Power Markets

Why is power becoming more unreliable?

Power Markets for Bitcoin Miners, 7/17/23

David Bellman

Key Takeaway #1

The reliability of the grid is degrading, resulting in the loss of on-site storage generation such as coal and oil.

Key Takeaway #2

The reliability of fossil fuels, unlike renewable generation, can be improved with capital investments, from firming transport to building onsite fuel storage to spending on weatherization.

Key Takeaway #3

Unreliable power will impact miners through impacting their operations and/or higher rates. However, miners can show utilities that their load can help to relieve some of the issues.

Key Takeaway #4

A comprehensive and proactive energy strategy is essential for miners. BitOoda is here to assist using our deep knowledge of both mining and power.

The transformation of the grid has led to increased unreliability, as well as vulnerability to improved pollution via SO2, NOx, and CO2 emissions. This degradation has been ongoing for decades, starting with oil/petroleum. Oil and coal represent on-site fuel generation, along with nuclear. Natural gas is not onsite; the gas plants are dependent on pipelines. Coal plants can have over 2 months of inventory physically on-site, and oil plants can have several weeks. The risk of gas deliverability is real, as seen during the Uri event in ERCOT. Gas units can have the capability to use oil, but this has been severely reduced. Renewable advocates point out the amount of fossil fuels that were unavailable during the recent extreme weather events. However fossil fuels, unlike renewables, are controllable in their reliability through capital expenditure. A gas plant can choose to firm gas transport, or to add the capability to store onsite oil. All fossil fuel plants can spend money to be winterized; however, many did not and are paying the penalty for not delivering. For renewables, there is nothing controllable about wind and solar – no amount of money can increase wind and solar farm reliability.

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The transformation of the grid has led to increased unreliability, as well as vulnerability to improved pollution via SO2, NOx, and CO2 emissions. This degradation has been ongoing for decades, starting with oil/petroleum. Oil and coal represent on-site fuel generation, along with nuclear. Natural gas is not onsite; the gas plants are dependent on pipelines. Coal plants can have over 2 months of inventory physically on-site, and oil plants can have several weeks. The risk of gas deliverability is real, as seen during the Uri event in ERCOT. Gas units can have the capability to use oil, but this has been severely reduced. Renewable advocates point out the amount of fossil fuels that were unavailable during the recent extreme weather events. However fossil fuels, unlike renewables, are controllable in their reliability through capital expenditure. A gas plant can choose to firm gas transport, or to add the capability to store onsite oil. All fossil fuel plants can spend money to be winterized; however, many did not and are paying the penalty for not delivering. For renewables, there is nothing controllable about wind and solar – no amount of money can increase wind and solar farm reliability.

Why is power becoming more unreliable

What does this mean for mining operations?

This growing unreliability requires modern loads to be more flexible in order to stabilize the system. Miners have a great opportunity to present the value of having such a unique load that can respond intra-hour – most industrial loads cannot respond like miners can. This value is easily quantifiable, as we have noted in our past reports. Contracts should be adapted to account for this by indexing either to wholesale energy prices and/or a lower rate with a known outage range.

The other issue it presents to miners is the need to evaluate self-generation options if grid unreliability increases substantially. Previously, we discussed solar generation options, but obviously to firm up generation, a natural gas option is firmer. There are new and used markets for gas generators that miners who are in regions that offer plentiful natural gas should consider. To green up the process, a miner could consider buying corresponding renewable energy credits (REC).

Miners can and should be active participants in the power markets. The US grid is not in a steady state – the ongoing transition will continue to cause more unreliability. It is important for miners to design a comprehensive and proactive power strategy. BitOoda has the expertise to help, as we understand both mining businesses and the power markets.

**Figure:** US Electric Generation Billion Kilowatt-hours
**Source:** EIA

Miner WoW View

Mining economics improved week on week.
The S19JPro breakeven price is between $80-$90/MWh.

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

Henry Hub WoW

Henry Hub saw minor changes WoW.

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 power saw minor changes WoW.

‍

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 author 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 anyspecific view or recommendation.

General Disclosures

Any information (“Information”)provided by BitOoda Holdings, Inc., BitOoda Advisory LLC, 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 throughhttp://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, inproviding 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 assuch. 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 orliability 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.

‍

The transformation of the grid has led to increased unreliability, as well as vulnerability to improved pollution via SO2, NOx, and CO2 emissions. This degradation has been ongoing for decades, starting with oil/petroleum. Oil and coal represent on-site fuel generation, along with nuclear. Natural gas is not onsite; the gas plants are dependent on pipelines. Coal plants can have over 2 months of inventory physically on-site, and oil plants can have several weeks. The risk of gas deliverability is real, as seen during the Uri event in ERCOT. Gas units can have the capability to use oil, but this has been severely reduced. Renewable advocates point out the amount of fossil fuels that were unavailable during the recent extreme weather events. However fossil fuels, unlike renewables, are controllable in their reliability through capital expenditure. A gas plant can choose to firm gas transport, or to add the capability to store onsite oil. All fossil fuel plants can spend money to be winterized; however, many did not and are paying the penalty for not delivering. For renewables, there is nothing controllable about wind and solar – no amount of money can increase wind and solar farm reliability.

Why is power becoming more unreliable

What does this mean for mining operations?

This growing unreliability requires modern loads to be more flexible in order to stabilize the system. Miners have a great opportunity to present the value of having such a unique load that can respond intra-hour – most industrial loads cannot respond like miners can. This value is easily quantifiable, as we have noted in our past reports. Contracts should be adapted to account for this by indexing either to wholesale energy prices and/or a lower rate with a known outage range.

The other issue it presents to miners is the need to evaluate self-generation options if grid unreliability increases substantially. Previously, we discussed solar generation options, but obviously to firm up generation, a natural gas option is firmer. There are new and used markets for gas generators that miners who are in regions that offer plentiful natural gas should consider. To green up the process, a miner could consider buying corresponding renewable energy credits (REC).

Miners can and should be active participants in the power markets. The US grid is not in a steady state – the ongoing transition will continue to cause more unreliability. It is important for miners to design a comprehensive and proactive power strategy. BitOoda has the expertise to help, as we understand both mining businesses and the power markets.

Miner WoW View

Mining economics improved week on week.
The S19JPro breakeven price is between $80-$90/MWh.

Henry Hub WoW

Henry Hub saw minor changes WoW.

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 power saw minor changes WoW.

‍

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 author 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 anyspecific view or recommendation.

General Disclosures

Any information (“Information”)provided by BitOoda Holdings, Inc., BitOoda Advisory LLC, 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 throughhttp://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, inproviding 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 assuch. 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 orliability 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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Why is power becoming more unreliable?

Power Markets for Bitcoin Miners, 7/17/23

Key Takeaway #1

Key Takeaway #2

Key Takeaway #3

Key Takeaway #4

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Why is power becoming more unreliable

Miner WoW View

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