Inaccurate media coverage of Riot Platforms’ power management strategy in ERCOT compelled the company to issue a public written response.
Key Takeaway #2
ERCOT customers from multiple industries participate in the established demand response programs and earn similar fees to miners.
Key Takeaway #3
Miners should consider both economic and non-economic factors when developing power strategies and working with their utilities.
Key Takeaway #4
Mining economics weakened this week. Gas prices were slightly down and power prices were unchanged for the week.
• Inaccurate media coverage of Riot Platforms’ power management strategy in ERCOT compelled the company to issue a public written response.
• ERCOT customers from multiple industries participate in the established demand response programs and earn similar fees to miners.
• Miners should consider both economic and non-economic factors when developing power strategies and working with their utilities.
• Mining economics weakened this week.
• Gas prices were slightly down and power prices were unchanged for the week.
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The coverage of the revenue earned by miner Riot Platforms from its power management strategy has resulted in inaccurate criticism from certain anti-bitcoin media outlets. Some of these articles falsely depict the actions of both Riot and ERCOT, and tell a skewed story that fails to convey the benefits miners provide the grid with their flexible loads and contributions to system stability.
Riot’s response clarifies that it “provided over 84,000 megawatt hours of energy to the market in Texas to reduce overall demand, lower consumer prices, and stabilize the grid during a heat wave. This ensured that consumers did not experience disruptions during extreme temperatures. Riot earned approximately $7 million from the [ERCOT] ancillary services program… a competitive bidding process in which certain large customers in ERCOT’s market bid for the grid operator to pay them a fee that is similar to an insurance premium, which then affords ERCOT the right to control the customer’s electrical load to ensure grid stability. Riot’s premium amounts to less than one percent of the program, which administered nearly $1 billion during this time period.”
The takeaway is that many ERCOT load customers participate in this program and earn similar fees – it is not specific to miners. Any company that is long power and appropriately designs its contract to be able to sell its power back is able to do so. For example, Targa Resources also cut its natural gas processing in order to sell power back to the system.
Unfortunately, many of those who read these media reports undoubtedly will not understand that Riot’s actions – monetizing its power by giving it back to the grid instead of using it – helped Texans and overall grid stability.
Riot stated that it “actively participates in several demand response programs for the benefit of all Texans. Many industries in addition to bitcoin miners participate in such programs, including steel mills, electrical battery companies, oil and gas companies, and power generators. These programs utilize market forces to drive grid stability.”
For large load customers such as miners, it is prudent to hedge or lock in a portion (or all) of their power to maintain business continuity independent of power prices. Utilities use this approach as they construct contracts with customers. Miners should hold constructive conversations with their utilities when finalizing power contracts to balance the dollars and public relations.
Miner WoW View
• Mining economics slightly declined week on week.
• The S19JPro breakeven price is between $60-$70/MWh. This should cause some rigs to turn off.
Henry Hub WoW
• Henry Hub saw minor changes down 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 prices saw no change.
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.
• ERCOT prices saw no change.
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 prices saw no change.
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 prices saw no change.
Source: BitOoda, CME Group
NYISO WoW: NY-A
• This slide adds NY-A for the NYISO region.
• NY-A prices saw no change.
Source: BitOoda, CME Group
Appendix: Glossary of Key Terms
Adders: Price additions above and beyond the marginal power price
Ancillary Services: There are many forms of ancillary services, from Reg Up and Reg Down. These typically will require unique performance attributes, such as being very responsive. Generators can bid into this market vs. energy markets.
ATC: Around the Clock
Bal-day Contracts: Balance of the day contracts, which are traded throughout the day until the closing of the exchange
Capacity Market: Pays user for having capacity, regardless of whether the units are running; this offers a steady source of revenue for generators. Markets implement this in various ways; for example, ERCOT does not have a capacity market but offers ways to pay generators.
Capacity Price: Payment for capacity market or ancillary service; a non-energy payment, such as $/kW
Carbon Markets: Trading carbon emissions. Every carbon market has unique rules that could enable carbon offsets. The US does not have a national carbon market.
Customer Class: Grouping of utility customers, typically by usage: Residential, Commercial and Industrial
CT: Combustion Turbine (HR 10-16Peaker Plant)
Dark Spread: Margin from a coal plant
Demand Charge: The cost attributed to the peak load specified by time period, such as month or year; this is unique by region and utility.
Demand Side Management (DSM): Programs through which a utility offers a rebate if a customer agrees to cut demand for a small % of hours throughout the year when called upon to do so.
Dispatch: Unit is called upon to take an action or fill a load
Energy Charge: Charge for users who pay for what they consume
Energy Only Market: Market without capacity payments; typically offers higher energy prices to make up for the absence of capacity payments
ERCOT Contingency Reserve Service (ECRS): Ancillary market in ERCOT designed for when solar availability ramps down
ERCOT Hubs: North, Houston, South, and West; North Hub is the most traded for ERCOT
ERCOT 4CP: "Four Coincident Peak" -- allocation method for transmission cost in which the TDSP recovers cost through its power contracts with customers
Genset: Type/setup of generator (e.g., Combined Cycle or Combustion Turbine)
HE: Hour Ending(HE1 to HE24)
Heat Rate: Dividing power price by gas price produces the Heat Rate, the amount of fuel needed per unit of power; typically expressed as mmbtu/MWh. Used to express the efficiency of a power plant. Lower HR = lower amount of fuel needed to produce power. Only applies to power and gas.
Integrated Resource Plan (IRP): Document the utilities submit for multi-year planning
ISO: Independent Service Operator
Levelized Cost of Electricity (LCOE): Method to calculate the lifetime electricity cost, accounting for capital and fuel cost
LFL: Large Flexible Loads
Load Serving Entity(LSE): Companies that supply electricity to customers, including the transmission and distribution
Load Shedding: The amount of load to reduce due to a price response or reliability concern
Locational Marginal Price (LMP): This price takes into account energy price, congestion, and account transmission
Low Carbon Fuel Standard-(LCFS): CA has implemented requiring refiners to balance their production of fuels w LCFS credits
NEPOOL: ISO New England
NERC: North American Electric Reliability Corporation -- the not-for-profit international regulatory authority
NYISO: Zone G is the most liquid
On-Peak: ERCOT's on-peak is 7am to 10:59 M-F non-holidays. Every ISO is different.
ORDC: Operating Reserve Demand Curve
PJM-W Hub: PRJ-W is the most traded power hub in the US, with 65m users, 13 states and the District of Columbia
Rebound: Used to describe the increased demand as a result of becoming more efficient
Regional Transmission Organization (RTO): Transmission or ISO power hubs
Reserve Margins: Calculated as (capacity minus demand)/demand, where "capacity" is the expected maximum available supply and "demand" is expected peak demand1. For instance, a reserve margin of 15% means that an electric system has excess capacity in the amount of 15% of expected peak demand1.
Retail Electric Provider (REP): These are companies offering the consumer power through various rate plans
Spark Spread: Margin from a gas plant
Tariff Rates: Utilities' biling structure for various customers
Tolling Agreement: Removes the risk for the processor
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 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, 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.
All derivatives brokerage is conducted byOoda Commodities, LLC a member of NFA and 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 2023 BitOoda Holdings, Inc. All rights reserved. No part of this material may be reprinted, redistributed, or sold without prior written consent of BitOoda.
The coverage of the revenue earned by miner Riot Platforms from its power management strategy has resulted in inaccurate criticism from certain anti-bitcoin media outlets. Some of these articles falsely depict the actions of both Riot and ERCOT, and tell a skewed story that fails to convey the benefits miners provide the grid with their flexible loads and contributions to system stability.
Riot’s response clarifies that it “provided over 84,000 megawatt hours of energy to the market in Texas to reduce overall demand, lower consumer prices, and stabilize the grid during a heat wave. This ensured that consumers did not experience disruptions during extreme temperatures. Riot earned approximately $7 million from the [ERCOT] ancillary services program… a competitive bidding process in which certain large customers in ERCOT’s market bid for the grid operator to pay them a fee that is similar to an insurance premium, which then affords ERCOT the right to control the customer’s electrical load to ensure grid stability. Riot’s premium amounts to less than one percent of the program, which administered nearly $1 billion during this time period.”
The takeaway is that many ERCOT load customers participate in this program and earn similar fees – it is not specific to miners. Any company that is long power and appropriately designs its contract to be able to sell its power back is able to do so. For example, Targa Resources also cut its natural gas processing in order to sell power back to the system.
Unfortunately, many of those who read these media reports undoubtedly will not understand that Riot’s actions – monetizing its power by giving it back to the grid instead of using it – helped Texans and overall grid stability.
Riot stated that it “actively participates in several demand response programs for the benefit of all Texans. Many industries in addition to bitcoin miners participate in such programs, including steel mills, electrical battery companies, oil and gas companies, and power generators. These programs utilize market forces to drive grid stability.”
For large load customers such as miners, it is prudent to hedge or lock in a portion (or all) of their power to maintain business continuity independent of power prices. Utilities use this approach as they construct contracts with customers. Miners should hold constructive conversations with their utilities when finalizing power contracts to balance the dollars and public relations.
Miner WoW View
• Mining economics slightly declined week on week.
• The S19JPro breakeven price is between $60-$70/MWh. This should cause some rigs to turn off.
Henry Hub WoW
• Henry Hub saw minor changes down 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 prices saw no change.
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.
• ERCOT prices saw no change.
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 prices saw no change.
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 prices saw no change.
Source: BitOoda, CME Group
NYISO WoW: NY-A
• This slide adds NY-A for the NYISO region.
• NY-A prices saw no change.
Source: BitOoda, CME Group
Appendix: Glossary of Key Terms
Adders: Price additions above and beyond the marginal power price
Ancillary Services: There are many forms of ancillary services, from Reg Up and Reg Down. These typically will require unique performance attributes, such as being very responsive. Generators can bid into this market vs. energy markets.
ATC: Around the Clock
Bal-day Contracts: Balance of the day contracts, which are traded throughout the day until the closing of the exchange
Capacity Market: Pays user for having capacity, regardless of whether the units are running; this offers a steady source of revenue for generators. Markets implement this in various ways; for example, ERCOT does not have a capacity market but offers ways to pay generators.
Capacity Price: Payment for capacity market or ancillary service; a non-energy payment, such as $/kW
Carbon Markets: Trading carbon emissions. Every carbon market has unique rules that could enable carbon offsets. The US does not have a national carbon market.
Customer Class: Grouping of utility customers, typically by usage: Residential, Commercial and Industrial
CT: Combustion Turbine (HR 10-16Peaker Plant)
Dark Spread: Margin from a coal plant
Demand Charge: The cost attributed to the peak load specified by time period, such as month or year; this is unique by region and utility.
Demand Side Management (DSM): Programs through which a utility offers a rebate if a customer agrees to cut demand for a small % of hours throughout the year when called upon to do so.
Dispatch: Unit is called upon to take an action or fill a load
Energy Charge: Charge for users who pay for what they consume
Energy Only Market: Market without capacity payments; typically offers higher energy prices to make up for the absence of capacity payments
ERCOT Contingency Reserve Service (ECRS): Ancillary market in ERCOT designed for when solar availability ramps down
ERCOT Hubs: North, Houston, South, and West; North Hub is the most traded for ERCOT
ERCOT 4CP: "Four Coincident Peak" -- allocation method for transmission cost in which the TDSP recovers cost through its power contracts with customers
Genset: Type/setup of generator (e.g., Combined Cycle or Combustion Turbine)
HE: Hour Ending(HE1 to HE24)
Heat Rate: Dividing power price by gas price produces the Heat Rate, the amount of fuel needed per unit of power; typically expressed as mmbtu/MWh. Used to express the efficiency of a power plant. Lower HR = lower amount of fuel needed to produce power. Only applies to power and gas.
Integrated Resource Plan (IRP): Document the utilities submit for multi-year planning
ISO: Independent Service Operator
Levelized Cost of Electricity (LCOE): Method to calculate the lifetime electricity cost, accounting for capital and fuel cost
LFL: Large Flexible Loads
Load Serving Entity(LSE): Companies that supply electricity to customers, including the transmission and distribution
Load Shedding: The amount of load to reduce due to a price response or reliability concern
Locational Marginal Price (LMP): This price takes into account energy price, congestion, and account transmission
Low Carbon Fuel Standard-(LCFS): CA has implemented requiring refiners to balance their production of fuels w LCFS credits
NEPOOL: ISO New England
NERC: North American Electric Reliability Corporation -- the not-for-profit international regulatory authority
NYISO: Zone G is the most liquid
On-Peak: ERCOT's on-peak is 7am to 10:59 M-F non-holidays. Every ISO is different.
ORDC: Operating Reserve Demand Curve
PJM-W Hub: PRJ-W is the most traded power hub in the US, with 65m users, 13 states and the District of Columbia
Rebound: Used to describe the increased demand as a result of becoming more efficient
Regional Transmission Organization (RTO): Transmission or ISO power hubs
Reserve Margins: Calculated as (capacity minus demand)/demand, where "capacity" is the expected maximum available supply and "demand" is expected peak demand1. For instance, a reserve margin of 15% means that an electric system has excess capacity in the amount of 15% of expected peak demand1.
Retail Electric Provider (REP): These are companies offering the consumer power through various rate plans
Spark Spread: Margin from a gas plant
Tariff Rates: Utilities' biling structure for various customers
Tolling Agreement: Removes the risk for the processor
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 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, 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.
All derivatives brokerage is conducted byOoda Commodities, LLC a member of NFA and 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 2023 BitOoda Holdings, Inc. All rights reserved. No part of this material may be reprinted, redistributed, or sold without prior written consent of BitOoda.
