Power Markets

Popeye & BTC Intersect

Power Markets for Bitcoin Miners, 9/5/23

David Bellman

Key Takeaway #1

The Cambridge Center for Alternative Finance (CCAF) made significant changes to its Cambridge Bitcoin Electricity Consumption Index (CBECI).

Key Takeaway #2

They revised energy consumption down by around 10% but highlighted issues with their methods and did not revise emissions.

Key Takeaway #3

Mining economics are stabilizing as hashrates come off.

Key Takeaway #4

There was not much change on the power and gas front other than ERCOT forwards continuing to price in higher peaks, as observed this summer.

The Cambridge Centre for Alternative Finance (CCAF) recently published a revision of its report on energy consumption by miners. CCAF’s Cambridge Bitcoin Electricity Consumption Index (CBECI) has been one of the most cited sources for Bitcoin energy and power consumption estimates (although we at BitOoda have frequently critiqued their analysis).

Much of the public criticism of the mining industry has come from false conclusions drawn from CCAF’s reports from their reports (for example, that Bitcoin uses as much energy as Sweden). Their latest claim is that the consumption of power is closer to all the tumble dryers in the US. They have adjusted their energy consumption numbers lower by around 10% but have not adjusted emissions, which is driving much of the public angst about mining. The adjusted emissions would likely be more than the power adjustments, given that they do not give credit for flare gas usage and other waste gas options.

They are likely to conclude that the energy consumption from mining is still too high, as they probably wanted to keep their revisions somewhat reasonable and merge the adjustments in over time vs. losing credibility with significant changes all at once. The emissions certainly will drop in terms of CO2 when they make the calculation.

Miners are economically driven, and the fact that intermittent renewables is the cheaper form of energy – whether solar or even seasonal hydro – would indicate a bias for miners to use more renewables than the grid’s average profile. Levelized cost of electricity (LCOE) can be skewed easily, but the Lazard chart (next page) does show the cost range. Miners would want the lowest price, and given their load flexibility can handle the unfirm nature of those prices, unlike data centers who are less sensitive to power price and hence prefer constant power.

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The Cambridge Centre for Alternative Finance (CCAF) recently published a revision of its report on energy consumption by miners. CCAF’s Cambridge Bitcoin Electricity Consumption Index (CBECI) has been one of the most cited sources for Bitcoin energy and power consumption estimates (although we at BitOoda have frequently critiqued their analysis).

Much of the public criticism of the mining industry has come from false conclusions drawn from CCAF’s reports from their reports (for example, that Bitcoin uses as much energy as Sweden). Their latest claim is that the consumption of power is closer to all the tumble dryers in the US. They have adjusted their energy consumption numbers lower by around 10% but have not adjusted emissions, which is driving much of the public angst about mining. The adjusted emissions would likely be more than the power adjustments, given that they do not give credit for flare gas usage and other waste gas options.

They are likely to conclude that the energy consumption from mining is still too high, as they probably wanted to keep their revisions somewhat reasonable and merge the adjustments in over time vs. losing credibility with significant changes all at once. The emissions certainly will drop in terms of CO2 when they make the calculation.

Miners are economically driven, and the fact that intermittent renewables is the cheaper form of energy – whether solar or even seasonal hydro – would indicate a bias for miners to use more renewables than the grid’s average profile. Levelized cost of electricity (LCOE) can be skewed easily, but the Lazard chart (next page) does show the cost range. Miners would want the lowest price, and given their load flexibility can handle the unfirm nature of those prices, unlike data centers who are less sensitive to power price and hence prefer constant power.

Much credit should be given to Cambridge for being brave enough to admit where they were wrong. Industry participants knew they were wrong with statements such as:

“The backbone of our previous CBECI methodology was the assumption that every profitable hardware model released less than 5 years ago equally fueled the total network hashrate. This, however, led to a disproportionally large number of older devices compared to newer ones in our assumed hardware distribution.”

BTC miners should recognize the need for independent research to promote the truth. Falsehoods such as the above, particularly when held out as authoritative for a protracted period of time, have stalled the progress of BTC growth and adoption. Even though some corrections have now been made, it will take time for public perceptions to adjust.

As an example of how long falsehoods in an industry can last is spinach. The concept that spinach contains significantly more iron than other green leafy vegetables (hence Popeye eating spinach for strength) is based on a falsehood due to a compounded error.

**Source:** 2023 Levelized Cost Of Energy+ | Lazard.

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.

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

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 saw minor changes WoW.

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 forward market continues to extrapolate this year’s issues into the future, with higher winter and summer peaks.

CAISO WoW

For the CAISO region, we use SP-15 hub as the benchmark. SP-15 is located in Southern California.
CAISO saw minor changes WoW.

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 minor changes WoW.

NYISO WoW: NY-A

This slide adds NY-A for the NYISO region.
NY-A prices saw minor changes WoW.

Appendix: Glossary of Key Terms

Disclosures

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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.

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