Power Markets

Data Center Load Growing Exponentially

Power Markets for Bitcoin Miners, 5/31/23

David Bellman

Key Takeaway #1

Digital power load growth is accelerating exponentially, and is not being driven by Bitcoin mining.

Key Takeaway #2

Currently, data centers are not power-price sensitive, while miners are positioned to curtail their operations to help stabilize the grid.

Key Takeaway #3

Trends in AI could result in democratization of Compute, as AI-driven software and hardware advancements will continue to lower Compute prices.

Key Takeaway #4

Converting BTC miners to data centers requires unique expertise that BitOoda is optimally positioned to provide.

Power consumption across the grid is expected to grow significantly over the next decade and beyond, driven in large part by digital and data applications related to AI. Although Bitcoin mining may be an easy target for those looking for ways to condemn digital assets, most of the large load growth being reported by the various power markets is attributable to other data centers. And now with the likes of Chat GPT and the growing desire for AI, this growth is only expected to accelerate. While a growing number of academic studies attempt to estimate this growth, there is tremendous variation and uncertainty in those forecasts (for example, see the below chart from the Borderstep Institute).

**Figure:** Energy consumption of servers and data centers worldwide – forecasts to 2030
**Source:** Hintemann & Hinterholzer 2023

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Power consumption across the grid is expected to grow significantly over the next decade and beyond, driven in large part by digital and data applications related to AI. Although Bitcoin mining may be an easy target for those looking for ways to condemn digital assets, most of the large load growth being reported by the various power markets is attributable to other data centers. And now with the likes of Chat GPT and the growing desire for AI, this growth is only expected to accelerate. While a growing number of academic studies attempt to estimate this growth, there is tremendous variation and uncertainty in those forecasts (for example, see the below chart from the Borderstep Institute).

AI Still in its Infancy

Despite the uncertainty of most growth models, given how early we are in the evolution of Artificial Intelligence, the scale of growth will undoubtedly be exponential. The chart below shows how quickly Compute has grown from 2020’s Chat-GPT3 at 175 billion Brain Synapses/Connection to 2023’s GPT4 at 1 trillion – over 5x growth in three years. Yet comparing Chat GPT to the brain synapses of common animals shows how far we still have to go – GPT4 is still at the brain level of a squirrel!

**Figure:** Brain Synapses of common animals compared with current AI capabilities
**Source:** @HodLipson

Compute Becoming Cheaper Over Time

Equipment and software improvements, as well as access to power, are some of the factors enabling this rapid growth. The cost of Compute is exponentially cheaper than previous years.

**Figure:** Computing power per dollar 1900-2023
**Source:** @HodLipson

Data Center Load Growing Exponentially

The big question is where and how the electricity to meet this demand will be produced. Crypto mining currently is a better balancing item for the grid than data centers, because the breakeven margins in BTC mining (using a decent benchmark of the S19jpro), lie between $80-90/MWh. Power prices north of that would result in marginal losses. For data centers, however, breakeven prices are well north of $2000/MWh (based on prices from the various cloud providers for GPU and back-calculating the power requirements). Their ability to curtail power is significantly diminished with such high breakeven levels.

With less curtailment from data centers, the power markets will depend on BTC miners to help balance the power markets until breakevens come down – which we expect they will. Until then, we assess these data centers can and will pay for more expensive power than miners. They can afford to create synthetic/green 24/7 power – Google is already doing this – even though this type of power is expensive. Their margins are wide enough now, but ultimately will get compressed – marginal economics always win out in commodity markets where the cost of goods migrates to the marginal cost of production. In order to maintain the premium, a monopoly/oligopoly structure is needed. Outside of that, competition will drive cost down.

Given the centralization and high cost of power for data centers, there is a strong possibility that the best choice for power will be self-generation with some grid connection. This increases the capital cost of the facility, but at the same time gives it more resiliency; additionally, power costs are more known vs. being at the mercy of markets and utility operations. However, given the significant technology advancements in both hardware and software, the cost of Compute should continue to come down, democratizing data centers.

At BitOoda, we are leveraging this great convergence and helping BTC miners evaluate their options to expand into Compute. We are also helping data centers with customer acquisition. Both industries are capital intensive and need ways to hedge their financial risks. BitOoda has created financial products and strategies using our vast commodity market experience and our expertise in power, mining, and Compute. Contact us to see how we can help you navigate these complexities.

Miner WoW View

Mining economics declined this week.
The S19JPro breakeven price is between $70-$80/MWh.

**Figure:** Weekly Average Cash Contribution After Power Expense
**Note:** Assumes a PUE of 1.12
**Source:** BitOoda, Bloomberg, Coinmetrics

Henry Hub WoW

Henry Hub strengthened last week.

PJM WoW

For the PJM region, we use PJM-W hub as the benchmark. PJM-W is the most traded power hub in the US.
PJM saw only minor changes WoW.

ERCOT WoW

For the ERCOT region, we use ERCOT-North hub as the benchmark. ERCOT-North is the most traded power hub for ERCOT.
ERCOT saw only minor changes WoW.

CAISO WoW

For the CAISO region, we use SP-15 hub as the benchmark. SP-15 is located in Southern California.
CAISO saw only minor changes.

NYISO WoW: NY-G

This slide uses the NY-G hub as the benchmark for the NYISO region. NY-G is the most traded power hub in NYISO.
NY-G saw only minor changes outside the winters.

NYISO WoW: NY-A

This slide adds NY-A for the NYISO region.
NY-A prices were up this week.

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

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 on or through http://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.

Ooda Commodities, LLC is a member of NFA and is 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.

‍

Power consumption across the grid is expected to grow significantly over the next decade and beyond, driven in large part by digital and data applications related to AI. Although Bitcoin mining may be an easy target for those looking for ways to condemn digital assets, most of the large load growth being reported by the various power markets is attributable to other data centers. And now with the likes of Chat GPT and the growing desire for AI, this growth is only expected to accelerate. While a growing number of academic studies attempt to estimate this growth, there is tremendous variation and uncertainty in those forecasts (for example, see the below chart from the Borderstep Institute).

AI Still in its Infancy

Despite the uncertainty of most growth models, given how early we are in the evolution of Artificial Intelligence, the scale of growth will undoubtedly be exponential. The chart below shows how quickly Compute has grown from 2020’s Chat-GPT3 at 175 billion Brain Synapses/Connection to 2023’s GPT4 at 1 trillion – over 5x growth in three years. Yet comparing Chat GPT to the brain synapses of common animals shows how far we still have to go – GPT4 is still at the brain level of a squirrel!

Compute Becoming Cheaper Over Time

Equipment and software improvements, as well as access to power, are some of the factors enabling this rapid growth. The cost of Compute is exponentially cheaper than previous years.

Data Center Load Growing Exponentially

The big question is where and how the electricity to meet this demand will be produced. Crypto mining currently is a better balancing item for the grid than data centers, because the breakeven margins in BTC mining (using a decent benchmark of the S19jpro), lie between $80-90/MWh. Power prices north of that would result in marginal losses. For data centers, however, breakeven prices are well north of $2000/MWh (based on prices from the various cloud providers for GPU and back-calculating the power requirements). Their ability to curtail power is significantly diminished with such high breakeven levels.

With less curtailment from data centers, the power markets will depend on BTC miners to help balance the power markets until breakevens come down – which we expect they will. Until then, we assess these data centers can and will pay for more expensive power than miners. They can afford to create synthetic/green 24/7 power – Google is already doing this – even though this type of power is expensive. Their margins are wide enough now, but ultimately will get compressed – marginal economics always win out in commodity markets where the cost of goods migrates to the marginal cost of production. In order to maintain the premium, a monopoly/oligopoly structure is needed. Outside of that, competition will drive cost down.

Given the centralization and high cost of power for data centers, there is a strong possibility that the best choice for power will be self-generation with some grid connection. This increases the capital cost of the facility, but at the same time gives it more resiliency; additionally, power costs are more known vs. being at the mercy of markets and utility operations. However, given the significant technology advancements in both hardware and software, the cost of Compute should continue to come down, democratizing data centers.

At BitOoda, we are leveraging this great convergence and helping BTC miners evaluate their options to expand into Compute. We are also helping data centers with customer acquisition. Both industries are capital intensive and need ways to hedge their financial risks. BitOoda has created financial products and strategies using our vast commodity market experience and our expertise in power, mining, and Compute. Contact us to see how we can help you navigate these complexities.

Miner WoW View

Mining economics declined this week.
The S19JPro breakeven price is between $70-$80/MWh.

Henry Hub WoW

Henry Hub strengthened last week.

PJM WoW

For the PJM region, we use PJM-W hub as the benchmark. PJM-W is the most traded power hub in the US.
PJM saw only minor changes WoW.

ERCOT WoW

For the ERCOT region, we use ERCOT-North hub as the benchmark. ERCOT-North is the most traded power hub for ERCOT.
ERCOT saw only minor changes WoW.

CAISO WoW

For the CAISO region, we use SP-15 hub as the benchmark. SP-15 is located in Southern California.
CAISO saw only minor changes.

NYISO WoW: NY-G

This slide uses the NY-G hub as the benchmark for the NYISO region. NY-G is the most traded power hub in NYISO.
NY-G saw only minor changes outside the winters.

NYISO WoW: NY-A

This slide adds NY-A for the NYISO region.
NY-A prices were up this week.

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

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 on or through http://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.

Ooda Commodities, LLC is a member of NFA and is 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.

‍

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Data Center Load Growing Exponentially

Power Markets for Bitcoin Miners, 5/31/23

Key Takeaway #1

Key Takeaway #2

Key Takeaway #3

Key Takeaway #4

Premium Content

Table of contents

Research By

AI Still in its Infancy

Compute Becoming Cheaper Over Time

Data Center Load Growing Exponentially

Miner WoW View

Henry Hub WoW

PJM WoW

ERCOT WoW

CAISO WoW

NYISO WoW: NY-G

NYISO WoW: NY-A

Disclosures

Table of contents

Research By

AI Still in its Infancy

Compute Becoming Cheaper Over Time

Data Center Load Growing Exponentially

Miner WoW View

Henry Hub WoW

PJM WoW

ERCOT WoW

CAISO WoW

NYISO WoW: NY-G

NYISO WoW: NY-A

Disclosures

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