Playing the Energy Game
By Tim Mandell and Crystal J. Milburn
We can’t have a conversation about cryptocurrency mining without talking about the cost of power. While there are many factors to consider when determining where to host your miners, cost per kWh is inevitably the first - and sometimes the last - question miners ask. But, should the pass/fail come down to the cost of power?
We understand that your decision rests squarely on us to be in locations with marketable power rates, to negotiate power agreements and to know which levers to pull to help subsidize the cost of power. We must be able to do all of the above without compromising your service level agreements (SLA’s) and 99% uptime guarantee. Below are the additional factors to consider when making your cryptocurrency mining decision (and don’t forget about the real math).
Power Costs on the Rise
Per the LMP Index (Locational Marginal Pricing) for Chicago, power costs are up by nearly 100% since last September.
Power companies that operate off tariffs make it next to impossible to negotiate rates or use third-party suppliers for lower rates. This setup is indicative of being in a MISO Energy Market (wholesale). Conversely, a PJM market makes it possible, even commonplace, to use third-party suppliers and Power Purchase Agreements (PPAs). As we negotiate our next contract for Alsip (a PJM market), we have three options:
Play the index or daily market, which, over one year, usually gives the most favorable rates. But, what if we encounter another pandemic, war, etc.?
Play the day ahead index which is a tad less risky since jumping between index and fixed pricing is allowed.
Opt for fixed pricing which is higher with lower terms. The proposed rates are not even close to being profitable until we commit to 58 months which we’d jump on if power were in the .04 cent range. Additionally we are confident that energy prices will continue to improve.
Alternatives to the Grid
While grid power may seem like the most expensive option at first glance, competing options (such as gas flaring and hydropower) have higher, variable operating costs. There are more moving parts to keep them running vs. the fixed costs with grid power.
Plus, it’s a fine line between the unknowns of cheaper energy sources and the stability of grid power. Are the unknown expenses worth it? We’ve yet to find a better mousetrap. Never say never but, for us, it hasn’t been worthwhile yet which is why we’ve turned down several opportunities with these power alternatives. We are getting smarter and asking better questions each time with these new opportunities.
Selling Power Back to the Grid
Selling power back to the grid to offset some of the increase in power costs is sometimes an option. The appropriate mechanism depends on the type of energy market (noted next to the mechanism below).
Synchronized reserve program (PJM only): Set a strike price at which to sell power back to the grid; shut off in 10 minutes for 10 to 30 minutes.
Economic (LMP) Program (PJM only): Shut down at a predetermined commitment level to give back to the grid during high demand/high price events.
Capacity Performance (Curtailment) (PJM and MISO): The user might be called upon to shut down a predetermined load for an extended time. The power company must first test and be able to prove its ability to give the capacity back in a timely manner.
While we cannot control power cost increases, we can use the projected earnings from selling power back to the grid to “buy down” our power cost, offsetting the inevitable (and often imminent) increases. It should be noted that we are aware of and careful with how much we buy down so that we stay within range for our 99% uptime guarantee.
While we do like a good challenge, we don’t enjoy those that could affect your bottom line. We’ll always do whatever is within our power (pun intended) to keep your crypto mining costs down! Contact us for more information.
