Power Markets

New Reporting Requirements Shows Mining Energy Use Still Misunderstood

Power Markets for Bitcoin Miners, 02/05/24

David Bellman
Key Takeaway #1

The EIA has initiated a new reporting requirement on energy use by miners

Key Takeaway #2

Mining is the most symbiotic load on the grid, offering relatively low price sensitivity and timely operational response.

Key Takeaway #3

Mining loads have largely located where cheap power exists, whereas data centers are generally in populated areas.

Key Takeaway #4

Mining economics slightly improved with a jump in BTC price as hash rate hit historical highs. • Natural gas prices continue to weaken, while power prices observed minimal changes week on week

While it is undeniable that the digital industry is contributing to load growth across the system, the loads and their impact are significantly different between AI and digital asset users. The Department of Energy (specifically, the Energy Information Administration, EIA) has initiated an “emergency” survey of electricity consumption from crypto mining companies operating in the US. The Office of Management and Budget authorized the data collection, which miners will be required to respond to. EIA Administrator Joe DeCarolis said, “We will specifically focus on how the energy demand for cryptocurrency mining is evolving, identify geographic areas of high growth, and quantify the sources of electricity used to meet cryptocurrency mining demand.”

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While it is undeniable that the digital industry is contributing to load growth across the system, the loads and their impact are significantly different between AI and digital asset users. The Department of Energy (specifically, the Energy Information Administration, EIA) has initiated an “emergency” survey of electricity consumption from crypto mining companies operating in the US. The Office of Management and Budget authorized the data collection, which miners will be required to respond to. EIA Administrator Joe DeCarolis said, “We will specifically focus on how the energy demand for cryptocurrency mining is evolving, identify geographic areas of high growth, and quantify the sources of electricity used to meet cryptocurrency mining demand.” The EIA argued the Bitcoin mining survey warranted emergency approval because Bitcoin's price increase has increased mining activity, and the cold weather has spiked electricity demand. According to the EIA, these factors combined to "create heightened uncertainty in electric power markets, which could result in demand peaks that affect system operations and consumer prices.“ While this justification seems to have a wellintentioned foundation, the base assumptions and assessment of the issues related to the power markets are inaccurate when it comes to the impact of mining on the grid. While miners may have added load on the grid, the EIA’s own map shows that most of the additions are not in populated areas. Mining load, in fact, most closely tracks to renewable generation. On the other hand, mapping out data center locations shows they are closer to populated areas, straining the local grids more directly. For example, Dominion (a VA utility) recently announced it cannot meet growing demand from a transmission/distribution perspective (not generation). This shows that targeting the mining industry may be a misdirected effort, as the race for AI is hindered not by generation, but by infrastructure. The other key point is that mining load is symbiotic with the power industry if incentivized correctly, due to its relatively low price response and operational flexibility. Data center loads will likely take several years to lower the margins to be reasonably price responsive. Breakeven for even the most advanced bitcoin facility is under $200/MWh, whereas the most discounted HPC facility is well over $1000/MWh. We assess the EIA would be better served discussing with utilities how to tie mining facilities to wholesale market prices vs fixed rates so they can assist the grid in managing variability. The price of power is driven by the peak load – now more so by net peak load (peak load less renewable generation such as solar and wind). This is because the incremental load drives an asset build which are large capital cost. Miners due to their price sensitivity will act as the marginal generator by turning off load, reducing rate payer cost for the marginal unit. In addition, underutilized assets require higher power prices to recover their costs. Miners increase utilization, thereby reducing the overall rate cost of the system. Having load to soak up underutilized wind and solar generation vs. spending more on batteries to do that work will reduce rate payer burden while allowing the system to have more renewables. HPC cannot facilitate this role.  We feel the government should focus on improving the transmission/distribution infrastructure, and should improve its understanding of the symbiotic relationship miners have to the existing power grid, and.  BitOoda can help create win-win-win outcomes among miners, utilities, and society. As you negotiate your power contracts, let us help you identify how you can benefit the system and achieve the proper incentive/contract structure.

Disclosures

Purpose This research is only for the clients of BitOoda. This research is not intended to constitute an offer, solicitation, or invitation for any securities and may not be distributed into jurisdictions where it is unlawful to do so. For additional disclosures and information, please contact a BitOoda representative at info@bitooda .io. Analyst Certification 10 David Bellman, the research analyst denoted by an “AC” on the cover of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships. Conflicts of Interest This research contains the views, opinions, and recommendations of BitOoda. This report is intended for research and educational purposes only. We are not compensated in any way based upon any specific view or recommendation. February 5, 2024 General Disclosures Any information (“Information”) provided by BitOoda Holdings, Inc., BitOoda Digital, LLC, BitOoda Technologies, LLC or Ooda Commodities, LLC and its affiliated or related companies (collectively, “BitOoda”), either in this publication or document, in any other communication, or through http on or ://www.bitooda.io/, including any information regarding proposed transactions or trading strategies, is for informational purposes only and is provided without charge. BitOoda is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing the Information, and the Information may not be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The Information is being distributed as part of BitOoda’s sales and marketing efforts as an introducing broker and is incidental to its business as such. BitOoda seeks to earn execution fees when its clients execute transactions using its brokerage services. BitOoda makes no representations or warranties (express or implied) regarding, nor shall it have any responsibility or liability for the accuracy, adequacy, timeliness or completeness of, the Information, and no representation is made or is to be implied that the Information will remain unchanged. BitOoda undertakes no duty to amend, correct, update, or otherwise supplement the Information. The Information has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances or requirements of any person, and it should not be the basis for making any investment or transaction decision. The Information is not a recommendation to engage in any transaction. The digital asset industry is subject to a range of inherent risks, including but not limited to: price volatility, limited liquidity, limited and incomplete information regarding certain instruments, products, or digital assets, and a still emerging and evolving regulatory environment. The past performance of any instruments, products or digital assets addressed in the Information is not a guide to future performance, nor is it a reliable indicator of future results or performance. All derivatives brokerage is conducted by Ooda Commodities, LLC a member of NFA and subject to NFA’s regulatory oversight and examinations. However, you should be aware that NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians or markets. BitOoda Technologies, LLC is a member of FINRA. “BitOoda”, “BitOoda Difficulty”, “BitOoda Hash”, “BitOoda Compute”, and the BitOoda logo are trademarks of BitOoda Holdings, Inc. Copyright 2024 BitOoda Holdings, Inc. All rights reserved. No part of this material may be reprinted, redistributed, or sold without prior written consent of BitOoda.

While it is undeniable that the digital industry is contributing to load growth across the system, the loads and their impact are significantly different between AI and digital asset users. The Department of Energy (specifically, the Energy Information Administration, EIA) has initiated an “emergency” survey of electricity consumption from crypto mining companies operating in the US. The Office of Management and Budget authorized the data collection, which miners will be required to respond to. EIA Administrator Joe DeCarolis said, “We will specifically focus on how the energy demand for cryptocurrency mining is evolving, identify geographic areas of high growth, and quantify the sources of electricity used to meet cryptocurrency mining demand.” The EIA argued the Bitcoin mining survey warranted emergency approval because Bitcoin's price increase has increased mining activity, and the cold weather has spiked electricity demand. According to the EIA, these factors combined to "create heightened uncertainty in electric power markets, which could result in demand peaks that affect system operations and consumer prices.“ While this justification seems to have a wellintentioned foundation, the base assumptions and assessment of the issues related to the power markets are inaccurate when it comes to the impact of mining on the grid. While miners may have added load on the grid, the EIA’s own map shows that most of the additions are not in populated areas. Mining load, in fact, most closely tracks to renewable generation. On the other hand, mapping out data center locations shows they are closer to populated areas, straining the local grids more directly. For example, Dominion (a VA utility) recently announced it cannot meet growing demand from a transmission/distribution perspective (not generation). This shows that targeting the mining industry may be a misdirected effort, as the race for AI is hindered not by generation, but by infrastructure. The other key point is that mining load is symbiotic with the power industry if incentivized correctly, due to its relatively low price response and operational flexibility. Data center loads will likely take several years to lower the margins to be reasonably price responsive. Breakeven for even the most advanced bitcoin facility is under $200/MWh, whereas the most discounted HPC facility is well over $1000/MWh. We assess the EIA would be better served discussing with utilities how to tie mining facilities to wholesale market prices vs fixed rates so they can assist the grid in managing variability. The price of power is driven by the peak load – now more so by net peak load (peak load less renewable generation such as solar and wind). This is because the incremental load drives an asset build which are large capital cost. Miners due to their price sensitivity will act as the marginal generator by turning off load, reducing rate payer cost for the marginal unit. In addition, underutilized assets require higher power prices to recover their costs. Miners increase utilization, thereby reducing the overall rate cost of the system. Having load to soak up underutilized wind and solar generation vs. spending more on batteries to do that work will reduce rate payer burden while allowing the system to have more renewables. HPC cannot facilitate this role.  We feel the government should focus on improving the transmission/distribution infrastructure, and should improve its understanding of the symbiotic relationship miners have to the existing power grid, and.  BitOoda can help create win-win-win outcomes among miners, utilities, and society. As you negotiate your power contracts, let us help you identify how you can benefit the system and achieve the proper incentive/contract structure.

Disclosures

Purpose This research is only for the clients of BitOoda. This research is not intended to constitute an offer, solicitation, or invitation for any securities and may not be distributed into jurisdictions where it is unlawful to do so. For additional disclosures and information, please contact a BitOoda representative at info@bitooda .io. Analyst Certification 10 David Bellman, the research analyst denoted by an “AC” on the cover of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships. Conflicts of Interest This research contains the views, opinions, and recommendations of BitOoda. This report is intended for research and educational purposes only. We are not compensated in any way based upon any specific view or recommendation. February 5, 2024 General Disclosures Any information (“Information”) provided by BitOoda Holdings, Inc., BitOoda Digital, LLC, BitOoda Technologies, LLC or Ooda Commodities, LLC and its affiliated or related companies (collectively, “BitOoda”), either in this publication or document, in any other communication, or through http on or ://www.bitooda.io/, including any information regarding proposed transactions or trading strategies, is for informational purposes only and is provided without charge. BitOoda is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing the Information, and the Information may not be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The Information is being distributed as part of BitOoda’s sales and marketing efforts as an introducing broker and is incidental to its business as such. BitOoda seeks to earn execution fees when its clients execute transactions using its brokerage services. BitOoda makes no representations or warranties (express or implied) regarding, nor shall it have any responsibility or liability for the accuracy, adequacy, timeliness or completeness of, the Information, and no representation is made or is to be implied that the Information will remain unchanged. BitOoda undertakes no duty to amend, correct, update, or otherwise supplement the Information. The Information has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances or requirements of any person, and it should not be the basis for making any investment or transaction decision. The Information is not a recommendation to engage in any transaction. The digital asset industry is subject to a range of inherent risks, including but not limited to: price volatility, limited liquidity, limited and incomplete information regarding certain instruments, products, or digital assets, and a still emerging and evolving regulatory environment. The past performance of any instruments, products or digital assets addressed in the Information is not a guide to future performance, nor is it a reliable indicator of future results or performance. All derivatives brokerage is conducted by Ooda Commodities, LLC a member of NFA and subject to NFA’s regulatory oversight and examinations. However, you should be aware that NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians or markets. BitOoda Technologies, LLC is a member of FINRA. “BitOoda”, “BitOoda Difficulty”, “BitOoda Hash”, “BitOoda Compute”, and the BitOoda logo are trademarks of BitOoda Holdings, Inc. Copyright 2024 BitOoda Holdings, Inc. All rights reserved. No part of this material may be reprinted, redistributed, or sold without prior written consent of BitOoda.

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