Power Markets

How a Year Can Change the Market Outlook….

Power Markets for Bitcoin Miners, 01/02/24

David Bellman

Key Takeaway #1

There have been significant changes in the gas outlook from a year ago as a result of two mild winters and continuing increases in production in the US.

Key Takeaway #2

Power markets reacted to the low gas prices, but less so in ERCOT as price volatility widened with peak prices getting higher and the shoulder months lower.

Key Takeaway #3

Looking ahead, we assess the energy markets are not likely to unfold as the current forward markets indicate.

Key Takeaway #4

Distributed generation will continue to play a larger role and could offer compelling value if gas prices continue to be sub $4/mmbtu.

While the forward curve is not a forecast of where future commodity prices eventually land, it is indicative of the risk premium/discount at the time. In just a year, the natural gas price forward curve has dramatically dropped, bringing power prices along with it. The Henry Hub forward curve for the next 12 months is down 35% from last year. PJM and ERCOT are down 24% and 11%, respectively.

The power curves have their own unique properties, which can cause a dislocation from gas prices. ERCOT observed higher peak time prices while also showing lower prices in the shoulder months. This is driven by regulatory changes in ERCOT, which have caused prices to spike higher than fundamentally anticipated. Based on the latest forward curve, the market anticipates this issue to continue into the future.

Looking forward, what we can say is that the forward curve likely will not be where the market settles. Gas prices can easily be shifted up or down as a function of weather, and two years of mild winter and continuing production are resulting in weak fundamentals. The market has some selfcorrecting capabilities by actors reacting to prices. Those in the power markets can and will respond to the latest price signals, while renewables are being driven more by policies and regulation. The massive push for renewables is causing longer wait times for power generation development to connect to the grid, causing load centers to look for other options to supply energy, which could mean more distributed/behindthe-meter generation. If gas continues to be cost effective, behind-the-meter generation could be gas units

Gas units can range from under 1MW to over 500 MW, with varying heat rate (efficiencies). Typically, the larger the unit, the more efficient and more cost effective ($/MW) it will be. With gas prices sub $4/mmbtu, even the least efficient unit (12 HR) can start looking attractive. If gas can be supplied at the facility at $4, you are looking at sub $60/MWh power. In northern regions, the heat from the generating unit can be used to manage the climate at the facility.

At BitOoda, we have the expertise to analyze forward curves and future energy price risk to help you develop energy strategies from financial to physical asset optimization. With the future of power looking more and more like the volatile ERCOT curve, to fully take advantage of such volatile markets requires developing strategies that give you optionality.

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While the forward curve is not a forecast of where future commodity prices eventually land, it is indicative of the risk premium/discount at the time. In just a year, the natural gas price forward curve has dramatically dropped, bringing power prices along with it. The Henry Hub forward curve for the next 12 months is down 35% from last year. PJM and ERCOT are down 24% and 11%, respectively.

The power curves have their own unique properties, which can cause a dislocation from gas prices. ERCOT observed higher peak time prices while also showing lower prices in the shoulder months. This is driven by regulatory changes in ERCOT, which have caused prices to spike higher than fundamentally anticipated. Based on the latest forward curve, the market anticipates this issue to continue into the future.

Looking forward, what we can say is that the forward curve likely will not be where the market settles. Gas prices can easily be shifted up or down as a function of weather, and two years of mild winter and continuing production are resulting in weak fundamentals. The market has some selfcorrecting capabilities by actors reacting to prices. Those in the power markets can and will respond to the latest price signals, while renewables are being driven more by policies and regulation. The massive push for renewables is causing longer wait times for power generation development to connect to the grid, causing load centers to look for other options to supply energy, which could mean more distributed/behindthe-meter generation. If gas continues to be cost effective, behind-the-meter generation could be gas units

Gas units can range from under 1MW to over 500 MW, with varying heat rate (efficiencies). Typically, the larger the unit, the more efficient and more cost effective ($/MW) it will be. With gas prices sub $4/mmbtu, even the least efficient unit (12 HR) can start looking attractive. If gas can be supplied at the facility at $4, you are looking at sub $60/MWh power. In northern regions, the heat from the generating unit can be used to manage the climate at the facility.

At BitOoda, we have the expertise to analyze forward curves and future energy price risk to help you develop energy strategies from financial to physical asset optimization. With the future of power looking more and more like the volatile ERCOT curve, to fully take advantage of such volatile markets requires developing strategies that give you optionality.

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 11 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. January 2, 2024 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 through http on or ://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 by Ooda 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 2024 BitOoda Holdings, Inc. All rights reserved. No part of this material may be reprinted, redistributed, or sold without prior written consent of BitOoda.

While the forward curve is not a forecast of where future commodity prices eventually land, it is indicative of the risk premium/discount at the time. In just a year, the natural gas price forward curve has dramatically dropped, bringing power prices along with it. The Henry Hub forward curve for the next 12 months is down 35% from last year. PJM and ERCOT are down 24% and 11%, respectively.

The power curves have their own unique properties, which can cause a dislocation from gas prices. ERCOT observed higher peak time prices while also showing lower prices in the shoulder months. This is driven by regulatory changes in ERCOT, which have caused prices to spike higher than fundamentally anticipated. Based on the latest forward curve, the market anticipates this issue to continue into the future.

Looking forward, what we can say is that the forward curve likely will not be where the market settles. Gas prices can easily be shifted up or down as a function of weather, and two years of mild winter and continuing production are resulting in weak fundamentals. The market has some selfcorrecting capabilities by actors reacting to prices. Those in the power markets can and will respond to the latest price signals, while renewables are being driven more by policies and regulation. The massive push for renewables is causing longer wait times for power generation development to connect to the grid, causing load centers to look for other options to supply energy, which could mean more distributed/behindthe-meter generation. If gas continues to be cost effective, behind-the-meter generation could be gas units

Gas units can range from under 1MW to over 500 MW, with varying heat rate (efficiencies). Typically, the larger the unit, the more efficient and more cost effective ($/MW) it will be. With gas prices sub $4/mmbtu, even the least efficient unit (12 HR) can start looking attractive. If gas can be supplied at the facility at $4, you are looking at sub $60/MWh power. In northern regions, the heat from the generating unit can be used to manage the climate at the facility.

At BitOoda, we have the expertise to analyze forward curves and future energy price risk to help you develop energy strategies from financial to physical asset optimization. With the future of power looking more and more like the volatile ERCOT curve, to fully take advantage of such volatile markets requires developing strategies that give you optionality.

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 11 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. January 2, 2024 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 through http on or ://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 by Ooda 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 2024 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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How a Year Can Change the Market Outlook….

Power Markets for Bitcoin Miners, 01/02/24

Key Takeaway #1

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Key Takeaway #4

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