Power Markets

Off Grid Mining

Power Markets for Bitcoin Miners, 12/11/23

David Bellman

Key Takeaway #1

Mining off the grid has its advantages and disadvantages.

Key Takeaway #2

A clear understanding of operational capability will drive the economics for off grid mining, given that there is no grid backup

Key Takeaway #3

Environmental attributes could play a part in making mining off-grid more cost effective

Key Takeaway #4

Off-grid applications are typically smaller than on grid, which also results in higher cost on a per MW basis; therefore, variable power prices have to be lower than grid offerings.

In the previous two weeks, we discussed the potential for the integration of miners and the power system to enable renewable energy and make the grid more resilient. This week, we will discuss mining off the grid. There are various situations that make off-grid opportunities attractive for miners. Obviously, miners need low-cost power, and mining off the grid power cost would likely be under 4 cents.

There are few situations in which this price setup could be possible. However, the driving force of off-grid power will be availability, since there is no grid backup. Any hiccup in power delivery – whether it be the fuel or the machine generating the power – will be costly to the miner and the project. Pure renewable off-grid sources require significantly lower power, as the miner’s utilization likely would be below 50% unless it is a hydro or a biomass operation. A more common off-grid mining situation is using flare gas by routing it to a generator. However, even this is not a lock, since the miner would now be dependent on the field (requiring a detailed multi-year assessment of field deliverability). If field deliverability drops in year 2 vs year 5, this could significantly alter the economics of the project. As an example, a breakeven price of a typical S19jpro is likely around 7 cents/kWh – if the project utilization drops 50%, the breakeven price now is likely under 3.5 cents/kWh. In order to make this project appealing, power prices would need to be around 2 cents/kWh. This is not easy to achieve, even with stranded gas, as this would require the producer to sell at under $2/mmbtu given other operating costs and fixed costs associated with the generator and crew.

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In the previous two weeks, we discussed the potential for the integration of miners and the power system to enable renewable energy and make the grid more resilient. This week, we will discuss mining off the grid. There are various situations that make off-grid opportunities attractive for miners. Obviously, miners need low-cost power, and mining off the grid power cost would likely be under 4 cents.

There are few situations in which this price setup could be possible. However, the driving force of off-grid power will be availability, since there is no grid backup. Any hiccup in power delivery – whether it be the fuel or the machine generating the power – will be costly to the miner and the project. Pure renewable off-grid sources require significantly lower power, as the miner’s utilization likely would be below 50% unless it is a hydro or a biomass operation. A more common off-grid mining situation is using flare gas by routing it to a generator. However, even this is not a lock, since the miner would now be dependent on the field (requiring a detailed multi-year assessment of field deliverability). If field deliverability drops in year 2 vs year 5, this could significantly alter the economics of the project. As an example, a breakeven price of a typical S19jpro is likely around 7 cents/kWh – if the project utilization drops 50%, the breakeven price now is likely under 3.5 cents/kWh. In order to make this project appealing, power prices would need to be around 2 cents/kWh. This is not easy to achieve, even with stranded gas, as this would require the producer to sell at under $2/mmbtu given other operating costs and fixed costs associated with the generator and crew.

There are other areas of value that can be monetized for non-grid projects, such as certain environmental attributes. In the biomass case of landfill and animal feces, the extraction and use of methane will lower the global warming concerns, as methane is considered 25X as potent as a single CO2 molecule in terms of global warming potential (GWP). Therefore, there is the potential to obtain significant CO2 credits, which can be monetized to reduce the cost of the project.

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. 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 2023 BitOoda Holdings, Inc. All rights reserved. No part of this material may be reprinted, redistributed, or sold without prior written consent of BitOoda.

In the previous two weeks, we discussed the potential for the integration of miners and the power system to enable renewable energy and make the grid more resilient. This week, we will discuss mining off the grid. There are various situations that make off-grid opportunities attractive for miners. Obviously, miners need low-cost power, and mining off the grid power cost would likely be under 4 cents.

There are few situations in which this price setup could be possible. However, the driving force of off-grid power will be availability, since there is no grid backup. Any hiccup in power delivery – whether it be the fuel or the machine generating the power – will be costly to the miner and the project. Pure renewable off-grid sources require significantly lower power, as the miner’s utilization likely would be below 50% unless it is a hydro or a biomass operation. A more common off-grid mining situation is using flare gas by routing it to a generator. However, even this is not a lock, since the miner would now be dependent on the field (requiring a detailed multi-year assessment of field deliverability). If field deliverability drops in year 2 vs year 5, this could significantly alter the economics of the project. As an example, a breakeven price of a typical S19jpro is likely around 7 cents/kWh – if the project utilization drops 50%, the breakeven price now is likely under 3.5 cents/kWh. In order to make this project appealing, power prices would need to be around 2 cents/kWh. This is not easy to achieve, even with stranded gas, as this would require the producer to sell at under $2/mmbtu given other operating costs and fixed costs associated with the generator and crew.

There are other areas of value that can be monetized for non-grid projects, such as certain environmental attributes. In the biomass case of landfill and animal feces, the extraction and use of methane will lower the global warming concerns, as methane is considered 25X as potent as a single CO2 molecule in terms of global warming potential (GWP). Therefore, there is the potential to obtain significant CO2 credits, which can be monetized to reduce the cost of the project.

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. 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 2023 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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Off Grid Mining

Power Markets for Bitcoin Miners, 12/11/23

Key Takeaway #1

Key Takeaway #2

Key Takeaway #3

Key Takeaway #4

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