Bitcoin mining conversations are increasingly focusing on the evolving landscape of energy grids and power markets. These often complex and fragmented markets can be difficult to understand. This livestream discusses the complexities of power markets and energy grids from the perspective of miners with three great guests:
This conversation is essential for all bitcoin miners and investors who want to improve their understanding of energy markets to better engage in energy-related conversations around Proof-of-Work mining.
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Watch previous livestreams here.
Guest introductions (timestamp)
- Rich Godwin: CCO of Cormint Data Sytems—handles power and energy market trading strategies, procurement and financial modeling.
- Shaun Connell: Executive VP of Power at Lancium—has a power generation background and started on a trade where he looks for market dislocations based on power prices in different cities. He was introduced to bitcoin mining in 2017.
- Harry Sudock: VP of strategy at GRIID—has a traditional FinTech background and worked at CME group prior to joining the mining industry.
The learning curve in understanding energy markets (timestamp)
- On the surface, understanding the power market is intuitive but power markets get harder to understand as you start to learn more
- Bitcoin gets easier to understand once you get the underlying concepts in the whitepaper
The basics of power grids (timestamp)
- There three components:
- Energy cost
- Energy delivery: taking those megawatts that the power plant produces and transmitting them. Energy lost through transformation must be factored in.
- Government policy: some places have heavier costs and regulatory burdens. On the other hand, some places will offer energy credits and incentives based on energy source
- Energy is produced and then transformed. Some energy is also lost in transmission.
- Energy has two components:
- Mechanical component: how electrons are moved and stored
- Contractual component: who is obligated to get that power to people so that they can use it in their homes and businesses
- Frequency of the grid matters: how quickly these electrons are traveling across the grid.
- There is fragility in the electric grid, we are reliant on multiple parties and their guidelines (legal, regulatory, and safety standards) to maintain the grid.
How miners fit into the energy grid (timestamp)
- Bitcoin miners will provide economic incentives to keep resilient, stable and reliable energy sources economical and in the money. This means the grid will stay stable and resilient.
- Miners are a net positive to energy markets. They are buying power that no one else was buying. This creates net new revenue streams, and employment hubs within the community.
- Miners are an economic and engineering stabilizer for these power grid systems. The generators, especially with stabilizing power sources, are struggling to monetize.
- Bitcoin mining increases the economic viability of the power producers at large and delivering well sustained services.
- We are in a large energy transition. We are replacing reliable dispatchable coal energy generation with wind and other renewables.
- Miners must consider what happens when dispatchable coal is replaced with intermittent wind energy sources that can’t provide ancillary services.
- Bitcoin miners are buyers of first and last resort, in the future, they will act as buyers of last resort to fill energy consumption needs
- Energy markets: input energy, output ancillary service products
Texas energy grid and opportunities for miners (timestamp)
- The amount of natural gas in USA has exploded thanks to shale revolution. There’s a supply glut.
- Only 10% of U.S. natural gas production is currently being exported.
- If the US built more export facilities, this would bring a new revenue stream to natural gas producers.
- West Texas is home to US “windbelt” and has high sun quality.
- Renewables are being built but there is limited transmission ability for that power.
- Texas’ stranded energy offers an opportunity for miners.
How different power grids and agreements can affect mining machines (timestamp)
- Depending on power setup, reliability issues for miners can arise. Miners will design more resilient machines though.
- Bitcoin mining is just an arbitrage, arbitraging dollar cost input of the power to dollar denominated bitcoin revenue that a mining machine produces.
- The focus on improving the mining machine cooling environment will evolve.
What are key terms that are thrown around a lot about energy (timestamp)
- Demand Response Program (DRP). These differ depending on location.
- Regulating Reserves Service (RRS): These provide frequency response and backup power.
- Transmission and Delivery (T&D)
- Dollars per megawatt hour ($/MWh) will be the standard energy measure in the future.
Energy executives entering the bitcoin mining industry (timestamp)
- Many companies are leaving New York due to political risks around energy.
- Miners and execs are speaking in dollars per megawatt hour. This makes it easy to determine pricing and trading strategies.
- Hash pricing is not as intuitive outside the mining business, it makes more sense to price it in terms of the general energy markets ($/MWh)
Predictions for future growth of bitcoin mining (timestamp)
- Hashrate rate growth is more a function of chip availability than energy availability.
- Power prices are a signal for determining mining profitability. Miners will figure out how to use cheaper energy.
- The best cure for high prices is high prices. Difficulty doesn’t matter; what matters is the cost of power.
- When the global price of power exceeds the local price, mining growth will slow because the arbitrage between local and global power subsides.
- Bitcoin and mining are an instrument for financial freedom, and they’ll continue to grow.
- The network’s hashrate could reach 400-450 Eh/s by the next having.
- Corporate demand for ASICs continues to grow.