“A synthetic or virtual PPA can provide a good solution if it is not possible for the mine and the renewable generator to be connected to the same grid.” If a mining operation has its electricity supplied from a national or regional grid, it can enter into a PPA with a renewable energy provider to buy its electricity directly from the generator for an agreed price. One method of achieving this is through a direct retail or “sleeved” PPA, whereby a mine (or indeed any offtaker) can enter into an agreement directly with a renewable energy producer, fixing the price but paying a fee to the utility, via which the electricity will pass through to cover its cost of managing the grid to resolve any balancing issues (i.e. if the renewable energy source fails to produce enough electricity on a given day, the crypto mine can purchase additional power from the utility). A potential drawback to this is that it requires the wind farm or solar plant to be hooked up to the same grid as the mine, which is not always practical.
Alternatively, a synthetic or virtual PPA can provide a good solution if it is not possible for the crypto mine and the renewable generator to be connected to the same grid. A virtual PPA can take many different forms but, most commonly, it is effectively a financial instrument between a renewable generator and an offtaker, which has the effect of providing the latter with a stable energy price over the term of the PPA. In practice, the mine, as offtaker, is still being supplied with energy from a mix of sources under a sleeved or virtual PPA but can reap the benefits of the low cost of renewable power, without being electrified directly from a renewable source. This requires a functioning and well-operated grid, so might not always be economically viable, but is already being used in a number of countries. For instance, Anglo-American has recently entered into a 15-year virtual PPA with Actis-owned Atlas Renewable Energy. The 613 GWh per year agreement, valued at US$190m, will supply the miner with an estimated 90% of its Brazilian electricity demand by 2022²⁴. Similarly, BHP has recently agreed a five-year PPA with CleanCo (the Queensland government-owned renewable energy developer) under which it intends to purchase up to half of the power required for its Queensland coal mining operations from CleanCo’s wind and solar generators over the term of the PPA²⁵.
Government regulation is another reason why virtual PPAs could be preferable. For obvious reasons, the generation and supply of electricity to consumers is highly regulated in most jurisdictions. The problem faced by miners and renewable energy developers alike is that it is often the case that, in order to develop a power project of sufficient size to power a particular mine, it will normally need to be licensed by the national regulator. Even if a license is not strictly required, there is often local or national political pressure to connect to the grid and overcome the potential perception that the mine is just looking after itself. This can be costly and off-putting to mining companies who would rather avoid the red-tape of the electricity market. A virtual PPA can circumnavigate this – a particular mine can continue to receive its supply of electricity from its usual supplier, but separately enter into a PPA with a renewable energy company (which has all the relevant licences and regulatory consents) via which it can “purchase” its electricity from renewable sources.
