Power Purchase Agreement
A power purchase agreement sets long-term electricity pricing and supply terms for cryptocurrency mining operations.
Definition
A power purchase agreement, or PPA, is a contract to buy electricity from a generator, utility, or energy supplier. In cryptocurrency mining, a PPA defines how much power a site can use, what it pays, and how long those terms last. It is one of the main tools miners use to control electricity cost.
How It Works
A PPA usually sets power capacity, pricing, delivery point, term length, billing method, and interruption rules. For a mining farm, capacity matters because ASIC miners and cooling systems draw steady power around the clock. A 20 megawatt site needs enough contracted supply to run miners, fans, pumps, networking gear, and other infrastructure.
Pricing can be fixed, indexed to wholesale market prices, or a mix of both. A fixed-price PPA gives miners predictable costs, which makes it easier to model mining profitability. An indexed PPA may be cheaper when market prices fall, but it can expose the miner to price spikes.
Many PPAs include curtailment terms. Curtailment means the miner must reduce or stop power use during grid stress, transmission limits, or high-price periods. This can connect to demand response, where a miner earns incentives or avoids expensive hours by turning machines down.
The contract may also define renewable energy attributes, interconnection requirements, deposits, penalties, and termination rights. Larger miners often negotiate PPAs before building because lenders, hosting customers, and equipment buyers want confidence that power will be available at a workable price.
Why It Matters
Power is usually the largest operating expense in proof-of-work mining. A well-structured PPA can protect a miner from sudden rate increases, support planning, and make it easier to decide which ASICs to deploy.
PPAs also shape operational risk. A low headline power price is not enough if the contract includes strict penalties, frequent curtailment, weak delivery rights, or extra grid charges. Miners compare full contract cost against expected hash rate, hardware efficiency, network difficulty, and revenue assumptions. For planning, a PPA often sits beside site design, cooling strategy, and a broader Bitcoin mining guide.