On The Brink with Castle Island - Andrew Myers and Brock Peterson (Satoshi Energy) on Monetizing Renewables with Bitcoin (EP.305)

Episode Date: April 11, 2022

Andrew Myers and Brock Petersen of Satoshi Energy join the show to cover how Bitcoin mining monetizes renewables. In this episode we cover:  Andrew and Brock's origin story How Satoshi Energy develops sites and infrastructure for miners Is Satoshi Energy explicitly renewable focused? How mining with intermittent renewables can be economical How Bitcoin mining improves the economics of renewables The merits of the behind the meter approach How using Bitcoin as an offtake improves the economics of renewable generation assets The role of demand response as renewables account for more generation Does Bitcoin actually incentivize renewable generation? Is the future of Bitcoin mining vertically integrated? What does the interconnection queue tell us about the future of renewables? Book recommendations Sponsor notes: Compass Mining is the world's first and largest online marketplace for bitcoin mining hardware, hosting, and ASIC reselling. Start mining your own bitcoin by visiting compassmining.io

So I'm here with Andrew Myers and Brock Peterson of Satoshi Energy. This is the mining miniseries. We've done a lot of episodes in the mining miniseries. I don't think we've had a mining firm quite like Satoshi Energy before. They have a very innovative business model and approach. So I'm very excited to jump in. Good to be here with both of you fellows that I think so joining. Thank you, Nick.

Yeah, thanks, Nick. Why don't we talk about both of your personal stories and how you came to be involved in Bitcoin mining? Yeah, happy to start that. So I got into energy systems while studying engineering as an undergrad. I did a study abroad in Australia where I studying renewable energy and energy systems. And that's actually where I met Brock. I was back in 2009. So it was pretty early days of even renewable energy at that time.

From there, went to grad school to study power markets and energy systems. And out of that, started doing software consulting. And that brought me out to San Francisco. And I started to connect with some people in the Bitcoin space and learn about Bitcoin. And when I started to grasp Bitcoin and, you know, the supply cap and the difficulty adjustment and just the nature of the digital financial protocol, I instantly had this idea where you have these 24-7 electric power markets that are settling power every five minutes all year round, even on weekends and nights. And then you have this digital financial protocol that could be used for a settlement layer for those power markets. So that was kind of the seat of the idea.

And then in the 2018 timeframe, that was sort of the first wave of all the Bitcoin energy flood. And that's where I really started to dig in and get to understand mining and mine. modeling that out. And did you ever mine personally before you started the company? My first attempt was doing a road trip across the U.S. in an old Jeep with a solar panel and a battery and a raspberry pie and a tiny ant miner. But never got it working, but got a node set up, solar powered node set up. That's amazing. Brock, what about yourself? Yeah. So similar to Andrew kind of, you know, came up in the renewable energy space. primarily out in San Francisco, working for a couple of different startups,

one of which focused on machine learning applications to help optimize energy use and data centers. So obviously, you know, while it looks like much different than a traditional high uptime data center, and in a day, Bitcoin mines are just data centers. So I understand that world really well coming from it. And then more recently, we're a company called SmartWire that went public about a year ago that was trying to help optimize how energy flows on. transmission lines and obviously what we're doing with you know helping bring bitcoin miners directly to the generation assets it's you know the main one the main problems we're solving there is

you know with transmission constraints and capacity and capacity constraints on the transmission grid uh so you both my experience kind of you know lends itself well and you know as andrew said you know we've known each other since 2009 so you know super exciting to have work with him and i think coming from the renewable energy space is actually you you pick up on bitcoin pretty quickly what we've been doing for the last decades is trying to deregulate what we're traditionally centralized markets and help create distributed generation. So really kind of unify a lot of those principles directly to Bitcoin and some of the problems that it's trying to solve from a money and finance standpoint.

And then it's, you know, kind of you get to the next layer within Bitcoin mining. And that's where it becomes really cool because what we've tried to do from a renewable energy standpoint for years is find a load that can be sited in these traditionally rural areas where you build wind farms and solar farms. And Bitcoin Mine really kind of provides that location agnostic load that can be cited directly with the generation assets. And then it can also be run interruptably. So it's kind of this perfect use case to be able to leverage the renewable energy

build out that's happened over the last couple of really in the last, you know, you've had five years, 10 years, and kind of at a utility scale. So Satoshi Energy is not, you guys aren't mining Bitcoin yourselves. You're providing hosting infrastructure for Bitcoin miners. Is that correct? So not hosting infrastructure. So I think a better way to explain it is that we work with generation asset owners and Bitcoin miners and we develop the sites, the power contracts, and software to service those power contracts. So we're really, you know, we're finding what are the best locations on the grid

to put a Bitcoin mine. We're working with the owners of that infrastructure. And then we're helping to develop that, you know, end to end, and then bring in a Bitcoin minder that they want to do business with. So it's a very, like we don't have a capital intensive business. We're very much a software and services business. And the energy assets that you're looking to use here are those, exclusively renewables or is it just the case that there's a lot of kind of stranded

renewables floating around and so made sense to start with them? Yeah, I think we'll probably get into this a little bit more. I mean, broadly, you know, if you like if you're just looking at the levelized cost of electricity, wind and solar end up being the cheapest form of energy even even on an unsubstized basis. So we've, you know, we're focusing on the lowest cost energy. That's that's, that's, that's, that's number one for any Bitcoin mining company. And it just so happens that you know, you have this intermittency issue where there's a lot of correlation

between all the wind farms in a region or all of the solar farms in a region that creates a surplus energy situation. So if you can, you know, co-locate behind the meter or as close as possible to those generation assets, then you can capture some of that surplus when it's available. And then, you know, we can also discuss how a Bitcoin miner would then firm up the rest of its power if it needs to do. do so. Yeah, so maybe let's, without, you know, I guess to the extent that you can talk about

your, your projects, let's, let's dive into an example, like what would be typical and, you know, the, the model in terms of like how much power you're drawing from the, the energy installation, how much maybe if you're engaging in grid firming, like, curious to hear more about like the specific models here. Yeah. So the model that we've found to be the most economically advantageous for the miners is to, with this co-location model, you know, what you kind of refer to as a capacity factor in the renewable space. It's just kind of, you know, over the course of the year, how much energy is the asset going to produce? You know, for a wind farm, you're solar, right?

you're looking anywhere between 30, 35% of your energy is going to come from that renewable asset. If the nameplate, meaning if you're a 200 megawatt wind farm, you put a 200 megawatt data center there, that's about the amount of energy that would come from the renewable asset. And so that's generally true of our projects as well. They're usually just below the nameplate of the renewable asset. And really what we're doing is we're creating kind of a a win-win for both. Andrew's alluding to a lot of these assets are, you know,

have curtailment issues, have negative pricing issues. It's kind of a distortion in the market from generally a tax benefit. And what we're able to do is we can alleviate some of those downside risks for the generation asset by putting the Bitcoin minor there, but in physically co-locating it. So it's what's called a behind-the-meter arrangement. And that allows,

the generation asset to monetize, you know, what would otherwise be curtailed or negative priced energy. And then the benefit for the miners is they're getting access to this low-cost renewable energy and a substate, a high-voltage substation to be able to connect to the grid. So obviously, like, we just went through, you know, you're about 35-ish percent of your energy is going to come from the renewable asset. Really what I always kind of expect is. as is the grid, think of it like a battery. So you have this, you know, a renewal asset is able to provide you power, but then you have the grid that essentially acts as your battery that you can take energy from when it's economically feasible. I think the other kind of salient part of our projects

is important to point out is that, you know, miners obviously understand what their profitability is on a megawatt hour basis. So we really kind of viewed as running them when it's operationally profitable. So the way we structure the contracts, it facilitates that. When energy is cheap enough to be profitable as a miner, you know, that minor is going to be running. When it's not, you know, you'll see them shut off. You know, obviously now with the property related mining, it's, you know, you're going to see very high, you know, the 98, 99% uptimes. But, you know, say there's a bare market, right, they can, they have that flexibility to be able to self-curtail and really chase that cheaper energy and still be mining profitably, which,

also gets into some of the credit risks that we can kind of get into in a little bit. I would add a detail there, Nick, something that's super important with regard to locating behind the meter, without going behind the meter, you're not able to capture the full benefit of that surplus energy. So if you're front of the meter, that means you're connecting at a higher voltage transmission line and you have the same transmission constraints as you would if you're connecting anywhere on the grid. But if you co-locate behind the meter, then before you ever hit that high voltage transmission constraint, you're actually as the data center able to capture all of that surplus energy, or at least up to your data center's capacity from the wind farm or from the solar

farm. So it really fixes like, and these are important concepts, but negative pricing and curtailment, especially for wind farms and solar farms, super important concepts. And that's where going behind the meter, it solves both of those problems. And economically speak, I guess it depends, but eliminating those transmission and distribution charges is really material in terms of the all-in power price you're paying. Is that right? It certainly can be. I guess one key item is that you don't want to build a 200 megawatt Bitcoin mine in a city

center on a 220-volt distribution line, because then you're going to be paying all the distribution fees all the way down to that lower voltage. So you almost always want to go, you know, as close as possible to the high voltage that you can. With regard to how projects actually work at the utility scale, Bitcoin mines end up paying, you know, their fair share of transmission fees based on their peak capacity, their peak demand.

And that's what transmission operators want. That's how they're compensated. And then there are sort of peak demand fees. In Erkot, for example, you have the four CP hours, the four coincident peak hours. And so a miner is economically incentivized there to shut down during those four hours if they can predict it well enough. And in doing so, they can avoid those highest peak charges.

But they still paid their full share of transmission fees otherwise. Gotcha. So given the model is relying on the renewable energy asset when it's firing and then drawing from the grid the remainder of the time, you know, is this something that I don't know if you've dealt with, you know, any of the like sustainability people or anything like that? But is the critique that, you know, it's not a purely sustainable story. If, you know, the time when you're engaging in the grid firming, you're still, I guess, exposed to the default energy mix of the grid. Or is the sustainability not necessarily a big piece of the state? Or is, is the sustainability not

necessarily a big piece of the story here. For, I'll let Brock fall on this one, but to get it started, Bitcoin miners first and foremost care about the lowest cost energy. It's convenient that that lowest cost energy, at least for part of the day, is renewable. When you do a behind the meter deal or really any sort of power contract with a renewable generator, because you're having to get some grid power to firm it up, it's a question of, you know, from that grid power, what is the energy mix of that grid power. It could be some hydro, could be nuclear, could be gas, could be coal, could be many things. If you are having to firm up the power, you know, you can also purchase, you know, renewable energy certificates, which it's sort of a loose concept in terms of how

they're metered and accounted for. But effectively, it adds sort of a bonus to an existing renewable generator. So you're sort of subsidizing another renewable energy investment by purchasing those renewable energy certificates. So we see a lot of Bitcoin miners interested in doing that for the power that they don't get directly from the renewable generator. And then, I mean, maybe we'll get into this, but I think in the longer term, we have to really think seriously about as Bitcoin A6 are produced in higher volumes at lower costs, like when the intel of the world start to reach manufacturing scale, then what is, and, you know, hash rate continues to increase. The exchange rate also increases, but maybe not as quickly on a long time frame,

or not as much on a long time frame. It can certainly move quickly. So the margins for mining will decrease, and you're going to have these low volume or high volume low cost Bitcoin miners. What does that do to the utilization rate of the Bitcoin mine? So our general hypothesis is that utilization rate decreases and that aligns perfectly with the amount of surplus renewable energy. that will continue to grow. So you're just naturally going to get more renewable energy-powered mining. When you think about how you go about siding and identifying the most promising assets here, is it a matter of simply, okay, there's a wind and solar farm with high levels of curtailment.

Let's see what's possible here. Or is it also, are there other features, like, doesn't matter whether the grid is, you know, more regulated or less regulated? are there other variables that sort of come into the analysis in terms of how you go about choosing your sites? Yeah, I think you're kind of spot on there of some of the other ones. Obviously, the economics of the site, you play a huge role in it. Those economics generally are around, you know, what is the curtailment? So you have, you know, with that curtailment, you know, it drives the overall energy price most of the time.

And there's also transmission capacity. So because you're doing the grid firming, you also need to make sure that that is available in the area that you're looking to site. And then the other first level pass that we take it to any project is from a regulatory and in a market standpoint. So having retail choice and basically being in the less regulated areas, energy markets in the U.S. it provide a huge benefit. Because if you look at, you know, Urquite, Urquod has the most renewables of any energy market in the country, which, you know, some people might be surprised to hear that,

but it's, you know, it's Texas and not, you know, which you'd think of maybe as like California or, you know, one of the more blue states. And that's really driven, you know, prices down in Irkot. There's also, Erkite has the most deregulated market, which is driven prices down significantly. So I think the reason why you're seeing a lot of, Bitcoin mine go to Urquod is because from a regulatory market standpoint, it's very favorable

for doing new business concepts quickly. And then it's also has some of the cheapest, it has the cheapest energy prices in the US. We are starting to look at other markets, pretty actively that have retail choice where you aren't stuck with just one provider or have other, you know, market regulations that allow us quickly. You know, then there are some kind of you know, next level things of, you know, what does the climate look like? Obviously, you have to cool these data centers. What is it like permitting and siding a project? You know, for example, California, actually, you know, the wholesale energy prices are pretty low in California,

but siding a project can be very difficult in California. So there are additional concerns that go into these. But the main one is, what is the energy price? And then what is the regulatory market look like? And when you get involved with a, you know, energy asset that might be not fully monetizing, I mean, how materially does that change their sort of core economics? Like, what's the influence there of, you know, wind or solar farm that a dot, you know, works with you and eventually monetizes partially at least through Bitcoin?

in mining, like how much does that change to sort of the core economics? It can be very significant. So we actually presented a project yesterday that could effectively triple the revenue for the wind farm. This is one of the, you know, very bottom percentile performing projects in ERCOT. There are other projects where, you know, maybe they have negative pricing and curtailment somewhere around 10 to 15 percent of the time. and it sort of depends on how often that that correlates with high wind speeds and thus high output as to how much energy you can you can then conserve and monetize but it's very significant i mean typically you know in the range of 20 to 50 percent or more incremental revenue meaning you know

additional revenue per year and do these contracts entail the renewable asset selling only to the Bitcoin miner or do they also, is it a mixture? Do they also deliver energy to the grid for the duration of the contract? Yeah, that's an important detail. So the Bitcoin miner is really there to capture energy when it's least valuable to the grid. So it's, you know, it's monetizing that otherwise negatively priced for curtailed energy. Depending on how you size the data center relative to the maximum output of the generation asset. You typically, you know, when energy is its most valuable, the data center likely isn't running because prices on the grid are high, so it's naturally curtailing during those

times. And then the generator isn't supplying that energy on the grid for more, you know, useful applications, so all the way down to the household level. There are also times sort of where prices are in the middle. And I think today that's where miners are still operating and consuming those sort of middle of the road prices while the generator is producing. But over time, you know, obviously we see that decreasing. This episode is brought to you by Compass Mining. Compass Mining is the world's first and largest online marketplace for Bitcoin Mining hardware hosting and ASIC reselling.

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demand response. Is that also a component of what you're working on here? Yeah. So that is a great question. And the assets that we work with, self-curtailing is what we'll call it, where that's just yourself voluntarily turning off due to high prices. That's one way to operate a mine. When you're behind the meter, you can still participate in ERCOT, they call it a control-able load resource, but it's a demand response program. You know, that's kind of an applicable term for any market. And you can participate in those programs as well. You know, we do see, right, as more battery storage comes online, as more flexible load comes online, that, you know, you're going to see the economics deteriorate

or reduce for these ancillary markets that provide demand response. But it is definitely it can be a worthwhile component and, you know, with volatility, you generally can drive more benefit from those. So it's something that's kind of a cherry on top for our projects, but definitely not part of the kind of the core offering. I mean, I think, you know, they call them ancillary markets, and it's definitely for us, you know, kind of an ancillary benefit that we can take advantage of, but it isn't necessary to make one of the projects make economic sense. Yeah, it's kind of an interesting like push and pull. So on the one hand, the more renewable penetration on the grid, probably the more insurance products you want to buy as sort of a grid operator

in terms of ensuring against the volatility or intermency of that generation. But then at the same time, there's other sources of power system flexibility that you might obtain, like battery storage to the extent that becomes economical. and I guess generally speaking making other sources of flexibility on the load side. Yeah, so what's your guys' expectation there is that the flexibility would actually outpace the growth of the new renewables, which would be adding intermency into the grid, like in Texas, for instance? The way that I look at is, I mean, if you look historically, right,

the renewable generation has outpaced the flexibility on the technology. demand side. And you know, really flexibility on the demand side is obviously, you know, much more of a recent phenomenon compared to, you know, generation. Generally, we just look at, you know, generation would follow a load. And now we're seeing more and more load that's given, you know, being able to be flexible, whether that's, you know, adding a nest thermostat to your house, or that's, you know, the ability for these large loads like a Bitcoin mine to be able to turn on and off. So I think, right, you're going to continue to likely see like we have in the past generation outpace, um, controllable loads, but you know, you're seeing things like Bitcoin mines that are coming in and taking

advantage of that outpacement of renewable energies and take advantage of it. And I think you're going to see more assets like that, you know, you're kind of starting to see some projects of green hydrogen, which is really just kind of another storage form take form. You know, you could picture a future, you know, more flexible compute. Now I know that there's, you know, some of these hosting providers in the Bitcoin mining space are also looking at just kind of the general flexible compute marketplace. and they're seeing that kind of is going to have a lot of growth in the next few years. So I think it's a really exciting kind of opportunity to see more loads take advantage of the low energy that has been created with the, you know, significant increase in renewable generation, an intermittent renewable generation.

Yeah, that's one of the things I was going to ask you about actually was other sources of flexible load. you know one of my mental models here is like bitcoin mining being that sort of big initial pressure which induced the creation of you know an infrastructure which could consume this you know excess energy on a location agnostic basis and you know go right to the source and then you know maybe subsequently other sources of interruptible load could be employed aside from just Bitcoin. One that people are excited about is green hydrogen, of course, hydrogen electrolysis. What do you think, like, what's your view of sort of the plausibility of that of sort of other subsequent high energy industries that can operate in similar, you know,

manners to like a Bitcoin data center? And then also just high performance compute. Like, can that be flexibilized. Yeah, what's your optimism around that? Yeah, I want to sort of play on some of those concepts and introduce the concept of real-time pricing. So at least when Brock and I were, you know, initially studying power markets, real-time pricing was really the holy grail of energy market solutions. For a long time, the utility business model has been to provide, you know, a fixed price for energy, you know, high reliability, fixed price, and really no-duty. demand response down to the commercial and residential level. You know, with Bitcoin mining, they're plugging into markets in real time and

they're price responsive. And there are more and more utility programs and even just market reforms that are enabling more real time pricing. So when you add that real time pricing, it gives the incentive to any energy buyer to not be consuming power, you know, at 5 p.m. on a hot summer day. if they don't need to be. So sort of minimizing their demands on the grid so you don't have to build and overbuild

generation and transmission capacity. And then with regard to other interruptible loads, I mean, with real-time pricing, let me add to real-time pricing too. I mean, like, you know, 10 years ago, we didn't have the same level of power electronics,

you know, data processing, and other control systems in order to manage these types of loads. So like all of that has advanced in the last decade or two. The market reforms have advanced over that time. The amount of renewable generations come on in that time. And now we just sort of have the perfect mix of everything that's needed to have a very flexible, resilient, responsive grid. So what those applications may end up being, that's to be determined.

I mean, there's plenty of applications already happening, including Bitcoin mining. But from a feasibility perspective, it's all there. Later on that, I mean, I think Andrew's, like, point is great. I don't want my grandma to be exposed to completely time of use where you have prices spiking to $5,000. But that's where it's, you know, as we become more sophisticated energy consumers and we have these automated processes to do that, you know, we can see energy prices come down significantly by having these control solutions. So you'll definitely see them come in at first in larger loads, which is, you know, like what you're saying with Bitcoin mining. And then over time, I think, right, you'll see it kind of come lower. and lower, you know, as we have automated systems that can help facilitate this for, you know,

less energy-sophisticated customers. And then I think, right, like, I'm super optimistic on use cases. I think people are incredibly creative. And as energy prices keep coming down, you're just going to see more and more use cases. And, you know, you, like, whether that's, you know, on I-10, you're sticking a bunch of, you know, hydrogen electrolyzers to, you know, support a trucking fleet, or, you know, maybe you have, you know, lights out factory that's just, you know, 3D printing widgets throwing them on a truck and then those trucks are getting on I-10, right? Like, you know, you, or it's, you know, like a vertical farming and, you know, shipping containers, right?

I think there's tons of, you know, and who knows which ones of these will take off and which ones of these, you know, we'll have kind of like the same, you know, the site, you know, pretty rurally. But I think you're going to, we're going to see some pretty cool use cases in the coming years. Yeah, it's interesting, you know, because for the last year, the Texas, like the IRCOT model has been so unpopular, right, since February 2021, I guess, with, with the, you know, the broader political trends being to actually try and re-regulate the grid or regulate the grid and, you know, eliminate the market-based dynamics, which characterize

the Texas grid. Yet, you know, from my seat, it looks like the market. based approach is just more efficient and allows us to allows loads to tune their consumption in a smarter way based on what the scarcity is of energy at that given point. I think one thing people don't understand is that in Texas you don't have like regular old consumers that are exposed to the spot price of energy. So, you know, like regular, you know, regular folks are not paying $9,000 a megawatt hour during a scarcity event, right? Some, some gritty customers were doing that in February of 2021. I was actually speaking with one of them who happens to be a Bitcoin Lightning developer.

And she was telling you about her experience with gritty during that. But I think the price was sort of artificially held at $9,000 megawatt hour for a longer period of time than it otherwise would have been. and the company had not modeled that into their forecast there. So there were utilities that would act as a pass-through to give you access to like the sort of industrial rate at that time as a residential customer? Yeah, these are retail electric providers in ERCOT. And so some of them were working down at the residential level and providing time of use pricing,

you know, effectively real time pricing there. and it's it's great if you're monitoring prices and can curtail your loads but if you're not paying attention then it can definitely be a problem that's right it's like basically an option selling an options writing like a call option writing strategy and the strike price was hit during the outage yeah so what's your level of confidence that other um i guess isos would would ultimately follow the texas model you know, I guess given like some of the difficulties we've seen in Ercot. I mean, or is it if, you know, is Ercotte a special case because there's no interconnections? And so that's sort of like the caveat that needs to be carved out there, which is maybe had there been interconnections,

they would have just been able to import energy during the storm. And so maybe the model is not so broken after all. Yeah, actually for context here, there are about 10 to 15 states in the, US that have this retail choice concept. Most of them are in the Northeast. And so in the Northeast, there's a lot higher population density, less land, less access to low cost renewable power. So from a Bitcoin mining perspective, it's a little trickier up there.

But they do have the retail choice concept and there are many customers using that. There are also utilities across the US and across the world that have time of use pricing. So it might not be real time power, but they'll at least give you a discount if you, you aren't consuming as much power during peak hours. So utilities, you know, retail providers, they're all very aware of this opportunity. And they're working towards solutions. But, you know, it's really a data problem at the end of the day

and a controls problem. And it takes time to implement that in such a complex system. But I think Bitcoin is a great incentive for that. Yeah. And I think, you know, one language that everyone speaks is economic development, right? And as other states and are watching, right, all the economic development happening in rural Texas around mining, that's a huge incentive for them to figure it out. And we're seeing more and more utilities and in various kind of more regulated markets in ERCOT coming to the table and, you know, actually working on, you know, how to make this happen and how to make it in a way to where it's, you know, it's a win, win, win so that, you know, they're getting the economic development in their area. you know, they're getting a good customer in their area.

So, you know, it still means it makes sense for the miner. And then also, you know, if you look at the current energy customers in that, you know, you also don't want to drive up their energy costs. So it's, you know, the model is definitely there and we're working, you know, with these entities to implement it. And I think it's, you know, really exciting that, you know, at the end of the day, it's, you know, it's economic development. Everyone's excited to see that.

And in terms of sort of the net effect on the grid, ultimately speaking, If you're monetizing a renewable energy asset at a structurally higher rate than they would otherwise be able to sell, what the consequence is of that is that there's just simply more abundant renewable energy available to end consumers when all is said and done. Is that right? Yeah, it incentivizes investment in more renewable generation. This is one of the reasons we don't recommend sort of off-grid mining period, but, you know, especially with renewables. If you're going to invest in a renewable energy asset, you want a long-term buyer for that power. And ideally, you have some optionality.

So when you have a grid-connected solar farm or wind farm, you know, you can have a relatively long-term buyer for that power, at least for the cheapest surplus power from a Bitcoin miner. And then you have the optionality of the power grid. that giant real-time battery that's, you know, putting a value on any, any energy that's available. So it's not just a meme that, you know, Bitcoin mining and Sun advises renewable generation. Like, you guys can attest to this on a firsthand basis. Absolutely. I've run the numbers many times. So in terms of like the future of Bitcoin mining, you know, there's like a couple vertically integrated miners out there. Like I think greenages and they have their behind the meter model. I believe Stronghold might be pursuing that as well.

What do you make of the convergence between sort of the energy sector and Bitcoin mining? I see more energy firms getting into it directly or through partnerships. And what does the Bitcoin miner of 10 years from now look like? Does that look like the way Riot and Marathon look today? Or is it more of like an Exxon and maybe like they just have their Bitcoin mining unit? you know, what do you think the future of Bitcoin mining is more vertically integrated or is it more resembled the way we have it today? Yeah, I'll speak first to what Greenwich is doing. I mean, that's another great use case of sort of surplus energy. These natural gas paker plants that

would otherwise operate with a very low utilization rate are able to add some base load and then still provide power to the grid when it's available. It's a very similar concept to what we're doing. So I wanted to call that out. And then in terms of what, where the market is going. It's been amazing to see in the last three years, you know, how the conversation has shifted from energy companies saying basically thanks, but no thanks, to then, you know, a couple years ago saying like, okay, you know, help us understand this customer segment.

How do we sell energy to them to the point today where they're saying, how do we own the Bitcoin miner? How do we capture a piece of that upside and what does Bitcoin teach us about Bitcoin? So it's pretty amazing to see that. I mean, that was the goal of the company from day one is to accelerate adoption of Bitcoin in the energy industry. Because Bitcoin mining is native to energy and capturing energy, I think we're really going to see the first large-scale applications of Bitcoin as a medium of exchange happen in the energy industry. So that's something that we're building to service the contracts that we're providing, which is to figure out, you know, how can we reduce credit risk and settlement risk? and that sort of exposure using Bitcoin, whether it's through some of the transparency of the protocol

or whether it's through the speed of settlement, the opportunities are endless. And I think energy companies are starting to understand this and asking the right questions. And that's a huge, you know, maybe issue in this market that is not, I don't think, super well understood or spoken about it is the fact that, you know, these energy companies are used to selling electrons, you know, which is their commodity to your Google's, your Amazon, Amazon's, you know, your Coca-Cola's, you're large companies that, you know, have, you know, years of credit history. And whether you agree with the way credit is scored or whatever, you know, I completely understand the type of negatives there. However, that's the way the system currently works in terms of selling energy.

So now you bring in a, you know, a Bitcoin miner that doesn't necessarily have that track record. So they're not given the same credit treatment by these energy companies that these other large companies are. And what it's caused them to have to set aside a lot of working capital, what could be working capital and securities to service their credit. So that's a big part of what we do is help alleviate that credit requirement. And so we do that, one which is kind of understanding what is the credit exposure and having a real-time tracker and then kind of where we're going with that is the settlement. So you take what is currently a 45-day settlement.

And if you're looking at a 100-magawat minor, you know, your energy bills a couple million dollars a month. So, you know, over 45 days, that's about three, three million dollars. It's, you know, potentially a liability for the utility. So by doing settlement in ERCOT, the energy market settles every 15 minutes. So you could follow that with a Bitcoin settlement and really turn that liability into an asset for the energy company and free up a lot of this, all of this money that's tied up in securities and give more working capital to the miners. So would you see? that because renewables, like in particular, intermittent renewables like when in soil, like

are so idiosyncratic in terms of like where locationally they make sense and because their temporal seasonality, both on an intraday and then, you know, like annual basis, because they have those unique qualities and Bitcoin like slots in very nicely, does the existence of Bitcoin fundamentally improve the outlook for renewals? Or is it still too small in the market as of today? I mean, I think renewables were taking hold even without Bitcoin mining. I think it just accelerates that. So, I mean, you know, energy-backed money.

So money backed by surplus energy absolutely is going to help that, right? It's taking all that waste and conserving it by turning it into sound money. It's an amazing invention. I think to invent that in release. it in 2008, you have to have some sense of where energy markets are going. Really? That's just my take on it. I always kind of figured that I don't think it was an accident.

Yeah, I mean, I don't think if I were, you know, reasoning about Bitcoin from the armchair on day one, I would never have expected that it would have this incredibly interesting interplay with excess, you know, energy in particular renewable. Last few questions here. So, you know, despite the innovation and business models that we see from the likes of you guys. And, you know, there's quite a few interesting firms now active at this intersection. Like, there's still just a lot of Bitcoin mining was like conventional base load. You know, I'm not even sure that every large Bitcoin miners even like, you know, I see them bragging about their like high up time. you know, I'm not sure that they'd even be enrolled in like,

demand response program to the extent it's available. We see Bitcoin miners using like, you know, I won't name names, but something like the dirtiest source of energy in the US, that was just like conventional thermal generation. Do you expect that to persist? Do you think that your model will eventually dominate Bitcoin mining and, you know, the sheer economic force of that will, will, you know, be compelling?

or is it a matter of, you know, some of the major names out there in Bitcoin mining, we need to consciously push away from using like just like conventional thermal baseload sources? My quick on that is there are, because this is such a heavily regulated industry, you are going to have anomalies, you know, here or there. So, you know, I don't, I definitely would not say every project with a thermal, you know, generation asset is, you know, going to not be profitable into the future. Because it just with the, you know, different markets regulation, if you can, you know, strike a good deal, you know, the thermal assets is completely depreciated, you know, there is definitely opportunities there. But I think,

right, like, if you, Bitcoin mining right now is talking on adding gigawatts, which is, you know, a massive amount of energy that we're going to see. So I do think that the lion's share of that, you know, will be grid connected, you know, will be focused on renewables where you're going to have basically the most sustainable cost advantage across the board. So I think that is where you will continue to see the lion's share of the growth. But not to say that you're not going to see one-off projects here and there that makes sense with traditional thermal. Yeah, great points. It really depends on the interplay between the hash rate and the exchange rate. So I'm pretty confident that hash rate leads exchange rate. You know, you have miners anticipating the next

bull run and continue to expand their capacity so that they can capture that opportunity. And the higher the hash rate goes relative to the exchange rate, the smaller the profit margin throw into that halvings and uncertainty about what transaction fees will do or layer two solutions sort of minimizing the amount of transaction fees that ultimately end up sustaining the mining network. So that's going to push miners towards cheaper energy. And if you're locked into a fixed price $40 per megawatt hour contract, you know, if you were operating an S9 in 2019, your revenue per megawatt hour would have been less than $40 per megawatt hour. So you would have been in the red on that fixed price power contract. And that's going to continue to happen. And that's where

what Brock said is very important. It's not just quote unquote sustainable energy. It's a sustainable cost advantage in that you're getting this very low cost like zero cost marginal marginally priced energy when it's abundant and available yeah so as as minor margins contract you're more price sensitive from an energy perspective whereas and so in theory you'd want to go for the the cheapest source of energy which are likely to be renewable in the future probably are today as well. One, you know, I see Urquod as like a template for what the rest of the U.S. grid might eventually look like in terms of like the size and sophistication of the ancillary market. The fact that it's deregulated on both the retail and utility side and the, the, you know,

scale of the renewal penetration. I know not everywhere in the U.S. has the same affinity for wind and solar, but it does seem like maybe a little bit of a vision of the future here in terms of the renewable penetration. Just one question for me. Like when I look at the interconnection queue, it's like breathtaking in terms of the amount of solar and wind that's planned for Urquot. I guess is that all actually likely to be actually built? Or is it more like only a fraction of that gets built? because otherwise we're looking at like crazy numbers in terms of like, you know, three years from now, like the amount of wind and solar that will be plugged in. Yeah.

So in any interconnection queue, you're always going to have some level of projects drop out for various reasons, whether it's the interconnection study, whether it's maybe a land deal that didn't work out. It could be many, or the project maybe isn't getting financed for a completely separate reason. But I think what's interesting is that, you know, you have that 100, 100 gigawatt interconnection queue in ERCOT, where something like 70, 80% of that is solar, followed by wind, followed by batteries, followed by natural gas generation. And then you have, who knows how much, but somewhere around 20 gigawatts of expected

Bitcoin mining load to come into the ERCOP market. And that's going to incentivize more of that renewable generation to actually pass through the interconnection queue and get financed and get built and operate. So it's totally feasible that the ERCOT market doubles in size in the next 5 to 10. And almost and and the bulk of that doubling could be from from solar and wind respectively. Right. It'll be reaching 50% plus in terms of renewable penetration.

Right. Yeah. I wouldn't say it would look radically different. I mean, they're already at somewhere around 25% of the energy is coming from from wind. And then there's not a lot of solar yet, but that's scaling up pretty quickly. And that actually balances perfectly with wind because you typically have a lot of wind energy at night and then solar power during the day. So if anything, it's balancing out the wind resource.

And, you know, as we mentioned sort of earlier in the discussion, you know, it's 2022. There are modern controls, modern data systems, modern technologies, demand response of all levels. And, you know, it can be done. It will be done. It's being done. So this implies that the negative pricing frequency events are probably going to accelerate too.

And it's the left tail of the distribution that maybe we have to be. be worried about as opposed to that right tail of power prices. Not worried about. That's the opportunity for Bitcoin miners. There's nothing to worry about there for a Bitcoin miner. That's a massive opportunity. Yeah. Well, there's been a lot to chew on here today.

Any last word or any message you'd like our listeners to take away from this? I just want to say thank you for the time. It's great to get this message out. I think it's, you know, the Bitcoin community has not. understood energy. Energy itself is a complex market. Bitcoin itself is a complex system. So to connect the two, take some learning. So we're just happy to share that and continue to educate the community.

And we're always open for feedback and critiques and alternative viewpoints. So if anyone wants to reach out and give us their feedback, we're open for that. And so I've spent a lot of time trying to learn about the energy markets, Precisely because of the center play, I'm obviously still at the earliest stages there. What do you guys recommend in terms of books or resources that you really liked and really helped you on your journey? There's a really good market fundamentals book called Fundamentals of Power System Economics. I can share that resource with you. I think that just sort of covers the basic economic analysis of how power markets work.

There's a couple of great graduate school programs that teach power markets. one at Duke University, want at Stanford University, I know Brock and I both both did that. Yeah, there's another, I mean, great kind of resource out there called the Clean Energy Leadership Institute, C-Lylaz, the acronym it goes by. They'll do like 101 programs, you know, with some frequency, so you could always check out their website and see when they're doing that. And then, you know, obviously, with one of the big issues that we've talked about, spoken about in this is, you know, building transmission line.

So Superpower is kind of an interesting book that talks about some of the difficulties and we know why just building more transmission lines isn't always the answer, you know, a feasible answer. So, yeah, so, you know, we're always happy to be a resource. I think it's interesting. If anyone wants to reach out to us, you know, we're always happy to have the conversations they need to educate. Awesome. Well, I'll put those resources in the show notes and I think I'll order those books myself.

What's the best way to get in touch with you guys? Satoshienergy.com. We have an email there. You can schedule a call if you're interested. Otherwise, LinkedIn, Twitter. Yeah, then our emails are just our first name at Satoshienergy.com. So Rock or Andrew, if you ever want to just send us an email,

that also works. Awesome. Well, thanks for the time, guys. It's been great. Yeah, no, thank you so much. It was great.