Power Markets

Power Bears are Coming….

Power Markets for Bitcoin Miners, 6/12/23

David Bellman
Key Takeaway #1

Bearish factors are growing and proving themselves out, including large renewable builds and low natural gas prices.

Key Takeaway #2

Forwards are still trying hard to deny reality, perhaps hoping hot weather comes.

Key Takeaway #3

Solar installs – both utility scale and behind the meter – continue to grow.

Key Takeaway #4

Utilities are trying their best to stop this growth by increasing fixed cost.

There are several bearish factors moving into this summer, beyond the lower natural gas price as compared to last year. EIA just released a report highlighting the amount of renewable energy expected this summer along with natural gas generation – all to the detriment of coal.

As noted in the same article, there has been significant adds in renewable capacity, with solar leading the way. The solar piece of the puzzle is a huge driver in price since solar generation occurs at peak summer loads, which typically see large price movements up.

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There are several bearish factors moving into this summer, beyond the lower natural gas price as compared to last year. EIA just released a report highlighting the amount of renewable energy expected this summer along with natural gas generation – all to the detriment of coal.

As noted in the same article, there has been significant adds in renewable capacity, with solar leading the way. The solar piece of the puzzle is a huge driver in price since solar generation occurs at peak summer loads, which typically see large price movements up.

Figure: US monthly electric power sector generation by energy source 2018-2023 (TWh)
Source: EIA

These EIA graphs do not show what is actually happening behind the meter, where industrials, commercials, and residentials are all installing solar panels. This reduces the apparent expected demand. There is an active lobbying effort to add cost to the system by creating new large transmission corridors. The cost for these projects is enormous, as they are assets that will exist for 60+ years.

Figure: US electric power sector renewable energy generating capacity June 2018 – June 2023 (existing capacity, June 1, GW)
Source: EIA

Such a cost to society at a time when load could actually be diminishing from the grid or stay at parity would make it a foolish investment. One could see a residential load penetration for solar of 20%, and Industrial and Commercial at 10% – in combination, this would reduce the total load by 15%. Electrification from EV to others could perhaps leave load flat and make up the 15%. This would mean the existing transmission could generally handle most of the future load.

In terms of bullish factors, weather is key. Will the El Nino weather lead to higher loads? Higher economic activity would drive power prices higher, but given the tepid indicators globally, this is not as likely as weather. If the large transmission projects do get approved, it would drive more to behind-the-meter generation, as the cost of the projects will be in your transmission distribution charges on your bill. The only way to avoid them is to consume less from the grid.

Of course, utilities are fighting back as their customers reduce demand via solar by increasing fixed charges. The latest in CA is fixed charges as a function of income. “New” ways of doing things don’t make them the right ways. This will be an interesting experiment to watch. Likely, there will be significant unintended consequences.

In conclusion, the power markets are in flux, with competing interests trying to sway decision making. BitOoda has decades of experience in the power markets and can help you through this time of uncertainty. Hedging strategies will play an important role for business continuity. In addition, making sure your contracts and locations are set for the various potential outcomes will be essential. Installation of solar at your facility would also be an interesting topic to discuss.  Please reach out to us to discuss opportunities and strategies you can use to navigate today’s complex power markets.

Figure: Electricity Consumption by Sector (MWh)
Source: EIA

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 weakened along the entire strip last week.
Source: BitOoda, CME Group

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 dropped, mostly in line with gas.
Source: BitOoda, CME Group

ERCOT WoW

  • For the ERCOT region, we use ERCOT-North hub as the benchmark. ERCOT-North is the most traded power hub for ERCOT.
  • The ERCOT power market is still holding strong, but will likely falter if real-time does not show strength.
Source: BitOoda, CME Group

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.
Source: BitOoda, CME Group

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.
Source: BitOoda, CME Group

NYISO WoW: NY-A

  • This slide adds NY-A for the NYISO region.
  • NY-A prices went up again.
Source: BitOoda, CME Group

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.

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 several bearish factors moving into this summer, beyond the lower natural gas price as compared to last year. EIA just released a report highlighting the amount of renewable energy expected this summer along with natural gas generation – all to the detriment of coal.

As noted in the same article, there has been significant adds in renewable capacity, with solar leading the way. The solar piece of the puzzle is a huge driver in price since solar generation occurs at peak summer loads, which typically see large price movements up.

Figure: US monthly electric power sector generation by energy source 2018-2023 (TWh)
Source: EIA

These EIA graphs do not show what is actually happening behind the meter, where industrials, commercials, and residentials are all installing solar panels. This reduces the apparent expected demand. There is an active lobbying effort to add cost to the system by creating new large transmission corridors. The cost for these projects is enormous, as they are assets that will exist for 60+ years.

Figure: US electric power sector renewable energy generating capacity June 2018 – June 2023 (existing capacity, June 1, GW)
Source: EIA

Such a cost to society at a time when load could actually be diminishing from the grid or stay at parity would make it a foolish investment. One could see a residential load penetration for solar of 20%, and Industrial and Commercial at 10% – in combination, this would reduce the total load by 15%. Electrification from EV to others could perhaps leave load flat and make up the 15%. This would mean the existing transmission could generally handle most of the future load.

In terms of bullish factors, weather is key. Will the El Nino weather lead to higher loads? Higher economic activity would drive power prices higher, but given the tepid indicators globally, this is not as likely as weather. If the large transmission projects do get approved, it would drive more to behind-the-meter generation, as the cost of the projects will be in your transmission distribution charges on your bill. The only way to avoid them is to consume less from the grid.

Of course, utilities are fighting back as their customers reduce demand via solar by increasing fixed charges. The latest in CA is fixed charges as a function of income. “New” ways of doing things don’t make them the right ways. This will be an interesting experiment to watch. Likely, there will be significant unintended consequences.

In conclusion, the power markets are in flux, with competing interests trying to sway decision making. BitOoda has decades of experience in the power markets and can help you through this time of uncertainty. Hedging strategies will play an important role for business continuity. In addition, making sure your contracts and locations are set for the various potential outcomes will be essential. Installation of solar at your facility would also be an interesting topic to discuss.  Please reach out to us to discuss opportunities and strategies you can use to navigate today’s complex power markets.

Figure: Electricity Consumption by Sector (MWh)
Source: EIA

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 weakened along the entire strip last week.
Source: BitOoda, CME Group

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 dropped, mostly in line with gas.
Source: BitOoda, CME Group

ERCOT WoW

  • For the ERCOT region, we use ERCOT-North hub as the benchmark. ERCOT-North is the most traded power hub for ERCOT.
  • The ERCOT power market is still holding strong, but will likely falter if real-time does not show strength.
Source: BitOoda, CME Group

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.
Source: BitOoda, CME Group

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.
Source: BitOoda, CME Group

NYISO WoW: NY-A

  • This slide adds NY-A for the NYISO region.
  • NY-A prices went up again.
Source: BitOoda, CME Group

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.

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.

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