Energy transition is bringing on unique challenges to the power market.
The transition also offers solutions that require more thought to see them.
BitOoda believes there will be a convergence of blockchain, data centers and power, resulting in an effective reduction in the necessary targeted reserve margin.
There are so many inputs needed to understand the power markets, from policy to economic drivers. The energy transition from fossil to renewables presents a lot of issues but also a number of solutions. PJM is a regional transmission organization (RTO) that coordinates the movement of wholesale electricity in 13 states and the District of Columbia.
Located in PJM is PJM-West, which is the most traded power hub in the US. PJM recently published an Energy Transition paper that highlights the variables that all power markets will have to address. There are solutions not presented in the report that we discuss in this brief.
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There are so many inputs needed to understand the power markets, from policy to economic drivers. The energy transition from fossil to renewables presents a lot of issues but also a number of solutions. PJM is a regional transmission organization (RTO) that coordinates the movement of wholesale electricity in 13 states and the District of Columbia.
Located in PJM is PJM-West, which is the most traded power hub in the US. PJM recently published an Energy Transition paper that highlights the variables that all power markets will have to address. There are solutions not presented in the report that we discuss in this brief.
The big concern is that the amount of retirements of power plants are not keeping up with new builds, as much of the new builds are mainly renewables and do not offer the same “firm” capacity. There are several federal and local policies in place that will drive retirements, as noted in the report. The missing discussion in all this is price. Most federal policies are balanced with mitigation options, such as an SCR system to reduce NOX emissions. Therefore, there is a price point, and at some level mitigation becomes a reasonable option vs. retirement.
The interesting retirement picture is to think natural gas plants will retire in this region even though much of the region’s gas is locked in. This makes it efficient to use the gas via wires (power generation), given that NY and the surrounding regions are anti-gas pipelines. The figure below shows the discount in gas price in this region (Dominion South Point) vs. the main traded hub (Henry). This supports building natural gas plants in this region. In fact, at these prices, a data center could incorporate a buildout with a natural gas power generator to lock in power sub $60/MWh and be able to sell to the grid at times. However, PJM takes a conservative approach to this:
“This study assumes that, of the approximately 17.6 GW of natural gas generation in the queue, only those that are proposed updates of existing generation, or currently under construction, will complete. This results in 3.8 GW of entry from under-construction natural gas resources to be completed for the 2023/2024 Delivery Year. While 12 GW of natural gas have reached a signed Interconnection Service Agreement (ISA) stage, it is unclear what percentage of this capacity may move forward.”
Power markets work on game theory as the price and ultimate revenue of your asset depends on what others do in the market. The market has a history of overbuild to underbuild. As the market becomes more consolidated, it becomes less volatile and we get longer periods of booms and bust.
Load forecast is an open-ended discussion for PJM. Given today’s economic uncertainty, a global recession could drive the load outlook down. Energy center growth is largely driven by relatively low power prices. If power prices start to climb and reliability becomes questionable, data centers will likely move to other locations. There are policies supporting electrification, which PJM notes in the report’s outlook:
“PJM is expecting an increase in electrification resulting from state and federal policies and regulations. The study therefore incorporates an electrification scenario in the load forecast to provide insight on capacity need should accelerated electrification drive demand increases. This accelerated demand increase is consistent with the methodology used in the Emerging Characteristics of a Decarbonizing Grid paper. That paper found electrification to have an asymmetrical impact on demand growth, with demand growth in the winter, mainly due to heating, more than doubling that in the summer. This would move the bulk of the resource adequacy risk from the summer to the winter.”
Missing from the discussion is the amount of non-utility based solar. Even though much of the region is not solar-friendly, with electric rates rising and solar costs declining, this will eventually drive many to consider solar. When solar is installed at a home, the incremental solar panel cost is negligible as the installation is the most expensive element, and is the same regardless of whether the project is 1kW to 15kW.
They also missed a crucial discussion that we at Bitooda have been focused on – the convergence of datacenters and power markets. We believe as data centers become more of the grid they can actually be used to balance the grid. They can ultimately be used to increase the reserve margin.
All these factors ultimately lead to the ability to calculate the reserve margin. The reserve margin essentially represents the buffer at peak load. This buffer ultimately allows for an error in all of the assumptions discussed above. The greater the buffer, the greater the reliability. A typical target is 15%. The projections seen in the table below are anticipating an issue in PJM after 2025, as reserve margins drop below 15% in some cases. However, as we noted above, the additions of datacenters to help balance the grid is not incorporated in the numbers, nor is the acceleration of decentralized solar.
This report could be one of the reasons that caused the PJM forward curve to go up in the outer years. However, this is very speculative as it requires lots of issues to fall into place. The cure for high prices are high prices since they drive investments, reduce retirements, and also reduce load. In addition, those high prices will spur innovation such as the convergence of data center and power markets as we at BitOoda suggest. If you want to understand more about the convergence of data and power, please reach out to us at BitOoda.
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.
Copyright 2022 BitOoda Holdings, Inc. All rights reserved. No part of this material may be reprinted, redistributed, or sold without prior written consent of BitOoda.
There are so many inputs needed to understand the power markets, from policy to economic drivers. The energy transition from fossil to renewables presents a lot of issues but also a number of solutions. PJM is a regional transmission organization (RTO) that coordinates the movement of wholesale electricity in 13 states and the District of Columbia.
Located in PJM is PJM-West, which is the most traded power hub in the US. PJM recently published an Energy Transition paper that highlights the variables that all power markets will have to address. There are solutions not presented in the report that we discuss in this brief.
The big concern is that the amount of retirements of power plants are not keeping up with new builds, as much of the new builds are mainly renewables and do not offer the same “firm” capacity. There are several federal and local policies in place that will drive retirements, as noted in the report. The missing discussion in all this is price. Most federal policies are balanced with mitigation options, such as an SCR system to reduce NOX emissions. Therefore, there is a price point, and at some level mitigation becomes a reasonable option vs. retirement.
The interesting retirement picture is to think natural gas plants will retire in this region even though much of the region’s gas is locked in. This makes it efficient to use the gas via wires (power generation), given that NY and the surrounding regions are anti-gas pipelines. The figure below shows the discount in gas price in this region (Dominion South Point) vs. the main traded hub (Henry). This supports building natural gas plants in this region. In fact, at these prices, a data center could incorporate a buildout with a natural gas power generator to lock in power sub $60/MWh and be able to sell to the grid at times. However, PJM takes a conservative approach to this:
“This study assumes that, of the approximately 17.6 GW of natural gas generation in the queue, only those that are proposed updates of existing generation, or currently under construction, will complete. This results in 3.8 GW of entry from under-construction natural gas resources to be completed for the 2023/2024 Delivery Year. While 12 GW of natural gas have reached a signed Interconnection Service Agreement (ISA) stage, it is unclear what percentage of this capacity may move forward.”
Power markets work on game theory as the price and ultimate revenue of your asset depends on what others do in the market. The market has a history of overbuild to underbuild. As the market becomes more consolidated, it becomes less volatile and we get longer periods of booms and bust.
Load forecast is an open-ended discussion for PJM. Given today’s economic uncertainty, a global recession could drive the load outlook down. Energy center growth is largely driven by relatively low power prices. If power prices start to climb and reliability becomes questionable, data centers will likely move to other locations. There are policies supporting electrification, which PJM notes in the report’s outlook:
“PJM is expecting an increase in electrification resulting from state and federal policies and regulations. The study therefore incorporates an electrification scenario in the load forecast to provide insight on capacity need should accelerated electrification drive demand increases. This accelerated demand increase is consistent with the methodology used in the Emerging Characteristics of a Decarbonizing Grid paper. That paper found electrification to have an asymmetrical impact on demand growth, with demand growth in the winter, mainly due to heating, more than doubling that in the summer. This would move the bulk of the resource adequacy risk from the summer to the winter.”
Missing from the discussion is the amount of non-utility based solar. Even though much of the region is not solar-friendly, with electric rates rising and solar costs declining, this will eventually drive many to consider solar. When solar is installed at a home, the incremental solar panel cost is negligible as the installation is the most expensive element, and is the same regardless of whether the project is 1kW to 15kW.
They also missed a crucial discussion that we at Bitooda have been focused on – the convergence of datacenters and power markets. We believe as data centers become more of the grid they can actually be used to balance the grid. They can ultimately be used to increase the reserve margin.
All these factors ultimately lead to the ability to calculate the reserve margin. The reserve margin essentially represents the buffer at peak load. This buffer ultimately allows for an error in all of the assumptions discussed above. The greater the buffer, the greater the reliability. A typical target is 15%. The projections seen in the table below are anticipating an issue in PJM after 2025, as reserve margins drop below 15% in some cases. However, as we noted above, the additions of datacenters to help balance the grid is not incorporated in the numbers, nor is the acceleration of decentralized solar.
This report could be one of the reasons that caused the PJM forward curve to go up in the outer years. However, this is very speculative as it requires lots of issues to fall into place. The cure for high prices are high prices since they drive investments, reduce retirements, and also reduce load. In addition, those high prices will spur innovation such as the convergence of data center and power markets as we at BitOoda suggest. If you want to understand more about the convergence of data and power, please reach out to us at BitOoda.
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.
Copyright 2022 BitOoda Holdings, Inc. All rights reserved. No part of this material may be reprinted, redistributed, or sold without prior written consent of BitOoda.