Brad, welcome back to Austin.
Parker, good to be here, man.
Last episode with Pierre, we went real deep on the difficulty target and the difficulty adjustment.
Today, we're going to talk about mining and ERCOT, ERCOT generally, grid mining, but also talking about the broader market and how Bitcoin mining fits into that.
So we'll inevitably get deep, but appreciate you being here and recording.
got brad cuddy from cholla inc what does the hat say never stop exploring never stopped exploring
yep we've got to figure out uh if that was a gideon powell original or if it was passed down
but love that i shot him a text no answer yet so not yet tbd all right we're gonna dive right in
to an actual example of how bitcoin mining is interacting with the ercott grid in terms of
winter storm and around scarcity events and then we'll kind of come back up for air to talk about
how different levers why things are happening but there's a chart that ercott had put out during
winter storm heather in january of 2024 that the the storm spanned two or three days and
the the price of power effectively increased from you know 15 dollars a megawatt hour to
on a log scale looks like 750 dollars to thousand dollars a megawatt hour and approximately 1.1
gigawatts of power specifically large flexible load came offline the power price came back down
basically peaked came back down another scarcity event this time almost 1.6 gigawatts of large
flexible load came offline and then there was a third peak and similarly so talk about
the actual incentives that are driving that and what might be happening to create a scarcity event
in ERCOT during the winter and then how ERCOT helps manage that and how Bitcoin miners play into it
Yeah, I think this is really hitting on the beauty of Bitcoin mining in ERCOT. It's a completely economically rational responder to a price signal. You can see there that they have a line drawn at, what is it, 120 megawatt hours? It's like an assumed average of breakeven price.
Right, 122 megawatt hours, which is what ERCOT had calculated as what they viewed Bitcoin mining's break-even being based on a S19J Pro, which is just interesting that someone at ERCOT is doing this math, presenting this to ERCOT.
Yeah, when Evan Neal was at ERCOT, he was in the weeds. He's a Bitcoiner. So we had one of us in there. He's since left, but I digress. So what you can see is that the pink highlights on the graph, those are ERCOT issued conservation appeals.
Those are alerts that are coming out via your retailer or your queasy or even like to a residential user on your ERCOT app.
And like, hey, looks tight.
We don't know if we have enough generation to serve the projected load.
So if you could, you know, not use as much load, that would be appreciated.
And this is when in the winter, everyone's running their heaters.
Yes.
Freezing temperatures, maxing it out.
Right.
and temperatures are going down so it's likely at some point early in like overnight early in the
morning right it's it's likely yeah overnight early in the morning uh we have that in the in
the winter time it'll peak in the morning time sometimes you'll get an evening peak too but the
load curves look completely different on uh on a winter versus summer but here what you will what
you'll see is the blue, which is the total large flexible load, start to step down as that price
line, the black line starts to go up. So the miners are doing this purely off of like an
economically rational decision. Like if you're making 120 bucks a megawatt hour and power costs
$200 a megawatt hour, you're losing money. It's a quick way to go out of business. Like you do not
want to be doing this. There's a potential to have some layered on hedges or be committed to
an ancillary service so you have to keep your load on. Don't want to get too nuanced here,
but the Bitcoin miners are responding to the price. The price is a signal of generation scarcity.
As generation becomes more and more scarce, it goes up and up the generation offer curve,
and it settles at the lowest price generator that clears the market. And so in this situation,
there is less and less generation. They're likely hitting the EORDC operating reserve demand curve.
That's a long string of EORDC. Sorry, sorry. EORDC? Operating reserve demand curve. And so
that basically when ERCOT gets to, I think it's two or 3000 megawatts worth of reserve capacity
left, meaning late in gen that can turn on, like when it's, when load in gen is within $2,000,
they start increasing the prices to send the right price signals to have every generator turn on,
whether it's like this old steam generator, whether it's a marginally economic coal unit,
like they're sending the price sky high and then hoping that the market responds and, you know,
acts rationally in an economic basis and Bitcoin money does here.
And so on the other side,
on the other side,
exactly.
Yeah.
Cause the price is going up and nobody wants to eat a thousand or $2,000 a
megawatt hour.
It's a,
it's a very quick way to,
to lose money.
So if someone is looking at the chart,
when this winter storm starts,
there's about 2.2 gigawatts of large flexible load,
which is,
In your mind, is that virtually all Bitcoin mining?
Yes.
Practically speaking.
Yeah, there is.
And we'll talk about why that's the case,
but just wanted to touch on this now,
that as the market price started moving up,
before the first conservation notice,
about 500 megawatts had already come offline.
and then as the price ramped further
another one gigawatt of power came offline
and a bitcoin a bitcoiner would look at that and say that's that's bitcoin
mining helping the grid but this interesting note from from ercott which is basically saying not all
large flux not all not 100 came offline but making making that point right
Um, but then basically the market price comes down, the large flexible load comes back up to
like 1.9 gigawatts. And then the next time there's a conservation notice, 1.6 comes offline.
Yeah. Um, but just talk about the, um, the relationship there. Like it's not a,
it's a request a hundred percent of the market, right? Even like grandma and grandpa at their
house this is a this isn't a notice that's going out just to bitcoin miners correct yeah this is is
uh this is an you know ercott wide notice conservation appeal and you can even see on
that third section there wasn't even an ercott conservation appeal which is indicated by the pink
but the bitcoin miners responded to the price anyways and it's interesting because the the price
if you if you look at the price on that third peak goes higher goes higher but there's not
the conservation notice so what would is that because they have more generation available
you know i'm not sure on this specific um that specific peak it could been um they were forecasted
a warmer temperature and it actually was colder so they didn't have the time to
put out a conservation nobody's going to read it at three o'clock in the morning if this is
like a morning hour peak um or it could be that there's there's more to system reliability than
just price um so they might have felt that they had enough operating reserves uh to to satisfy
enough ancillaries or whatever it might have been um but there is there is more to reliability than
just price and then the last thing because i have a few of these charts we won't bring the other ones
up but so to lead into the broader discussion it is relevant that ERCOT is looking at this
and tracking it and paying attention to not just what's supposed to happen in theory but what's
happening in practice but that if we looked at a similar analysis that ERCOT had done in
2022 there was approximately 1.5 gigawatts of large flexible load around a scarcity event on
the grid to start and then in 2023 1.9 gigawatts and then this example that we were talking about
from september 2023 to january 2024 2.2 gigawatts so this amount of large flexible load continuing to
increase. Approximately how much Bitcoin mining is on grid in ERCOT today, would you estimate?
I think the LFL, large flexible load estimation, is right around three and a half gigawatts.
LFL's classification is greater than 75 megawatts. There's also a lot of miners sub-75 megawatts,
whether it's transmission level, but just on a 50 megawatt interconnect or distribution level like that we are too.
So if you add all of that up, I think we're probably in the high three gigawatts, maybe low four gigawatts.
And to put it all into perspective, total system wide peak load, I think is 85 or 86 gigawatts.
So it's a significant portion.
Is that fairly consistent between the summer peak and the winter peak?
Or is that 85, 86 gigawatts of power being demanded summer peak?
That's the summer peak, but we are shifting towards most likely to being a winter peaking system.
Interesting.
And then, so to transition this into a more general conversation, what in your mind allows Bitcoin mining to be flexible when other sources of demand for power on a grid system are not, and how that benefits the grid?
yes for the first part um you know every other industrial electrified process on the grid
has electricity plus some process equals some widget or output steel aluminum whatever it is
sold for dollars so there's like because of the added complexity the added workload you know
people staffing all like raw materials um if you don't finish a smelt maybe it doesn't go all the
way through and you have to throw something away. Bitcoin mining, we have no customer. We have no
output besides money. We're directly transferring electrons into money. And because of that, we have
the purest, most rational price behavior and response that there is. And how that benefits
is what you saw there, right? Price goes up. Bitcoin miners, as an economically rational
consumer of electrons will respond to the price as long as the incentives are aligned. And that's
why I think ERCOT is so great because you can, in the deregulated energy-only market,
participate in this. And that's why you saw so many miners flock here.
And what does it mean for ERCOT to be deregulated? And how does that compare to
other grids in the United States?
So what's still regulated in ERCA is the transmission and distribution companies. What is deregulated is the generators and then the retail side. That's why Texans have retail choice. You can go shop around for your electricity. That's part of the deregulated movement that came in, I think, the late 90s, early 2000s.
um so because of that like you have the um the access to this real-time market and the day ahead
market that urcott has created in their energy only market and so is it the fact that there's a
real-time price that that real-time price doesn't necessarily exist in other grids because i think
if i'm understanding correctly the fact that the real-time price exists and it's being communicated
to all of the the market at any one time that allows a purely economic actor like a bitcoin
miner who again doesn't have a widget that they're producing or a manufacturing plant that's running
or a hospital that has patients or a grandmother grandfather in freezing weather to to respond
because they have the pricing but is there something about ERCOT that has you know because
I consistently hear the term real-time pricing does that not exist in the same way in other grids
that makes ERCOT somewhat unique and I'm not an expert on like Kaiso, PJM, all these other grids
I don't know for certain on their real-time pricing but I also don't know if like as a
consumer as a Bitcoin miner, consumer of electrons, if you could have access to that real-time
pricing So I think that really what ERCOT has different is like the ability as a Bitcoin miner to access that real pricing and respond economically whether it to the load zone pricing or whether it to the node pricing
and then as we've seen the large flexible load increase so from 2022 at 1.5 gigawatts
september 2023 1.9 gigawatts january 2024 2.2 and now estimating between 3.5 before
Or how does scale factor in to not the Bitcoin mining operation itself, but the ability to have more power come offline at points where there is scarcity relative to generation coming online?
Right.
I mean, naturally, as the amount of Bitcoin mining load increases on the system, it gives you more flexibility.
Four gigawatts of load that is able to turn off on a price signal is a massive boon to the system operator.
What they don't want is it all turning off at once.
And we have a responsibility as Bitcoin miners, as stakeholders in ERCOT, to be good stewards, to follow ramp rates, to act responsibly and economically rationally.
But it's only good because of how much intermittent generation is coming to ERCOT, whether it's wind, because the wind belt intersects North Dakota to West Texas.
and then the solar belt goes from California to West Texas.
We have a ton of intermittent generation.
For the most part, it was stranded.
For a long time, it was stranded.
I think over the last eight years,
so pretty much since the inception of Hottel Ranch
when Gideon went out to West Texas,
and this isn't just Bitcoin mining,
it's some oil and gas load,
but the load in West Texas has increased.
i think it's at least threefold load is is demand for power load is demand for power instead of
generation the generation was already going to west texas because that's where the wind and
that's where the solar is where bitcoin bitcoin's a location agnostic consumer of that load it
doesn't need to be close to a city center it goes where like it goes where it can it goes where it
where power is Jesus.
Power, exactly.
And so if you have all this generation
siding out somewhere
that doesn't really have that much load,
it was a natural incentive
created by the market
to show that Bitcoin mining,
if you can curtail,
like if you can respond to price,
West Texas is the place to be.
And we've seen that
over the last eight years,
three times,
the total load
in load zone West,
which is a classification
of all the way to
like pecos piyo monahans midland basically the entire permian and delaware basin is in low zone
west all the way down to big bend and then over to abilene i believe and so to have the frame of
reference you mentioned that at peak like peak peak demand might be 85 gigawatts of power yeah
and bitcoin mining might be four gigawatts that if it were only 100 megawatts
the ability for the market to feel an impact of that to solve a problem is lower but what's
functionally happening and again power has to get to specific points on the grid that it's
Just to use a rough example, everything's more complicated than this, that as demand is going from 81 gigawatts to 85 gigawatts, 4 gigawatts coming offline versus the highest cost generators coming online is what helps mitigate maybe that price ceiling that the entire market would have to bear.
And so as Bitcoin mining represents more, at least in peak times, it can help solve a larger problem for greater scarcity events.
Correct. Because we're not on when the price is going high.
Like $122 a megawatt hour is $0.12 a kilowatt hour.
Most people's delivered power in the entire greater United States is greater than that price where pretty much all Bitcoin miners are off.
right and this is in this was in january of 2024 hash rates increased significantly so that
that perceived break even or marginal break even for bitcoin might actually be
lower at six cents or seven cents a kilowatt hour today who knows what it is but um that it that it's
not static two two concepts and we'll talk about one of them first you talked about ramp
ramping down and ramping up somebody might generally understand bitcoin miners responding
to price signals but ercott's the electricity reliability council of texas that talk about the
actual challenge of why having to balance supply and demand is not just a market function but
a reliability function of the grid itself and to go into a little bit of detail when you were
talking about the importance of how say a large load might ram down or up to be a
not a steward but a good market participant right ever since winter storm yuri which every texan
remembers urkot's been in the in the limelight as much as they don't want to be but for those
for those people who are not familiar with winter storm yuri that was it was actually before my time
here it was 2021 i believe it was a cold snap that lasted something like nine days um and there was
various reasons for uh for it but price price went to the cap but at that time it was nine
thousand dollars a megawatt hour um generation was unable to black start pipelines were freezing
wasn't sunny so the solar wasn't producing no wind it was like a black swan through and through
but uh it ended up with you know a lot of rolling blackouts and when people lose power and it's
super cold and you can't turn on the heat uh you know our young and our old are are susceptible to
that and so there was there was dust that was associated with it it was it was top of mind for
everybody um and that just highlights how important it is for urcott especially because it is
an island and system. And I'll just explain that real quick. Yeah, if you could.
So the entire Eastern part of the United States is under the Eastern interconnect.
It's all electrically connected. The entire Western part of the United States, you know,
everywhere from Washington state down to like New Mexico over to Colorado and maybe like the
bordering Nebraska or whatever, is electrically connected. So they have all that generation,
all that spinning mass. They've got nuclear here, you've got solar there. There's a lot of support
from the entire grid. Like, okay, how much could it actually support? It's so far away. Well,
electrons travel at the speed of light and not to get too technical, they don't actually travel,
blah, blah, blah, but it's very quick. And so with all of that system-wide generation,
all that system-wide load, the interconnect can support fluctuations, bolted fluctuations,
generator trips, load trips, just because of its inherent size. ERCOT is completely electrically
isolated. It is essentially, you could imagine in an island, it has like small DC ties, like direct
current. That's what I, my understanding is that there were some ties, but I don't know enough to
know how or to what extent yeah so a couple gigawatts of dc but the thing is our grid doesn't
run on dc it runs on alternating current you know it's three magnets spinning around generating
current it's like that spinning mass is what generated our electricity pre-wind and solar
um and so that creates the alternating current that is is like the heartbeat the 60 hertz of our
grid. Uh, so the DC doesn't help support that. So it gives us a little bit, but it doesn't give us
the, uh, the support. Um, and so why, why ERCOT was so unique is because of that islanded situation.
Like it has to rely on itself. And so because it has to rely on itself, it needs to prioritize
reliability, right? You said it's, it's, it's in the name. Um, I got in the weeds and I forgot
a little bit of the question but so like talking about the function within ERCOT of why or how
loads how they ramp up or down from an actual grid reliability standpoint is a concern beyond just
price volatility and bitcoin miners responding to price to come off that um how they do that
right is consequential but just talk about that concept and i and i think something to highlight
too is that you know bitcoin mining as a load might get a lot of criticism or like oh it goes
off too quick like it's not following a ramp right or it's um you know previously the conversation
was this is even real like is this just going to go away um i don't i don't think we get enough
credit because we are able to like very, very fine tune our load. Most load that is on the grid is
like heating load. It's totally blind to ERCOT. They have no visibility into this. Bitcoin miners,
if they qualify as a controllable load resource, they're able to submit their load curve into
into ERCOT so they have complete visibility all generation submits their their generation stack
into the curve on the flip side submitting the load side into into the curve allows ERCOT to match
help a system reliability and ensuring that the frequency is in that and it has the range of 60
hertz it has to be within a very tight band at all times correct yeah and like that would be
that would be supported via um ancillary services like fast frequency response regulation up
regulation down it basically will request say frequency goes too high meaning the generators
are spinning too much you need to bring load up bring the frequency down say frequency goes too low
means not enough generation on the system.
You bring load to match.
And so that's something that Bitcoin miners
are participating in.
However, batteries are able to do it pretty well.
So they have kind of eaten up most of that market.
But Bitcoin miners are in other services
like non-spin or ERS.
And these are like all,
basically ERCOT has,
because there's no capacity market, it's just energy only. They have some different
ancillary demand response is basically what this gets lumped under. But the technical term is like
an ancillary market. The ancillary market has different products that can be bid into as a load
or as a generator. And so Bitcoin miners can provide these ancillary services to ERCOT.
And this is, you know, like, for example, the controversial riot filing in like September during an EEA event, they committed their load to, they committed their load to be an ancillary service.
They said, we will stay on and we will only be curtailed when you tell us.
So they ignored the price.
You have to have a hedge to do this.
Otherwise, it's not economically rational.
but they use their bitcoin mining as a way to support grid frequency or voltage or whatever it
was and by doing so they are paid the thing is like the the bucket of ancillary services
is it's like it's it's on a bid basis they they clear as the lowest bid and so if riot was
called as that ancillary service that means that they were one of the lower bids so as batteries
and Bitcoin mining reduce the cost to bid into the ancillary services, all ERCOP stakeholders
benefit from it. Right. Because if I'm interpreting that correctly, because if they weren't there,
somebody with a higher bid. Correct. It would have been a steel mill or a heavy industrial that
wouldn't have that fine nuance control of being able to like step down, you know, 20% of your load
every minute over the five minutes to get down to certain targets, right? Like you can,
you can fine tune Bitcoin mining, like each miner's three kilowatts, right? You can,
you can selectively curtail to bring, you know, if they tell you to go, I want 1000 megawatts to go
to 654, like Bitcoin mining can do that. Could a steel mill do this? No. Could a refinery do this?
no batteries yes they could also do something like this and then generation on the other side
can also ramp up to a specific capacity as long as they have that but um that's like something very
very unique with bitcoin and maybe the highest level importance of this is that if those the
demand for power and the generation of power is not lined up at all times and if that frequency
is an imbalance then that's where you get blackouts or brownouts and if there was a crazy
event where the potential potentially the whole grid could go down is that fair yes like voltage
out of sync frequency out of sync yes it can all that that the the main concern And historically before Bitcoin mining the primary way that load and generation demand supply were balanced was by supply changing
Correct?
Like generators coming up, down, is that fair?
Yes.
it was by generation and then um bringing that to the way that that bitcoin miners come up and down
is that because each rig could be controlled on an automated basis it can be very precise
but even though it might be good from a market standpoint if
right it's 500 megawatts came offline if it shut off unpredictably the ercot not knowing it or
based on some ramp down schedule it could actually have a negative effect yes unreliability but
because it is so flexible and because it can be controlled as long as they are
as long as they are in sync with the grid operator then it can be a real asset it requires a
partnership you can't just be flipping the breaker on a thousand megawatts on a 85 mega 85 000 megawatt
system like it requires you to to be a good steward um it's it's it's every large industrial load
has to do something like this like there's procedures to to be there like we're playing
big boy games like we are four gigawatts in an 84 gigawatt system we are making a material impact
we are a large large consumer of electricity in texas and like like it's time to put on your big
boy pants and uh and act like it from your perspective and clearly urcott's paying attention
to how large flexible loads aka bitcoin miners are performing in practice
from your seat how how do you think that ercott views bitcoin mining and what what in your mind
is their level of understanding not to say any express knowledge but just your general perception
yeah i think overall the perception is continuing to trend more positively like it's it's on us as
market participants and stakeholders to to be involved and be engaged and and be good stewards
We need to be showing up to these large load working group meetings up at ERCOT.
We need to be having the conversations with the system operators that are in the room operating the system and talking about what Bitcoin mining can actually do.
We're in the weeds, right?
We're Bitcoiners.
We've gotten into the Bitcoin mining industry.
We know what we can do.
But it's still a matter of education.
You still say mining Bitcoin and you'll get mixed responses.
But I do think really it's an ongoing conversation.
We can't rest on our laurels.
Bitcoin mining in Texas has succeeded because the Texas market was the most primed to receive
the Bitcoin mining shift post-China ban, but it's not guaranteed.
Like the rules can change in ERCOT, new markets can, like a new rule in the market could be
implemented.
It is on us to make sure that we are still successfully selling ourselves and performing
to the standard that we are talking about.
um i do think that you know overall the value is seen like they there's like you you can see right
there on the chart that you know bitcoin miners large flexible loads are responding to price like
we are doing what we said we were doing is there room for growth and is there room for improvement
and can we get those like last 100 or 200 megawatts down like yes like that should be the
the goal of the industry to um to optimize as much as we can but like time and time again
bitcoin mining has proven to be a mutually beneficial addition to the texas grid because
we're consuming the hours that are cheap they're consuming the hours where like we are incentivizing
more generation to come online you know we're on depending on your break even efficiency 75 to 95
5% of the time, maybe even 99, depending, but you're off on those stress events.
If you're off on those stress events, you are net positive through and through to the
grid.
And like, it's, it's starting, it's starting to feel like we're, we are getting some respect
and we are, they do understand like what's going on.
And yeah, that's okay.
That's a good place to move to next.
Before I do, I just want to reinforce something that you said.
I think it was, I don't know what year it was, maybe it was 2023.
There was a, because ERCOT, I don't know what the right way to say this is.
ERCOT is regulated by the PUC, Public Utility Commission, and then the PUC answers to the
state legislature.
So ultimately, state legislature regulates both the PUC and ERCOT.
And there was a bill that Senator Lois Colchorz put out that would have capped Bitcoin mining participating to a certain percentage of one of the ancillary service programs.
And again, the summary of ancillary services is a tool in the toolbox for ERCOT to help balance supply and demand to keep the grid reliable.
And that's a perfect example of why education is important.
Because even if ERCOT is understanding it and being able to see in the market and being able to interact with the actual stakeholders, people at the statehouse need to understand as well.
Because in the example you gave, if it wasn't for Riot being there, then the cost of the system would have been greater.
And there might be nuance in terms of having a diverse market to ensure that the market is competitive.
but having that education informs policy.
But for somebody, because I think this happened,
or I know this happened,
when Riot went to have their second site in,
I don't know if it's their second site,
but their second large site in Corsicana,
there were a group of concerned citizens who,
if they do not understand Bitcoin,
look at four gigawatts of power,
Coming online, consuming power for a reason that they think is waste or they think is waste, they do not understand.
Go into greater detail about how four gigawatts of power could come online.
And somebody might be able to conceptualize why coming offline at those peaks might save at the peak.
but the general dynamic of why or why not without new generation coming online,
how it doesn't increase the power, the cost of power overall, or maybe it does.
You just talk about that dynamic of, of maybe how power is priced, how it's absorbing power
that might not be being utilized in off peaks and then coming offline, just that general dynamic to
help articulate for somebody who wouldn't otherwise reconcile a lot of demand 24-7 or
mostly 24-7 coming on with a fixed capacity of generation yeah it's and you touched on it and
you mentioned it it's just a better utilization like these nat gas turbines these solar farms
these wind farms they're already in the ground they already exist but i the 70 or something like
that of all energy is is wasted um is that 70 energy but it's not electricity but yeah and what
i was going to ask is that 70 of electricity capacity yeah like ercott's capacity is much
much hot like and forgive me for not knowing the number but it's over 100 gigawatts worth of
capacity. We're only hitting 85 gigawatts of system wide peak, right? And so-
For short periods of time for certain days of the year.
You know, for 0.5% of the time is when that's actually happening. And, you know, overnight,
maybe your load is only down, you're down to 50 or 60 gigawatts or even lower. And so basically
what Bitcoin does is it increases the floor. It monetizes those hours that you wouldn't be
running that generation otherwise, making the generation more economic. But the price that
the generator bids in on the curve, it stays the same. And so as long as coming back to that price
responsiveness, if price is going too high, Bitcoin goes off and the low disappears. And
it's not increasing anybody's prices because actually like, like the studies that have been
that have been done around, uh, cost of increase of power, uh, for residential customers has been,
it's largely around the distribution cost, transmission, distribution cost, um, transmission,
a smaller portion of the distribution and distribution is getting, you know, power to
residential buildings, apartment complexes. It's the wires that you see,
not the massive overhead wires. It's the smaller stuff. That's the lion's share of
the... That's the lion's share of why our electricity prices are going up in Texas,
specifically. Doug Lewin had a podcast talking about this. It's not the actual input of electricity
costs. There's times where there's pricing on the grid in West Texas where it's negative $30
a megawatt hour, but the residential consumer doesn't see that benefit because they're still
getting hit with distribution charges and transmission charges and a fixed price.
The incentives need to be aligned and they're working on that for retailers.
um but having these large loads like the one gigawatt and corsicana it's only increasing
utilization and the economic output of a generator and if that generator is
economically like on like it's producing electrons it's paying its tax revenue somebody's buying like
it's creating jobs it's creating better utilization of the assets we already have on the grid
and then also incentivizing new generation because like ERCOT's not contracting any generators
generators are going at risk and responding to price signals on the grid in order to cite their
generation and in order to in order to build it like they are they're not guaranteed anything
there's no capacity market high prices are the signal to generators to go out and build that load
and so as system-wide load and you can see this massive interconnect queue in ERCOT that they're
talking about 150 gigawatts or something like that generators are looking at this like okay
this is AI this is Bitcoin largely AI but some Bitcoin too we're going to go build generation
in anticipation of this and then the generation bids into the market and that's how you get your
energy price but the beautiful thing you know whether you like solar and wind or not is that
the the input cost to wind generation and solar generation is zero dollars a megawatt hour it
doesn't cost anything for the wind to blow or the sun to shine um the marginal cost the marginal cost
correct it it ends up having during the solar hours and during windy hours very low pricing
um so what does that do it shifts the peaks to when the sun's going down early in the morning
during the winter uh and that's providing incentive maybe to batteries if the peaks
are only two two hours three hours or if they're long sustained and we're starting to see high
prices in the evening time in loads on west maybe a nat gas generation wants to go out to
west texas take some very cheap uh waha gas put out peaker plant in there and they build out some
more generation but the consumers are not paying for more generation to get built generations are
going at risk to build this generation based off the price and so a way to think about it
was part of what you mentioned is if the total capacity of generation is 100 gigawatts
in ERCOT at any point in time. Peak is generally 85 gigawatts. That on a megawatt hour basis,
it's 100 gigawatts times 365 days a year. And that if you, I don't know what the precise number
is, but if you looked at every hour versus 365 days a year, 100 gigawatts capacity versus what
is actually used it's probably something like 30 30 or 40 somewhere in there that if you can
absorb more of that asset capacity and have greater utilization the transmission lines are there
that it increases the profitability which allows the economics to improve and also flattens
the curve and that a net benefit maybe shift to talk about because you brought up two things you brought up ai and batteries let Let talk about both of those But first Bitcoin demand for power and its characteristics relative to something like an AI the source of demand for the power
How are those similar?
How do those differ?
And what would be the considerations for a grid system or grid operator like ERCOT looking at both of those?
And they're definitely different loads, even though they may seem similar.
But what I will say is that Bitcoin mining paved the way for these AI data centers to come to Texas.
700 megawatts at Rockdale and one gigawatt at Corsicana, that is an unheard of level of interconnect.
Data centers prior to this AI revolution were maybe high double digits, low 100s of megawatts.
So I'm going to pause that thought because there was something else that I wanted to talk about that feeds into this, which is we talked about ERCOT being a deregulated energy market.
And what that means is that generation is deregulated and then the retail market, people actually selling power to commercial loads, homes, that piece is deregulated.
The transmission and distribution is regulated.
And there's a process to being able to interconnect to the grid and that that's a long process.
So talk, maybe distinguish between the regulated pieces and the deregulated pieces, and then how that factors into this discussion of how long of a lead time it might take to get a 500 megawatt site online and connected to the ERCOT grid or a gigawatt site.
I mean, we'll tie it back to the reliability piece, right?
Everything is under the guise of reliability.
You see this massive load interconnection queue, hundreds plus gigawatts.
Encore, AEP, the TDSPs, the transmission distribution service providers, the wires companies, they have to take these interconnect requests and be like, are they real?
We've never seen something this big.
We've seen a couple of Bitcoin mines.
This is unheard of demand.
and then they have to work with ERCOT
to make sure that the system operator,
like nothing breaks in their model.
And so it's an aggregation of you.
You've got your load, you've got your TDSP,
and you have ERCOT all working together
to try to fit 150 gigawatts plus
into an 85 gigawatt peaking system.
And so there's a lot of...
Basically, it's unprecedented.
They haven't seen something like this before.
And this amount of growth is...
Utilities grew at maybe single-digit percentages.
Post-COVID, ERCOT was growing maybe 6%, 7%, 8%,
which is a very, very, very high rate compared to everywhere else.
We're talking like estimations of 15% of able to actually get done.
but uh what they're requesting is is 150 of what the ERCOT total system-wide peak is right now
uh and so that's wild it's it's absolutely insane and you know in their right to take
take a step back and be like is this real like do we actually have to serve this serve this load
um and so these ai data centers there's different types of data centers like you've got the
you know the models the training model uh training the models that can be um you don't need as good
of latency you don't need to be in the the city centers those might be the ones competing for
competing with bitcoin miners like going out to deep west texas going to surrounded assets
then you have inference inference compute what's actually running your chat gbt answer and query
humans are okay they're all right with waiting a little bit we understand that like okay it's
got to think for a second um that inference compute that's closer to the city centers
uh and then you've got the the edge whatever but right now what we're seeing in texas is
Dallas is a hotspot. South Dallas is a hotspot for AI compute. Then you've got north of Austin,
you've got Samsung, you've got the Gigafactory. Data centers are coming there, but you do have
them coming all the way out to West Texas. And that maybe is where the intersection of Bitcoin
mining and AI compute will be. Galaxy just contracted with CoreWeave for their entire
capacity and so what we're seeing now is galaxy digital yeah okay they're mining
their mining business is um their helios their flagship site uh has completely decommissioned
the the mining infrastructure and is working towards converting to strictly ai hpc or core weave
and but say just for a single site say if a
setting aside this crazy amount of forecasted growth based on all of the
requests that have been put in you want to get a 500 megawatt site online in ERCOT
what does that process look like and how long does it take good luck is uh is what i would say
right now everything has more or less uh ground to a halt uh we came in at the right time and we
were early and were able to secure these interconnect requests they will they still
have like an obligation to serve and the tdsps have the obligation to serve what is tdsp
transmission and distribution service provider however the time to interconnect now for a
a large load we're talking years and years and years down the road like there is no easy access
to power anymore that has been more or less taken up within the last year or two with with all this
increased load interconnections and so the reason why the ai data a bitcoin mining data center
might be so valuable to an AI operator
is the ability to access large amounts of power
without having to get a new interconnect approved through ERCOT.
Yeah, I think we're going to see this.
I mean, we're already seeing this.
Building out generation and power infrastructure
is a matter of national security at this point, right?
Like we're betting on AI.
It's an arms race.
And it comes down to who has the most energy
and power and electrons.
And so it's imperative that we do so.
Right now, they're trying to get all capacity
that's left on the market.
When that capacity dries up
and we're looking at three, four year interconnect times
and they have nothing in their pipeline,
this is where I would see like the Mag7
picking off the large interconnects.
So, you know, like Iron's doing this right now.
Like they've become a preferred partner of NVIDIA.
They started Bitcoin mining in Childress,
West Texas, close to the panhandle,
lots of wind, decent amount of solar.
Is it near Lubbock?
uh yeah it's on the way okay it's on the way or on the way to amarillo okay uh 287 or 187
anyways yeah it's it's on the way up to like denver so it's on that fiber corridor actually
of dallas to denver and so they're like a great prime example they're monetizing the electrons
with Bitcoin mining to start and then marketing this to the AI and HPC compute companies like,
hey, we have this power. If you want it, come and get it. We'll sell you the rack space.
Maybe there's going to be total acquisitions. I know Riot's right now marketing the rest of
their core Sakana site. They got 400 megawatts worth of Bitcoin mining currently energized,
600 megawatts of latent capacity south dallas is completely locked up of course the canna is not
that much farther south than dallas it's only an hour drive away very easily can see the sale
of that of 600 megawatts whether it's a total acquisition of riot or it's um you know them
selling that 600 megawatts or them hosting with that rack space so maybe talk about what is the
difference in profile in terms of what an ai data center is willing to pay for power versus what a
bitcoin miner might be willing to pay yeah we're talking orders of magnitude different uh capex
spend one gpu something like eighty thousand dollars it's it's producing flops or something
like that and they're well as one gpu is how much i've heard numbers of eighty thousand dollars i'm
not in the weeds of this thing but like they're they're very expensive so they are incentivized
to be running their compute as much as possible um i think their generalized break-even number
is a thousand plus a megawatt hour go ahead you were gonna say something yeah so a bitcoin miner
in asic is between four and five thousand pricing wise yeah yeah you can even get some cheap used
ones but your price for the asic probably 500 bucks to 5 000 and then your break is 70
per megawatt hour to $150 a megawatt hour currently.
Okay.
I'm trying to just think about some of the unit economics.
So that's...
Don't use my ADK.
No, I'm not going to use your ADK,
but like, let's say 50K.
Yeah.
To maybe be conservative.
How much power does a,
on a relative basis,
does a Bitcoin ASIC draw versus a AI GPU?
asics you know air-cooled asics we're looking at low 3ks hydro it's all up to 10k
aw okay and then immersion somewhere in between like five or six thousand
i know that right now the gpus so they're making it up as they go by the way like what bitcoin
mining went through and like s9s to s17s to s19s like this really quick iteration and burn and
churn is happening right now with nvidia like the racks for cloud compute like your your compute that
ran your netflix that runs your google query like your traditional intranet infrastructure
was like 10 or 20 kilowatts per rack and a rack is like a 48 unit um it's a it's a little taller
than a person it's like seven feet tall maybe uh 10 to 20 kw they are now talking about trying to
work towards one megawatt a rack like the density is getting absolutely insane they used to use like
rear door heat exchangers now they're going strictly direct chip hydro and but contextualize
that relative to bitcoin yeah to bitcoin the same the same rack and we were we were breaking barriers
like 200 kw or rack is what you can put in um with bitcoin mining asics with like the what's
minor hydro or the aridine hydro or the canaan or bit deer those two you hydro units that you see
um they consume 10 kw uh and you can put about 200 kw inside of a rack and so i don't actually
i don't think h100s are and that's like a common gpu that nvidia makes i don't think h100s are to
that 200 kw yet i don't know if they've commercialized 200 kw but they've they're
talking about in the future of having 400 600 kw racks and like they're going for as dense as
possible as my understanding maybe this is a shift that's happening because of ai was that the shift
from gpus to bitcoin a6 the power density of bitcoin a6 was far greater than the power density
of a legacy gpu but maybe the gap is shrinking because of the nvidia chips and ai is that
we were 100 more dense uh before like it like i was like i was saying like 20 kw is what your
your normal racks uh heat capacity was or power capacity 200 kw is what bitcoin was this was you
know like rewind three years 20 kw data center 200 kw bitcoin mining they're catching up i don't
think they're at 200 kw a rack yet but they do plan on passing us in like rack density and
my understanding is that the build out of an ai data center is far more expensive something like
on the order of magnitude of 10x the cost that's less consequential than
they're willing to pay way more for power
and that is because whatever their end market is their their revenue source
is greater than
bitcoins on a
power
per unit
economics
is that fair
yes
I mean their
capex is
higher
but that's their
cost
yeah
but their
Their willingness to pay, and you said potentially up to what per megawatt hour?
Figures I'm hearing somewhere in like the mid $1,000 a megawatt hour.
Versus Bitcoin mining effectively being breakeven somewhere between $70 a megawatt hour and $150.
Yeah.
What?
we were talking at the beginning of this episode about real world examples where
in total in terms of all the bitcoin mining that is in urkat going from 1.5
gigawatts to 1.9 to 2.2 to somewhere around 4 gigawatts today and that flexibility of the load
being a value to the system,
is AI flexible?
Why or why not?
Can you talk about that in relation to the nature
of the differences in the load?
It's a good question.
And I think it's still yet to be determined.
Google has put out some white papers
talking about load flexibility.
They all know that flexibility is important.
They know you can't just be running,
99.999, they call it the 5.9, so like 99.59% uptime is what the industry standard for a data
center uptime was. And if they want to maintain that, they know that they can't rely on the grid
to do so. Where we're at, because there's an insatiable demand for power, there's the opportunity
you know for urcot to engage with these conversation engage these hyperscalers in
this conversation like we need some flexibility like how can you build systems to do so and because
the gpus are so expensive and because the capex spend of these data centers is so expensive
they're able to add in ups systems like what's a ups system um uninterruptible power supply
they can even put in grid scale batteries you can put in e-stat comms which helps with like
voltage issues uh because because their capex spend is so high they can add reliability uh
you're effectively saying backup generation well and then i was scared there and then they also have
diesel backup generation too so like they have all of these different tools um that
could be used to help reliability. You could switch over onto your battery in a grid scarcity
event. They're consuming just like us for most of the time. Price goes high, EA event, something
like that. Bitcoin miners are just turning off. Fine, whatever. We just don't need to sell our
compute into the Bitcoin market. Data centers could switch over to their UPS,
slowly ramp down what the grid sees they could then kick on their backup generation
and then get them to like a checkpoint or to where they need to be on say their training model
or you know reduce load to a certain extent like there are tools and ways to make all of this ai
growth in texas not an issue on a reliability standard and that's what like we're trying to do
what i'm because yeah where i'm getting to is
is that
a
ai data center is right and everyone throws around the term ai and you know could be chat gbt someone
Mid-journey, the end market is people typing in requests to GROC,
to LGBT, mid-journey, and operations are happening at a data center
and then push back out.
That might not be as complex or sensitive as an operation as a foundry,
working on ASICs, or a smelter, or a hospital.
But it is still a source of demand that is more complex.
And if they were just to go down, then the thing that's actually paying the thousand gigawatt,
or sorry, thousand dollars a megawatt hour for power, that it would be interrupting.
And so it's not so much a complex energy problem as it is a service delivery problem.
problem whereas in bitcoin miners they're when when they shut down
the bitcoin network works perfectly well right because everyone is providing power to one
aggregated source of demand versus on the ai side it is customers paying for a service and
if you typed into the grok and you were paying for the service and you didn't get
response back because the service was down because texas was having a scarcity event
then you're not going to be willing to pay thousand dollars a megawatt hour plus as the end customer
so it might be possible in the future but it doesn't seem like
the ai data centers are getting near the the concern trolling that bitcoin miners
do or were and it might actually cause a problem if all of this because i can understand economically
why if there's four gigawatts power in texas that's being consumed by large flexible loads
and maybe not all four gigawatts large flexible loads that are above 75 megawatts let's say 3.5
gigawatts are if bitcoin mine or sorry if ai data centers are willing to pay 10x for the power
then the economically rational response to that is to sell your site or sell lease your site
however you do it transfer it to an ai data center but then the benefit of having 3.5
gigawatts to four gigawatts of large flexible load that can be hyper responsive to scarcity
events in a very direct way goes away so is that part of the discussion that people are having
out there in the market or is it largely not because the the power brokers that be are
amazon microsoft google twitter grok what's the perception of that you know i think we don't know
we don't know because abilene like the stargate campus the 1.2 gigawatts like it's it's still
being built like there's there is data center load in texas but that's traditional data center load
this new um ai compute it's it's it's not here in any sizable way uh but you're you're completely
right like bitcoin mining completely pure economic signal like we will respond to the price signal
ai's price signal is a lot higher right and they have a different more convoluted equation to
like their their payback and like service to their customers and like downtime and all this type of
stuff i think the i think the key is is that load growth is good for texas because load growth means
more investment dollars like it's trillions and trillions of dollars are going to flow into texas
if texas gets this right the key is flexibility like urkot has a position of power at this point
Like they can, they have the best, most competitive market and grid system.
Permissionless gen can just connect and then manage.
We want the load to be here.
We want Bitcoin mining to be here because it's a different load profile and it's going to be a different place.
Bitcoin mining, it can be two megawatts.
It can be three megawatts.
Like you don't need scale to be a profitable Bitcoin mining.
These AI data centers, they're looking for 500, 600, 700 megawatts plus.
They have become a whole other beast in themselves.
Bitcoin mining actually doesn't need to be that big.
And honestly...
Well, maybe explain that.
Why does an AI data center need to be that big?
It has something to do with just having shorter networking runs
between the whole entire cluster of GPUs.
I'm not an expert here.
Yeah, I'm not looking for...
The close proximity of all the GPUs in one location helps them on their training.
And so trainings, what you were talking about are like querying Grok.
That's inference.
So that's one type of compute GPUs can give.
The other compute is like training the model that Grok is querying.
And so when you're doing these training runs, you want a lot of GPU.
and um a lot of gpu compute and you and you really want it in one location and that's why people are
looking at the you know the irons the galaxies the riot because there's a lot of light in megawatts
in one location there was no other load on the grid that ever requested 600 800 megawatts a
thousand megawatts like big coin mining paved the way yeah how large was a traditional data set like
a large traditional data center 20 megawatts right so there are at least 10 that i know of 300
megawatt sites in texas correct and so the bitcoin miners effectively
built sites that could offload from the grid large amounts of power in very dense ways
We paved the way.
We gave ERCOT a stress test and going through the procedure of interconnecting one gigawatt
worth of electrical load.
It's compute.
We're doing a different type of compute.
it's a sha 256 hash instead of a flop or whatever ai compute is but it's it's an electrical load
on the system and what we did was pivotal to the future success of our cop with ai compute yeah i
mean that that makes sense to me in terms of figuring out how large loads of that size and
scale which hadn't existed before would interact with the grid under a certain set of conditions
with a lot of flexibility and flexibility that was seen in practice now re-entering a world where
that it might be in theory but not proven out yet and that the concerns over the nature of the large
loads that bitcoin received were largely misplaced because of their flexibility but it might be the
case that with the lack of flexibility or at least not having a a model proven out that allows for
that flexibility so i couldn't imagine a diesel you know if there's a 500 megawatt site having a
diesel backup generator that can materially replace a large amount of what might be going on
at an ai data center site at any point in time um and it's not to say that hey there should be an
incentive to service all large loads and to incentivize more generation to come online but
you might be looking at a very different load profile because of the economic incentive model
for ai companies that differ significantly from bitcoin companies
how now pivoting now to so we talked about ai you mentioned also batteries if
bitcoin mining is a form of demand of power load ai form of load batteries can be both
demand and it's not generation it's not actually generating power but it can
stores power and can supply power back to the grid talk about bitcoin mining
and how it can be a service to the grid relative to how batteries have a place where they complement
each other what one can do that the other cannot vice versa and where they potentially compete
yeah so you see now that pretty much any solar farm that is being built is being
co-located with batteries batteries help improve the economics of solar farms
uh bitcoin mining would do so too where the where i see the main difference of bitcoin mining
before you go into that yeah we had one of your choya interns yes in here a month or two ago i
believe a texas a&m student yeah robert yeah he was explaining something about
why there's a benefit to having a battery co-located with solar not just to have over
capacity to be able to serve a consistent amount but like actually from a technical perspective
that there's something about frequency that was a little bit over my head that allows for
frequency management by first putting solar to a battery and then connecting the battery to a grid
is that my wrong there i could have totally misinterpreted you are 100 right like the
batteries have such fine nuance to the amount of power that they they can inject that's why they're
taking the lion's share of the ancillary market because they respond so well so yes it is true like
like it will smooth out any fluctuations and that's why fluctuations in frequency like output
generation output okay and so that that's why data centers are also implementing innovative battery
solutions because sorry to go back to ai real quick but like the inference and the compute it
can go up and down it's bitcoin mining when we're on we're kind of just flattened going for it uh
these training models they can go up they can go down like it could be a mess like it would
absolutely not be a good thing to to sub subject the grid to like instant on instant off at large
loads of 1.2 gigawatts plus plus plus um and so they're using batteries to do that like basically
spoof the grid and say like hey we're actually just flat and so i'm assuming the same thing can
be done for solar i don't know the technicalities behind it but yes i believe that's what it was
yeah yeah so like the grid wants you know nice nice and stable bitcoin mining nice and stable
battery output nice and stable uh ai inference and compute not so stable but back to back to
batteries uh the thing about batteries is that they only have a they're constrained by like how
many hours of charge that they can actually charge and so a battery might only be able to consume
power for two hours worth of the day, or I think they might be getting to four, you can only
discharge for four. So it's got eight hours of total in and out capacity. Bitcoin mining is 24
seven, right? We can consume the entire day. If prices, say it's on a shoulder month and it's
super windy, super sunny, and prices are $0 the entire day, the battery will have been charged
and stay at the same state of charge the entire time.
They'll probably, in this case, bid into the ancillary market
and provide those frequency support services.
Whereas Bitcoin, if it's $0 the entire day,
we're going to be blasting full-on monetizing those electrons.
And so I think they're both flexible.
I would say batteries are better at like very, very nuanced.
It's electronics, right?
You can set the voltage or set the output to like a very nuanced degree.
Bitcoin mining, also flexible, maybe not as nuanced, but the benefit that Bitcoin brings
is that you can oversize it considerably and you can run it for a larger amount of time.
and explain i didn't fully grok what you were saying about the um the charging the amount of
time like what what is a large battery how large is a large battery first off
ooh um battery installations nowadays are i think a couple hundred megawatts okay there's 15
gigawatts so 15 000 megawatts worth of batteries in ercott right now wait repeat that amount 15
000 megawatts or 15 gigawatts of batteries in ercott would that how much would that have been
five years ago order of magnitude zero okay pretty much effectively zero uh they've they've come on
super strong in the last couple years and so take a hundred megawatt battery yeah
is that actually like one just massive battery or is it a site that has it's it's a series of
batteries and so like 100 megawatt battery has 100 megawatt hours so it's megawatts like being
able to deliver to the grid and then there's like total capacity so like maybe it can only
inject 100 megawatts at a time but it can hold 200 megawatts so it's 100 megawatt two hour battery
okay i think i follow that so if it's got 200 megawatts of capacity it can take 100 megawatt
charge at any point in time but then there's a certain number of hours that a 200 megawatt
battery could supply say 20 megawatts of power yeah i think it's based off of and forgive me
for not knowing this, but I think it's based off of the inverter size. I don't expect you to be an
expert on everything. I'm looking for general knowledge here. Yeah. I believe the way it works
is that it's based off of the inverter, how much you can convert from DC to AC and send through it.
So say you have a 400 megawatt pack and you can send 200 megawatt hours through it at a time.
that's a 200 megawatt two-hour battery got it and then once it was depleted it need to be
recharged correct and it can only maximally charge 200 megawatts at a time they could
probably go less than that if they wanted to spread it out and provide more even uh charge
but it can only take 400 megawatts total 200 megawatts an hour whereas if you have a you know
a 200 megawatt Bitcoin mine,
you're consuming 200 megawatts
for 24 hours,
significantly more.
The utilization of the entire grid
is much better on a Bitcoin mine
than just exclusively a battery.
And then,
if you have batteries distributed,
it's basically got stored power
that can that can provide incremental supply to the grid at a point in time
so talk about that so you talked about one circumstance where battery could
in a much more fine balance not necessarily the grid but some other demand for power talk about the scenarios where bitcoin mining could help balance the market for power
more effectively in a broad like at scale versus batteries like what i think like conceptual
scenarios you know i think the unique thing about both of them is that they're location agnostic
like you you have well as a as a battery you are injecting as a generator and like injecting to a
they consider batteries generators yes i think they're considered both they get the treatment of
both and so and like we're getting back into the weeds of our cut here but like as a battery you're
injecting at the nodal price as a load bitcoin miner you're in you're drawing based off of a
zonal price and so actually the thing that um works to the battery's favor here is that
the nodes a better signal right if you if you aggregate all the load the nodes together you
get the zone the zone could have how many zones are there in our cut there's west north south
and houston okay four and those are the deregulated zones like within those zones like you have the
co-ops and the municipalities that aren't deregulated and i said co-ops well anyways you
have those you have those four zones and so i'll talk about load zone west is where we're located
and i know i know best and and maybe there's there's many nodes in a zone yes just for some
context even though different zones probably a different number of nodes how many nodes per zone
oh um i believe each generator will create a node uh so load zone west for example i'm pretty sure
there's got to be 50 to 100 nodes and the the nodes themselves will have a will have a price
point and then the aggregation of those nodes will create your zonal price that your load responds to
okay because yeah before you had made some comparison between nodal pricing and zone pricing
now reconnect that to the idea of batteries how they might benefit from one or the other
sure like the for example deep in deep deep west texas talking like pecos for stockton area um
a generator could trip or it could it just couldn't it might not be windy and so that deep west
node will get blown out it'll go to five thousand five hundred bucks a megawatt hour
and then based off of that high price the zonal price for the load increases but it might not
actually reflect the electric like the electric grid conditions on the eastern part of the zone
in Abilene, right? You're 400 miles away, multiple, multiple buses away. They're not
very electrically connected. And so where batteries are nice in this situation is that they
operate on the node. And so by operating on the node, you get a clearer price signal.
But to be fair, or to circle around, Bitcoin mining, loads can operate on nodes to get better
price signals it just requires uh qualification to become a controllable load resource this
controllable load resource allows you to operate based off of nodal conditions once you qualify
with ERCOT's conditions um and then at that point like bitcoin mining truly is like an apex predator
for responding to grid conditions
because you have your node
that you're on,
your most electrically close node.
If you're responding to the prices
and conditions at that node,
that is the clearest signal
for scarcity or abundance that there is.
And so if prices are cheap,
there's abundance of electricity
and you're consuming.
Price gets blown out just at your node
and you can turn off.
That helps like
spread spread it back out and like reduce that nodes um blow out and then that improves the
prices for every single person in that zone because not everybody can be a clr and so
if i'm thinking about this correctly
if a generator trips
then either a bitcoin mine could come down if it caused prices to spike or a battery could
replace that power or both or both or combination it's not mutually exclusive like they can both
respond to the the proper price signals or as demand is increasing a battery could provide
more power where a bit you know often not oftentimes there are people that will say bitcoin
is a battery my view it's a bad analogy because it can't provide incremental power to the market
correct it can turn down and allow a generator that was providing it it power to have that power
go somewhere else, but can't replace the power. So it's that if you need more power or need more
generation, a battery could provide that more efficiently where a Bitcoin miner could not.
Yeah. Just for two hours. But the Bitcoin miner could stay off as long as the economic signal
signals that the generation asset has state tripped, some type of issue.
and so it might be the case where and i'm not saying in a specific circumstance but
a a battery might provide the first relief to price signals but then if it's needed for longer
the bitcoin miner would be more responsive i think it would be you know depending on the price of
of power right i think they would both respond to the price um but
Bitcoin, like the battery is capped to its level of response, although it is, you know,
it is injecting, right? It is providing that power support. Bitcoin mining can stay off for longer.
Like another, another really good example, um, of this was, this was this summer. I can't remember
the month, but prices, the batteries discharged for the solar ramp in the evening and the afternoon
as the sun is discharged injected into the grid like they sent power into the grid as the sun was
setting and solar was coming off of its its ramp and so for those two hours three hours batteries
were injecting prices were maybe 120 150 bucks a megawatt hour 300 whatever it was um overnight
it wasn't windy and so prices stayed in that maybe 80 to 100 a megawatt hour range which is
significantly elevated versus where which is elevated comparatively yeah and then in the
morning there was another peak like there was a there was a morning peak of demand the batteries
had not charged because of that $80 to $100 price range.
And as it peaked to maybe $200 a megawatt hour,
the batteries were sitting there twiddling the thumbs like,
oh, we're out of capacity.
There's no discharge.
Whereas Bitcoin mining, you're off at that solar shoulder.
And then as long as your break even is like,
you've got some newer efficiency machines at 120,
you're soaking up all that electricity at night.
And then when that peak goes to 200 bucks,
Bitcoin responded and so we have a we have that ability to always respond batteries have to worry
about their state of charge and it's it's more of a guessing game it's less guaranteed so they
they can both be compliments and they can both be responding at the same time and be
or you could think about that as being competitive to how they're providing or how they're responding
to price signals you know urkot needs everything we need gas we need solar we need batteries we
need wind like the more it grows the more load grows the better texas does um you know batteries
provide things like like voltage uh ride through support that electrical loads can't do like it's
all going to work together and because we're in an island system a variety is key like it's and
you mentioned batteries increasingly being co-located with solar are are most batteries
co-located with some form of generation or do they do they typically i mean you want to put it next to
intermittent generation right because if your gen stack is built for if you have a one gigawatt
interconnect and you size your nat gas generation to one gigawatt like you couldn't inject any more
than that one gigawatt so it wouldn't really make sense to charge your battery if you're just using
a gas peaker plant where it does make sense is that you're generating your one gigawatt solar
plant you put one gigawatts of batteries you charge during your um you know your did i say
Solar or wind?
Solar.
You charge during your sunny time and then you have one gigawatt worth of capacity to sell on those times where you literally can be injecting into the grid when it in the evening time um
and then when you if you talk about right here but just if we look at the landscape from
yeah somewhere between 2017 and 2019 gideon and cholla went out and
from my knowledge built the first greenfield substation that was 50 to 100 megawatts
ultimately to be 100 megawatts in terms of the phase but that was the first greenfield
substation for bitcoin mining virtually there was there was bitcoin mining on the ericot grid
in 2020 but in terms of getting to four gigawatts today
five six years ago it was very de minimis similar with batteries you said it was something like 15
gigawatts now today of battery power so a lot has changed over the last five years
if we look five years into the future
specifically on the bitcoin mining side
where do you see the scale going
and where's choya most focused today in terms of participating in how you guys see the market
changing i'll hit on bitcoin mining like i bitcoin mining is a unique load profile to
AI compute that we are competing for power against. I do think that you're going to have
less of these mega miners, hundreds of megawatts, and you're going to have more distributed 50,
maybe even sub 75 to avoid the ERCA large load classification. And then you're just opportunistically
citing these around areas that have an excess of power generation. You're going to have Bitcoin
mining behind the meter at wind farms to that are just taking up putting like a floor ppa on that
wind farm helping to modify monetize the excess energy there and then just dealing with like a
60 or 70 percent uptime i think the days of the hunt you know one gigawatt bitcoin mining uh
ventures or at least in texas are probably over we just can't command that premium like you could
take of one gigawatt interconnect and sell to a hyperscaler of course this is all like given the
data that i'm i'm seeing now with ai like is a bubble like we're not going to get into that like
like will things change who knows but if it's on the current trajectory i think that bitcoin is
going to just continue to be like the pioneering species like we're going to go collate locate
next to the intermittent generation we're going to go co-locate um you know wherever these large
data centers don't want to go um and then how cholla wants to position himself you know like
like you were saying gideon gideon saw this flexible load like monetization back in 2017
2018 and built that that spec built hoddle one substation in uh in pyot and then just
everything that happened the last eight years was a confirmation of like what what he was talking
about. You have the mecca of energy in West Texas. You've got oil and gas, the most prolific field in
the world. You've got wind and you've got solar. You probably have geothermal too, but it hasn't
really been commercialized, but you have so much energy right there. And if you can respond to the
prices, which was the thesis with Bitcoin mining, you can capitalize on it. Load Zone West, where
Gideon first built that substation and sold that project was the start of the West load zone
tripling in size over the last eight years. I'll say it right here, he started that.
Yeah. Of course, there's some oil and gas load in there too, but we're also an oil and gas
company. So we'll put our hat into that too. Where Choya sees opportunity, what I do at Choya
is run our innovation lab
where we take low serial number units
and test it out.
We'll take on the technology risk.
And so with all these AI data centers
coming onto the grid,
like, are we going to go,
like, is off-grid the solution?
Like, and, you know,
is it the traditional off-grid?
Is it, like, flare gas mining?
Is it putting nat gas,
you know, turbines on a pipeline
and creating your own energy?
or is it some combination of uh solar batteries and gas because solar and batteries the cost curves
are just continuing to go down they're they're being built as consumer electronics like we all
technology stacks and electronics price trends down over time uh and it's they're just going to
become more and more competitive. So we can imagine a world where you can have massive
off-grid solar battery farms powering Bitcoin mining. Will it be Bitcoin mining at first?
No, of course not. It's going to be AI compute first because they're generating a higher dollar
per megawatt hour basis. So the union economics work better for them.
um where choy is participating right now is like we've we've got expertise in the oil and gas side
the land side and the um electrical side and are trying to speed things up in our god like it's
i talked about it earlier like we see it as a matter of national security in order to have as
much AI compute in the United States as possible. And the more that comes to Texas, the more benefits
Texas stakeholders. So our focus is accelerate that in any way possible. Gideon was super
involved at the legislative last year, lobbying for flexible load and using Bitcoin as an example
to basically troll these AI companies like,
hey, we can do this.
Y'all should figure it out too
because we've got four gigawatts
and we're turning off
and like sending that power back to families and homes.
Y'all can't tell us that you're too important
to not do so.
And so long way to say,
like we're involved in all things,
energy, power,
and just excited for the future of Texas
and how much it's going to grow
and how much it's going to benefit all of us.
When you mentioned that you guys view more AI demand as a matter of national security, I was going to say, are you talking about Texas or are you talking about the United States?
And then is more Bitcoin mining on that same par?
And this is the last question to wrap up and then also want you to share where people can find you.
if they're interested in what you're doing in the innovation lab or outside that,
where they can find Brad Cuddy.
You know, of course, it's good to have AI compute in the Republic of Texas.
But overarchingly, in the United States, having this compute and owning this compute is important.
It's like we are obviously competing against China, state-owned utilities, state-owned generation.
They can just build transmission.
They can just build generation as much as they want.
they can put old chips on and run these models. It is their model versus us. Will America's
will to innovate the capitalism structure that incentivizes growth and innovation and
thinking outside the box and allowing entrepreneurship, will it win? I don't know.
I hope so. I believe so. But how do we ensure that we do what we can to make it win?
access to electrons, which is the input to all this compute.
That is like our North Star at Choya.
And then for Bitcoin mining,
of course I want as much Bitcoin produced in the United States as possible
because I want Americans to prosper from energy-backed freedom money.
I can see a world as AI continues to
gobble up jobs, maybe their AI agents start transacting with each other. Bitcoin will be
a part of this. And we all know it. How do we make sure it's a part of it? So one,
on the Bitcoin mining side is what I'm trying to do. We are a complement to the grid. We're
important for ERCOT. We're here to stay. We're not competing against AI. It's a different class
at this point. But of course, decentralization, not all Bitcoin mining needs to go to Texas.
It's a pioneering species. It should go where it's needed. Bhutan, great example, my favorite one.
The government of Bhutan having 12,000 Bitcoin on their balance sheet because they said yes to
bit deer mining on their stranded hydro is the coolest thing ever um but long live urcott long
live texas and then you can uh you can find me at i think it's underscore brad cuddy underscore
on twitter linkedin too i got a pirate flag and laser eyes so pretty easy to find uh but really
appreciate it parker yeah appreciate you coming on running the innovation lab at choy inc in many
ways ERCOT at a great scale is an innovation lab for the rest of the nation or the world to pay
attention to so appreciate all that you're doing individually that Troy is doing and thank you for
coming on the show glad to have you in Austin great to be here all right thanks Parker yep