A number of headlines not too long ago described a 25% drop in bitcoin community problem throughout Winter Storm Finn in January. Most attributed this drop to curtailment exercise in Texas. Whereas Texas does signify 17% of the worldwide bitcoin hashrate, ERCOT knowledge exhibits that a few of the curtailment exercise was a mixture of upper costs and “good grid citizenship.” In ERCOT, and to a lesser extent in different ISOs, costs are one of the best proxy for grid stress. There are different proxies comparable to PRC (bodily responsive functionality) however costs are a greater measure for many conditions. For that cause, to be able to forestall swings in costs and create more difficult gird circumstances, an optimum setting is one by which the worth doesn’t swing wildly up and down. Nevertheless, worth volatility is a frequent prevalence in ERCOT, as evidenced by Winter Storm Elliot in December 2022 (see graph under).
Bitcoin miners are the economically excellent customers of electrical energy. That isn’t to say that bitcoin miners will eat electrical energy in an altruistic manner, however reasonably that margins for bitcoin miners are uniquely delicate to the worth of energy such that they’re economically incentivized to curtail consumption when energy costs exceed their breakeven threshold (present breakeven for many miners ranges between $100 and $200 per MWh). Meaning they are going to eat electrical energy when costs are under their breakeven worth and switch off when costs are above it. There are some operational and sensible exceptions to this, for instance, if miners have knowledge middle colocation agreements that stipulate or assure uptime.
Texans ought to need bitcoin miners to be on anytime energy is considerable as a result of their constant consumption incentivizes the buildout of extra era. And fewer counterintuitively, we naturally need bitcoin miners to curtail when costs are excessive and the grid is beneath stress.
That brings us to the January 2024 winter occasion of the week of January fifteenth. The headlines would have you ever assume that the Texas grid was once more careworn and that bitcoin miners curtailed in consequence. The reality is far more nuanced. The common settlement worth within the ERCOT wholesale energy market throughout the worst three days of the storm was $100.76 per MWh, and costs by no means exceeded $600 per MWh. For context costs max out at $5,000 per MWh. As indicated by wholesale costs, the grid weathered the storm fairly properly with ample reserves all through.
ERCOT did certainly concern a conservation alert, however that was extra of a precautionary message for energy customers who don’t monitor the ability worth each second of daily like bitcoin miners do.
We did see some financial curtailment, which means curbing energy utilization based mostly on worth indicators, from miners for prolonged intervals, and a few shorter intervals when the costs exceeded $200 MWh. Nevertheless, this exercise was much less pronounced than in earlier winter occasions or summer time warmth waves as a result of era reserves had been extra considerable throughout the grid. Some bitcoin miners possible curtailed for longer intervals as a gesture of fine “grid citizenship,” and to indicate their dedication to a secure grid, however that’s hardly quantifiable.
All of this proof signifies that the problem drop final week necessitates a extra nuanced rationalization. A lot of it was a results of curtailment in Texas, however after evaluating ERCOT pricing knowledge, it leads me to imagine {that a} materials portion of that curtailment got here from different ISOs in North America as properly. In brief, everybody who has an opinion about bitcoin mining curtailment would do properly to observe ERCOT settlement and LMP costs. The info and the economics ought to type the spine of all future analyses.
This can be a visitor publish by Lee Bratcher. Opinions expressed are totally their very own and don’t essentially replicate these of BTC Inc or Bitcoin Journal.
