Today we are going to talk through a real time example of how BitOoda can help mining clients strategize their electricity contracts with utilities and illustrate the value of load flexibility in a volatile power market.
Bitcoin miners (as with most real asset operators) have an imbedded real option to optimize their operations based on market prices (both price of the product — BTC, and cost of mining in the short term — electricity). As with any option, the value of it increases with volatility. In a deregulated electricity market, volatility of electricity prices may be a significant value driver for a miner.
ERCOT region in the USA has attracted miners due to low energy prices. However, ERCOT prices are notoriously volatile, especially in the summer. Recent price spikes have caught media attention. Such events provide important case studies for understanding the value of asset optimization to the profitability of a mining operation.
As a rough estimate, given current BTC difficulty of 10.18 T, and BTC prices of ~$10,000, we estimate variable cost of mining to be around 0.105 $/kWH or 105 $/MWH (using s9 hashrate metrics). Running the facility at full capacity when electricity prices are above this level generates losses to a miner. The only reason to continue mining in these conditions would be a “must take” electricity contract that is indexed to real time prices or a fixed price contract without resale rights.
To illustrate the magnitude of value of optimization, we consider ERCOT North Hub as a liquid reference price:
YTD Real time prices averaged = 0.039 $/kWH.
Prices have been above 0.105 $/kWH only 2.3% of the time (around 127 hours) YTD.
However, the average price of electricity over the remaining 97.7% “profitable” hours has only been 0.0223 $/kWH or a staggering 43% discount to the average.
A suboptimal mining operation, which shuts-in or resells electricity only when prices breach 1000 $/MWH (occurring only 17 hours YTD, or 0.3%) will still face an average price of 0.0276 $/kWH, or a 30% discount.
Through our decades of experience in energy and power markets, BitOoda has the unique ability to not only structure, advise, and execute spot and derivatives products (i.e. BTC options and Difficulty Swaps) for Bitcoin, but also work on the power/electricity side of the business for our mining clients. We feel this strength of ours can differentiate our firm from any other within this asset class as a comprehensive solution for all of your capital markets needs.
Please let us know if we could help you set up a program that would help you capture these savings, further reducing your energy costs.