ERCOT Pricing Event Could Have Shown Value of Mining for the Grid

The past week’s hot temperatures and low wind in Texas created a pricing event lasting 5 hours, representing a great opportunity for miners to flex their operational capability in ERCOT to both monetize their flexible loads and also demonstrate the value of mining for the system. Unfortunately, we saw under 1 GW actually respond to this opportunity using their demand response capability, even though we assess likely 3 GW could have responded.

We have reviewed power contracts from several different miners at various locations, most of which do not extract the value of the flexibility of mining operations. Even though these contracts may not explicitly value a miner’s load response capability, we believe it is still prudent for miners to respond to validate the benefit of their flexibility for the local utility. This will arm miners for their next contract discussions, and also demonstrate the benefit of mining for the renewable energy transition.

Below is the on-peak (16 hour) chart for Friday the 16th with the reserve margin over time, showing the 5-hour price spike as reserve margins dipped.

ERCOT Pricing Event Could Have Shown Value of Mining for the Grid

The high price of power is a function of going up the cost curve, as prices exponentially rise approaching the lower reserve margin. Reserve margin is defined as essentially the buffer left from the supply side of the system before it is fully exhausted with demand. For approximately 5 hours, reserve margins fell below 8%. Scarcity pricing adders come into play in ERCOT markets, adding more cost to the system above and beyond the generator’s bid. Pricing in ERCOT happens every 5 minutes, but is settled every 15 minutes. Even though the high-price event is shown over the 5 hour period, we saw that around 4 hours of curtailment would have been needed from miners, as there were several times with the 5 hour period at which prices were under $80/MWh.

Miners with S19jpros can be profitable running during those times, but other miners should have curtailed. If 2 GW had responded, assuming a conservative price drop to $100/MWH from that response, this would have saved the overall system $93 million.  The deffered revenue for BTC miner around $1 million.

In our analysis we do show miners with s19jpros would have produced a net negative return with prices above $90/MWh. Miners would have saved money, and also saved the system significant value.

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Those miners that are actually directly tied to the grid wholesale prices could have made good money via a monthly hedge. A table of scenarios is presented below. In May, a June 2023 On-Peak contract could have been easily purchased for $47/MWh. Assuming a 100MW facility, 2 50MW contracts could have been purchased. On Friday, a bal-day contract could have been sold around $140/MWh. The net cost structure of the trade is presented in the table below: a financial gain of (140-47)*100*16=$148.8K.

In this case, the optimal approach was not to sell the bal-day, but note the incremental gain of not selling the bal-day vs. the last column. The last column represents the outcome IF all miners participated, which would have brought the system cost down along with some of the hours. Operational cost would not change since we assumed a conservative $100/MWh price floor for those participating hours and the cutoff was $80/MWh. The financial gain drops significantly as the market comes closer to $55/MWh with the drop in market prices in the peak period vs. calculated $146/MWh. The case where the miner is oblivious to power and is pricing at the wholesale market obviously shows a significant loss for day. Many miners not participating in the drop likely are on a fixed rate contract, which will rise later on.

This is why it is prudent to negotiate the flexibility of mining facilities into power contracts. This is beneficial to the miner, the utility, and society. The loser in this arrangement is the generators. Essentially, miners will avoid the additional cost of adding a peaking or battery operation. Miners need to extract some of this value, and the best way to do this is to prove flexible operations.

Accepting a simple fixed-cost contract of $70/MWh will look decent in the near term, but an integrated strategy approach the miner can make 7X more. Simply turning off operations when advantageous to you (Market Running) will save you money, but its not a sustainable strategy. At BitOoda, we can take you to the next level by offering strategy services and a team that can help you execute that strategy.

Miner WoW View

• Mining economics rather flat week on week.
• The S19JPro breakeven price is between $70-$80/MWh.

Henry Hub WoW

• Henry Hub flat week on week.

PJM WoW

• For the PJM region, we use PJM-W hub as the benchmark. PJM-W is themost traded power hub in the US.
• PJM no change week on week.

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 dipped slightly.

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.

NYISO WoW: NY-A

• This slide adds NY-A for the NYISO region
• NY-A prices went up again this week.

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