Bitcoin Mining Can Add to Decarbonizing & Grid Resiliency
Power Markets for Bitcoin Miners, 9/25/23
David Bellman
Key Takeaway #1
A growing number of reports focus on the positive carbon impacts and contributions of bitcoin mining on the grid.
Key Takeaway #2
The key will be to increase the creation of power contracts to incentivize miners to act to the benefit of the grid.
Key Takeaway #3
Mining markets slightly improved, with a drop in hash and an increase in BTC.
Key Takeaway #4
Gas markets weakened in the prompt year, but power markets did not move, leading to an increase in heat rates.
• A growing number of reports focus on the positive carbon impacts and contributions of bitcoin mining on the grid.
• The key will be to increase the creation of power contracts to incentivize miners to act to the benefit of the grid.
• Mining markets slightly improved, with a drop in hash and an increase in BTC.
• Gas markets weakened in the prompt year, but power markets did not move, leading to an increase in heat rates.
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A growing body of research is increasingly demonstrating the positive carbon impact of bitcoin mining and its ability to help the grid. We are hopeful that the mainstream media will begin to cover these reports and help change the narrative on these aspects of bitcoin mining.
For example, a study published by MDPI shows that bitcoin facilitates a reduction of carbon through enabling more renewable generation:
“This research underscores the possible role of Bitcoin mining in promoting grid decarbonization. Despite its high energy consumption, the unique energy buying behavior of Bitcoin miners may contribute to net decarbonization as a flexible load resource… For Bitcoin mining to significantly support RE deployment, a willingness of Bitcoin loads to be flexible is needed.”
The last sentence is the key. Unlike the high performance compute (HPC) loads from data centers, bitcoin’s load is more price sensitive. In other words, the margins/breakeven power prices for data centers are higher than bitcoin miners. In order for bitcoin miners to operationalize their flexible loads, their power contracts need to be appropriately designed to incentivize this flexibility. Miners need to educate the utilities to ensure they offer these contract structures, as it creates a win-win for both sides.
Another paper just released also supports the conclusion that “while Bitcoin's energy consumption has been a subject of concern, it can also be seen as a catalyst for the energy transition and a potential solution to global energy challenges.”
This paper also highlights the lack of in-depth research at the time of bitcoin’s creation, which resulted in inaccurate perceptions of bitcoin’s energy usage:
“On 15 December 2017, the World Economic Forum (WEF) published an article on its website claiming that by 2020, Bitcoin, the world’s first fully peer to peer digital currency, will consume more energy than the world is able to produce. By today's measurement, this claim proved to be a gross exageration, with the Bitcoin network currently consuming approximately 0.63% or 140 TWh per annum of the world’s total energy consumption."
The report also covers miners’ use of flare gas, which provides a net reduction in CO2 emissions (see chart below).
The report concludes that Bitcoin will be a catalyst for lower emissions by offering the following positive impacts of mining operations:
“Being a flexible load resource for grid demand response service provision and a facilitator of smart grids;
Being a consumer of methane that would otherwise be vented to the atmosphere, supporting UNEP's mission of ‘reducing methane emissions by 40-45% by 2030’;
Being a catalyst to reducing the waste associated with curtailment of wind and solar energy projects, leading to faster growth of these types of developments;
Being an economic enabler to marginal hydroelectric, geothermal, and nuclear energy projects, acting as a buyer of first or last resort;
Being the bridge to upscaling the world's first commercial Ocean Thermal Energy Conversion project, leading to the growth of this technology; and
Being a tool for heat recovery systems for domestic and small and medium enterprise heat energy consumers.”
Hopefully, the mainstream media will start highlighting the positive impacts of Bitcoin mining. BitOoda’s power and commodity background positions us to help you achieve a low-cost energy contract with the flexibility of allowing a reduction of carbon emissions along with creating a more resilient grid.
Miner WoW View
• Mining economics slightly improved 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 prompt year went 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 minor changes. HR is up.
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 minor changes. HR is slightly up.
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 minor changes. HR is up in prompt months.
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 minor changes. HR is slightly up for several months.
Source: BitOoda, CME Group
NYISO WoW: NY-A
• This slide adds NY-A for the NYISO region.
• NY-A prices saw minor changes. HR is up.
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: Hoour 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.
A growing body of research is increasingly demonstrating the positive carbon impact of bitcoin mining and its ability to help the grid. We are hopeful that the mainstream media will begin to cover these reports and help change the narrative on these aspects of bitcoin mining.
For example, a study published by MDPI shows that bitcoin facilitates a reduction of carbon through enabling more renewable generation:
“This research underscores the possible role of Bitcoin mining in promoting grid decarbonization. Despite its high energy consumption, the unique energy buying behavior of Bitcoin miners may contribute to net decarbonization as a flexible load resource… For Bitcoin mining to significantly support RE deployment, a willingness of Bitcoin loads to be flexible is needed.”
The last sentence is the key. Unlike the high performance compute (HPC) loads from data centers, bitcoin’s load is more price sensitive. In other words, the margins/breakeven power prices for data centers are higher than bitcoin miners. In order for bitcoin miners to operationalize their flexible loads, their power contracts need to be appropriately designed to incentivize this flexibility. Miners need to educate the utilities to ensure they offer these contract structures, as it creates a win-win for both sides.
Another paper just released also supports the conclusion that “while Bitcoin's energy consumption has been a subject of concern, it can also be seen as a catalyst for the energy transition and a potential solution to global energy challenges.”
This paper also highlights the lack of in-depth research at the time of bitcoin’s creation, which resulted in inaccurate perceptions of bitcoin’s energy usage:
“On 15 December 2017, the World Economic Forum (WEF) published an article on its website claiming that by 2020, Bitcoin, the world’s first fully peer to peer digital currency, will consume more energy than the world is able to produce. By today's measurement, this claim proved to be a gross exageration, with the Bitcoin network currently consuming approximately 0.63% or 140 TWh per annum of the world’s total energy consumption."
The report also covers miners’ use of flare gas, which provides a net reduction in CO2 emissions (see chart below).
The report concludes that Bitcoin will be a catalyst for lower emissions by offering the following positive impacts of mining operations:
“Being a flexible load resource for grid demand response service provision and a facilitator of smart grids;
Being a consumer of methane that would otherwise be vented to the atmosphere, supporting UNEP's mission of ‘reducing methane emissions by 40-45% by 2030’;
Being a catalyst to reducing the waste associated with curtailment of wind and solar energy projects, leading to faster growth of these types of developments;
Being an economic enabler to marginal hydroelectric, geothermal, and nuclear energy projects, acting as a buyer of first or last resort;
Being the bridge to upscaling the world's first commercial Ocean Thermal Energy Conversion project, leading to the growth of this technology; and
Being a tool for heat recovery systems for domestic and small and medium enterprise heat energy consumers.”
Hopefully, the mainstream media will start highlighting the positive impacts of Bitcoin mining. BitOoda’s power and commodity background positions us to help you achieve a low-cost energy contract with the flexibility of allowing a reduction of carbon emissions along with creating a more resilient grid.
Miner WoW View
• Mining economics slightly improved 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 prompt year went 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 minor changes. HR is up.
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 minor changes. HR is slightly up.
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 minor changes. HR is up in prompt months.
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 minor changes. HR is slightly up for several months.
Source: BitOoda, CME Group
NYISO WoW: NY-A
• This slide adds NY-A for the NYISO region.
• NY-A prices saw minor changes. HR is up.
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: Hoour 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.
