our special series on crypto mining, New York partner Danielle Garbien joins Anne Termine and Jared Berg to discuss strategies for purchasing power for crypto mining facilities, including the various ways to structure a power purchase agreement for someone who turns on the lights in a crypto mine store. Danielle has experience in negotiating and preparing EPC contracts, REC purchase agreements, turbine delivery agreements, operating and management agreements and other procurement agreements for energy and infrastructure projects.

How do you buy energy en masse for a large crypto mining plant?

Crypto data mining facilities require a lot of electricity to function, and there have been products out there for generations where devices need a lot of energy to keep the lights on in their facilities. A common product is the power purchase agreement. We’ve heard of this – PPA, VPPA. It is used in several sectors and several industries when it comes to whether a tool will sell the power, or you can have companies that buy the power, or developers who sell the power. In short, the PPA often refers to a long-term power supply agreement between two parties. Usually the party who produces the electricity and the customer who consumes or buys the electricity.

Who are some of the purchasing suppliers and some of the agreements that we have made here at Bracewell or that you are familiar with?

We represent both the buyers and the developers, as well as the tools. For example, we have a number of developers who are in the renewable market, and they are building wind and solar parks. One component of building financing is often entering into a power purchase agreement to make lenders more comfortable with the packaging to ensure that once the wind farm or solar park is built, there is a long-term revenue stream that will be available for when the project is developed. That way, lenders know they will be repaid.

How does the lender become comfortable with the buyer of that energy?

A large part of the negotiations with PPAs, apart from pricing and delivery points and basic risk, is the credit and creditworthiness of the buyer of the energy, and also to ensure that the developer will go ahead with the project and achieve the commercial. operating date, or COD for when the plant is put into operation and can sell and generate power on time.

It seems like there are so many people who are unclear about what crypto is and then add the word mining to it. Has it been difficult to make agreements between crypto-mining facilities and power suppliers?

Surely. I think from a usage point of view, their typical customers do not require as much energy consumption as a crypto mining plant. So the exposure that the tool or developer has to the customer, given the large consumption volume, is much higher and more risky from that perspective when you are dealing with a crypto miner. This has been a highly negotiated area within the PPA context.

Can you guide us through when someone says they sign a PPA with a wind farm and they buy the renewable energy. Do they actually get the power directly generated by that plant? How does it work?

It will depend on where the plant was located and whether the power was “sold” behind the meter. Behind the meter, it basically says that you are not actually running the energy on wires that are common to everything else, with all the other energy produced in the grid. You have a wire that goes directly from the generation source to the load source. In this case, you want the wind farm, you want to set up a power line that runs from the wind farm directly to the crypto mining facility. Sometimes renewable plants or any production plant will also want to connect to the entire grid, so that if the mining plant stops taking energy for some reason, they can sell that power to the grid.

When it comes to someone who wants to set up a crypto mine and enter into a PPA, what are some reviews or any advice you would give them when thinking about these types of deals?

I think the most negotiated terms under a PPA are the pricing, the duration, the duration of a contract, the credit support posting obligations, the underlying risk, which is the difference between the price at which the energy is actually delivered and the price point at which you take prices from the market. Another really important piece in the puzzle is the property, the land, where the crypto mining facility is to be located and the lease period or ownership or whatever. But all these contracts go together to make it fit and work to get the plant up and running.