Episode 29: Shaun Connell on the Symbiosis of Bitcoin Mining and Energy Grid Dynamics

Discover how Bitcoin mining and energy sectors can converge for mutual growth as electricity grid expert Shaun Connell, EVP of Power, from Lancium unravels the symbiotic relationship these industries share. Witness Sean's fascinating leap from conventional power generation to the cutting-edge realm of Bitcoin mining. This episodes dives into the intricate dance between mining profitability, underused energy resources, and the economics of power generation, all through the lens of a seasoned professional who has witnessed the transformation of the energy landscape firsthand.

Sean sheds light on the ever-changing dynamics within the ERCOT market, Texas's unique energy-only approach, and the importance of resourceful strategies in ensuring grid robustness against the backdrop of extreme weather. This episode is a deep exploration of the energy sector's adaptability, resilience, and the crucial role that Bitcoin miners play as both consumers and potential stabilizers of the grid.

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Chapters

• 0:07 Bitcoin, Mining, Electricity in the Grid
• 8:17 Electricity Grid Deregulation and Market Volatility
• 21:45 ERCOT Market
• 34:22 Weather's Impact on Power Generation
• 41:38 Bitcoin Mining and Battery Storage Economics
• 49:59 Power Purchase Agreements and Electricity Costs
• 1:00:27 Power Grid Management and Ancillary Services
• 1:08:07 Power Grid and Pricing System Updates

Transcript

Speaker 1: 0:07

Welcome to the BlockTime podcast produced by Riot Platforms, where we take a deep dive into Bitcoin, bitcoin mining and the grid. Today, we're really going to be focused on all three, but especially the grid, because we have an electricity grid expert here, sean Connell from Lansing. Welcome, sean.

Speaker 2: 0:27

Great Thanks for having me, Pierre. Happy to be here.

Speaker 1: 0:29

I'm excited to have you. I feel like I've been wanting to talk with you for a while now because, I mean, you're a wealth of knowledge in this area and there's quite an intersection with the eurotoc market and Riot's activities in this market. So I guess, first I want to start off with kind of your background, your journey into this space.

Speaker 2: 0:51

Sure, well, happy to be here and I've listened to podcasts years in the past, so happy to have conversations as well. So my journey here kind of starting with like how did I get involved in, kind of like, the Bitcoin space was that I've worked for a power generation company for many years started around just when power markets were becoming deregulated and what that meant was, instead of power companies having, like a customer that had to buy your power at a certain price, deregulation meant that they had these generation assets and they needed to kind of find a home for their megawatts, and so what they needed to do was they needed to build, you know, trade floors, and the trade floor purpose was essentially kind of how do you capture the most amount of value from your generation. So it's either kind of like selling to you know commercial, industrial customers, selling into forward markets, but essentially, when power markets are being deregulated, it was really a lot of unknowns and kind of like reminds me of kind of what we're going through and kind of Bitcoin mining. So my journey started in power and kind of worked in power generation and kind of do that for 20 years, helped lead and build. A trade floor company I worked for was called Transelta generation assets across the United States, canada, some in Australia, and so being on a trade desk is that, you know, the way I got into Bitcoin and kind of heard about it was that, you know, we're looking for different ways to kind of add value to a trade group, and we're looking at some of these generation assets and saying, like, well, we've got some assets that are, you know, fully contracted or not fully contracted and not being fully utilized. So, like, what is another way that we can actually get more value to these assets, since they're just kind of sitting there and it's kind of like, you know, kind of like an ice cream cone. It's kind of like melting ice cream cones just going away, you don't get it back. And so that's kind of like power generation you either can produce the megawatts at that time or you don't.

Speaker 2: 2:34

And so the journey became down the path of saying, you know, bitcoin mining started to surface right, and it came up through a friend of mine back in 2017. He gave me the narrative about, you know, digital gold and I kind of really, you know, bought into that. And for me, as I dove down the rabbit hole a little deeper, you realize it's like mining is just a commodity right and we're producing hash rate, the same way generation produces megawatts. And so for me to really understand Bitcoin, I needed to come at it from the mindset of it's a commodity right. And so, when I talked to him, as I said, you know, like, well, what is the cost for Bitcoin? And he said at the time it was like $8,000 in 2017. It was on the slope up in November 2021.

Speaker 2: 3:18

I said, well, how do you get it? And he says, well, you can actually, you know, combine it or you can mine it. And I was like, okay, well, how do you mine it? Right, and went through kind of why these computers or these servers? And so that was like, okay, well, what does it cost to mine Bitcoin? And he shared, he said, you know, like I think it's like 300 bucks. And I was like, oh, because that's a break, right, that's like you know, $10,000 Bitcoin or $8,000 Bitcoin, $300. So like, either the price has to come down or this has to go up, right, but in commodity markets all things converge.

Speaker 2: 3:50

And so I went down that journey of kind of understanding Bitcoin mining and then, with the company that I was working for, I was saying like we've got these assets, there's this commodity, and knowing that you can actually produce this commodity and then sell it for a higher price, we were looking at you know ways to kind of say like how do we kind of pair this with existing generation assets to have kind of behind the fence mining and actually kind of produce the Bitcoin? And then you've spent the last 20 years building a trade floor that's capable of essentially capturing the most amount of value from your assets. So you're really well positioned as a power company to put Bitcoin miners behind there, because you can treat the exact same way you do as power generation and so you're capable of really kind of monetizing that. So long story short on that. We were going down that path. You know COVID happened and you know essentially only kind of the essential projects were being done. So things that were kind of looking at some other initiatives were put on hold.

Speaker 2: 4:45

I was really really fascinated by the Bitcoin part and along that journey I came across Lanzium. And came across Lanzium because we were looking to fabricate some containers and we were like, how do you do this? Right, we're trying to put together the pieces. And we went up to there's a place in just outside of Edmonton where they do fabrication, and we went up there because we heard a lot of folks that done containers there. We went up to them, told them what we were trying to do and put these containers there behind the fence and they say, listen, you guys sound like you really understand the power space, but you know the people that we've been talking to that really understand kind of these containers and you know you think are the smartest guys in the room is Lanzium. You should probably call them and kind of see if they can help you, right.

Speaker 2: 5:27

And so we went down that path and we were looking to consider having them saying like we need help with controlling these miners and how do we treat them like a power plant.

Speaker 2: 5:34

And so I had conversations with Lanzium, project was put on hold and then you know I want to continue on that path, so in 2020, made the switch over and leaving kind of power generation of 20 years and sell this really big opportunity that, like Bitcoin miners are going to have, which is like how do you integrate these into power grids and treat them the same as like a power generator, but in reverse, right, and so instead of managing kind of load with incremental power, you're actually doing it with reducing the demand and really having kind of like this is what's different is like this dial switch right which is Lanzium has is like they can actually control it with precision and speed to get the exact output that you need, which allows you to really kind of integrate with the grid, versus just having something that's kind of kind of like retail grade, type of demand response, but like really, you know, iso, like a system operator grade that you can participate in all their markets. So long answer, but that's kind of fascinating.

Speaker 1: 6:30

And on the power generation side. I think that when I hear people talk about power generation, sometimes if they're not in the industry, they kind of look at it through one dimension. So they're going to choose one metric and they're going to decide if a power generator is good or bad based on that metric. Right, so it might be uptime, all right. So they'll see like, oh, this nuclear plant is on 100% of the time, that's great, we should only have nuclear right.

Speaker 1: 6:56

Or they'll look at wind and they'll say, well, look, when the wind's not blowing, you're not producing any electricity, so we shouldn't have any wind. Or when they look at natural gas, they'll say, well, you've got carbon emissions. Like, we can't have any natural gas. So like there's always like one metric, but really like from. If we abstract away from kind of that conversation to the financial side, I find that quite often these can just be thought of as financial models of. It's an options contract, you have the right to turn on, or, you know, based on the spread. Do you want to get into, like how power generation is looked at from a financial perspective?

Speaker 2: 7:38

Sure, like there's lots of different ways and there are different metrics, right, and what is the emissions metric right, which can kind of skew things or kind of like what is the overall probability? But I'd say that, like you know, an example is for, like, a gas plant, right, there are renewable sources and there's fossil fuel sources, and we all know that renewable sources are abundant right, you can kind of bring online, they're very cheap, they have no marginal cost, but you can't kind of rely on them for when they're coming on and when they're coming off. We know the sun's going to be there at a certain time and wind is kind of less kind of a shape. But on the gas side is that you have different types of natural gas plants and you know they're usually measured in a heat rate right, which is their efficiency. And you know it's not necessarily that you want to have, just like the lowest heat rate plant is the best solution, because sometimes you want to have a plant that's in a certain market that has a lot of price volatility, and you don't want this thing all the time on all the time, but you want it to come up very fast to be able to capture those kind of high prices, right. So, like in the natural gas space is like a really efficient natural gas plant is called like a combined cycle, produces steam as well, we'll have like a seven heat rate, and so what that means is that you need to use seven units of gas to produce one unit of power. And so in the current gas environment, which is called like $3, an MMBT, which is the unit of gas, you can produce power for $21, which is really cheap, right.

Speaker 2: 9:13

Less efficient natural gas plants are kind of like they call them, natural gas peakers. They're in kind of like the 11, 12, 13 heat rate, which is still cheap, but in an environment where you're in high price gas, which just came out of from like a year and a half ago you know gas has come up to $10. So, like that seven heat rate plant was actually $70 and that you know 13 heat rate was $130. So you know, a common metric is like their heat rate and their marginal cost. But you know it's in power. It's really hard to do kind of like an apples to apples comparison because you have something like nuclear which is, you know, near zero marginal costs, right, but the really really high regulatory costs, maintenance costs, really upfront costs, right? So the example is, like you know, buying a combustion engine where a car where you're actually having to refill your gas all the time, versus an electric car, and maybe you're paying more for the electric car up front but you're not using actual cheaper on your fuel costs, right? So it's a very large depends.

Speaker 1: 10:15

Yeah, because then there's are you financing it with debt? Or you know, it's like all of these other questions on the balance sheet for how to make the asset work. And on the price volatility side that you mentioned, you know it seems like price volatility sometimes is due to intermittent generation not being there. There's no wind, there's no sun. Other times it's just that demand is so great that it just outpaces any kind of generation, and maybe that's particular to Texas because of our situation.

Speaker 2: 10:52

Yeah, if you kind of go back to when deregulation happened around 2000, around the year 2000,. And at that time is that the grid was there was no renewables, right, there is no, there's no wind, there is no solar and it's just all fossil fuel generation and essentially, you know, the grid operator was just responsible for forecasting demand and then just matching the generation that they'd have with at the time, right? So at those times is that there's less volatility in the market, right? Because you've got like a generation stack of kind of you know how much coal plants you have, natural gas plants, nuclear plants, and so you're kind of managing those, and so the price spikes would happen from something like a nuclear plant tripping offline or some large plant coming offline and having to kind of dispatch something up and not having it available, so you can have these price spikes.

Speaker 2: 11:45

From 2000 to 2020, we were also going through a very called 2000, 2018, slow, low growth. There's a lot of offshoring of demand in different locations that were happening, so other locations in the world, their demand was going up and to, you know, to the top there in the US and Canada it was kind of flat lining to growing like a percent or two per year. And so you're in this very calm era of, like, you know, your summer peaks weren't kind of blowing out past kind of forecast. And then you kind of layer on this you know hasn't kind of used the words like climate change, right, it's just like the climate change of kind of like you have more volatility in weather. That's actually kind of blowing past kind of previous kind of peaks. So you know, punch line this is like in the early stages of deregulation, right, there's less volatility, there's more certainty on your generation. You know, fast forward to the last five years, is that, like we have way more wind and solar.

Speaker 2: 12:40

Like in ERCOT, I think last year, like 35% of all generation was from wind and solar, which is a massive amount. The grid operator now isn't just forecasting demand, they're actually forecasting something called net load which says what is the wind in the solar expected to do and how much generation we have to meet that. So they're actually having to forecast wind and solar and any type of you know, kind of variance or misforecast on that can have really large impacts. And I'll use an example of like in you know, the timeframe of March and April when there's, you know, less load on the system.

Speaker 2: 13:14

You know you can have a lot of wind and solar that's making up all the demand, but if you have no actual fossil fuels that are generation online to actually, kind of you know, be called on that's online, they can just turn up quickly you can have these really large price spikes happen because you actually don't have the generation online. You have to call on them or start them up. So we're in this new era of kind of volatility. That's kind of you know, apart from kind of like weather, apart from you know we're bringing load back to our North American power grids, coming through kind of new 21st century workloads that are flexible, like Bitcoin mining, hydrogen electrolysis, you know AI data centers. But we've seen this, you know this turbulence and right until like it's it's freshener minds and kind of what's happened.

Speaker 1: 13:52

Yeah, it's fascinating. So with the regulation, deregulation, when I started learning about electricity grids I thought it was really interesting that they started out kind of as natural monopolies due to network effects of setting up you know, all these transmission lines to people's homes, and then they became regulated monopolies. And then they, with deregulation, they're kind of creating artificial markets right where previously it was like a you know one entity. Now we're trying to unbundle all of these services and getting the design right. It seems like in some jurisdictions they do a better job of getting the design right for deregulation to make sure that you're delivering reliable power at the end, kind of what the consumer sees. And I've heard you know, obviously with winter storm URI, people have had their criticisms of ERCOT, but I've also heard tremendous praise for how well structured the you know it's not so much that it's deregulated in Texas, it's well regulated, is what I've heard. Do you think that that's the case when you look comparatively across different jurisdictions?

Speaker 2: 15:03

So I think, like, as with most things, everything is very much path dependent, right. So, like electricity comes to US, canada, it's like 1890, right timeframe, and so like, how does that start? And kind of start to evolve? And you know there's different companies competing for sending wires, so they need to kind of regulate that. And so, like you know, what was that patchwork that kind of progressed? You know, in 1933, they came up with a new deal which essentially kind of like bringing power to kind of rural areas and what were the impacts on creating some kind of government agencies that are responsible for delivering power? And so I think that you know, you take the Texas, for example.

Speaker 2: 15:42

Texas, fortunate or not, like the way that the grid works here is that, like, since they don't actually have kind of like they're not connected to the rest of the East and West, they're not connected in the US, right, there's three different power grids in the US there's the West interconnect, east interconnect and ERCOT. So since there's no actual kind of like interconnection, that's happened to those, there's no across state business, and so they were actually allowed to kind of not be part of the FERC system, right. And so it's almost like Texas is an island right and they control the actual. The governance is kind of done at the state level and so they're able to design the market in one state and kind of you know what should be the rule set. And so in Texas is the fortune here that they have a deregulated wholesale market where generation loads can participate in these markets for providing like in-suit services.

Speaker 2: 16:30

Generation and on the retail side is that customers have a choice of who their energy supplier is. They're not just stuck with the who these utility that's serving you there. So it's kind of like there's three separate businesses. There's the retailing side of the business on who kind of gives you your energy bill. There's the wire side, which is very regulated because you don't want to have 40 customers, 40 companies put power lines, They'll do the same wire yeah.

Speaker 2: 16:55

And then there's the your wholesale market right, which is, you know, ercot the grid operator is running essentially like a competitive auction for providing the lowest cost energy that's reliable with all types of resources and agnostic of the resources right because they need to meet like a certain kind of you know technical capabilities to qualify to participate in that market.

Speaker 2: 17:13

So linking to some other markets where there's we'll call like PGM, which is in the Northeast and Mysore, and more in the southern country in SPP, is that these competitive wholesale markets span across multiple states. So you're designing market rules across markets, different states, which can have some kind of you know challenges from kind of one area to another. And then in those areas is you're gonna have like a blend of kind of like there's an actual utility company that's still there that owns the meter right, that's a monopoly structure in a competitive wholesale market. So really kind of there's a real hodgepodge of kind of different combinations of competitive and not competitive retail and wholesale markets and Texas Fortunetale. So it's all under one control and I think it's a very well operating market.

Speaker 1: 18:02

Yeah, that's fascinating. And when we look at you know, some people say, hey, look like the Texas grid would be more stable if it was interconnected. And do you think that there's truth to that or that that might be a little oversold?

Speaker 2: 18:20

I think there's a lot of truth to that. You know, there's the grid operator, right, like if you're in the control room, it's like you wanna have like a tool belt to do a whole bunch of flexible resources, right, things that are the levers that as kind of like demand and generation is changing. You need to balance the grid, so you wanna have as many levers as possible, right? So typically there's been. You know, the first lever is your generation, right, and so that's kind of like your fossil fuels or saying you can call on those and bring those up whenever you want. Another one is storage right, so they're kind of like hydro storage or battery storage. So you wanna have a full lever of those ones. The third one is intertize, which is this example here and I'll come back to that a little more, but like it's a very important piece. And the last one is your demand response right. So like what are your loads capable of pulling so that you have these? So as a grid operator like you wanna have a full suite of these tools.

Speaker 2: 19:16

In Texas we're transitioning away from coal plants and so there's a lot of natural gas still, but the wind and solar I mentioned like 35% energy last year was taken away from the coal and the natural gas market share, right. So you're in this path of retiring fossil fuel plants, which is a big shift, and so the grid operator can't count on those resources for doing so, so they need other levers, right. And so the next one was storage. And there's virtually zero hydro storage in Texas but a growing amount of batteries. So a couple of years ago it was near zero and that's moving very fast. So grid operators are very happy with having additional storage for kind of managing those Demand response. Like that was very low before and like it's moving very fast and there's different types and probably dig deeper in those after. But to your question on like the inner ties is like there's a massive amount of power that can actually flow between the grid.

Speaker 2: 20:09

So like if we are in a situation of like coming up on like a near scarcity power.

Speaker 2: 20:16

We've only got a cult less than a gigawatt of power that can go across these lines that are on these DC ties, so direct current ties, whereas if you had free flowing kind of megawatts that come across there, what would happen is use example of in Texas, if we're in the spring time and the system load is 50,000 megawatts or 50 gigawatts, and if we lose a gigawatt of generation in Texas, that means that the frequency of the grid is gonna change because there's less power generation being produced in the same amount of load, and so ERCOT needs to procure these flexible resources that can be called on to address that frequency response immediately. You cannot have, like that frequency drop to a certain point, so it has to be addressed. If you have these connecting ties from other regions, essentially, like the frequency shift is now gonna be pulled on these other ISOs that could have 400 gigawatts that are online, and so that shift isn't gonna really even be noticed at all Because you have this baseline of other generation in other areas that you can drop on.

Speaker 1: 21:18

So supporting the grid.

Speaker 2: 21:20

Yeah, so it's a very important lever.

Speaker 1: 21:22

That's very interesting. So you mentioned batteries and there has been a huge growth of batteries, so much so that ERCOT added it to their dashboard. Right now you can see when they're charging, when they're discharging, which I find really interesting to compare it to our curtailment activities. But in terms of kind of people looking at the ERCOT market, another point of concern I've heard is this distinction between Ansler Resources, energy and capacity, and that ERCOT lacks a solid capacity market. Do you wanna explain, like, what the distinction is between those things and if that's the right category to have?

Speaker 2: 22:14

Yeah, sure there's for power grids everywhere except for ERCOT in the US is that there's three parts, which is capacity, energy and solar services. Energy's easy to answer. It's just like the energy that's being provided to kind of meet the real time demand of load. And solar services is essentially enough generation or loads resources available that can manage for contingency events or kind of the shifting behaviors of grid intraday so that they're not gonna have a drop in frequency and so managing those contingencies. And the third one is capacity. And so capacity in regions outside of ERCOT is a market where essentially you wanna have make sure that you have enough generation available to meet the peak load. And essentially it's like if you're a generator, say, in one of these other ISOs, there's gonna be an auction marketplace for your capacity and it's essentially a guarantee to say we are gonna pay you a generator A in this location, $50,000 per megawatt year of capacity that you are gonna be able to have available. In exchange for that capacity, you need to make sure that you are available when we have these events for certain types of weather events, and you need to. Also, in exchange for this, compensation is that you need to be offering your power at your marginal cost of energy. You can't have a marginal cost of 50 and say it's like 200, because you're saying here's a payment for you to make sure you're available and when you're available, you're offering in at your marginal cost, with some type of small variance around that.

Speaker 2: 23:52

Texas is different and it's very similar to my home in Alberta, which is we have an energy only market, and so what that means is that there's no guaranteed capacity market for just showing up. And Texas is kind of you on this and same as Alberta is like the best cure for high prices is high prices, and so by having high prices, you're incentivizing generation to be available so that they can capture this, and it really will incentivize the generation that's participating these to be available because they're participating in those high price events. So ERCOT doesn't have a capacity market and they'll have the price signal. That generation is able to say, okay, I wanna build something because I see the price signal and I wanna be available and my economics can work for it, work out in that space, whereas in other markets it's guaranteed to the generation.

Speaker 2: 24:42

On a side note, tying into kind of Bitcoin miners in Texas and like why is and I mentioned like 21st century workloads is like, highly flexible, for the most part location agnostic from some of these other workloads. And in Texas is that normally on a power bill, the capacity charge as it relates to energy could be something like 10 to 20% of the bill. Right, just for having to pay for that. So it's a very meaningful amount.

Speaker 2: 25:13

And so if you're like a Bitcoin miner going to some other market, there are programs for you to kind of avoid capacity market costs by participating in certain programs. But for the most part, like that's an additional cost where you come to Texas, and since there's an energy only market, the fact that you're turning off for the high price hours is essentially you avoiding capacity payments, right, so the signal is right, right. Generation there's a high price of bring your capacity online load you're at a high price. Bring your generation, your demand, offline. So you're actually bypassing that cost that would show up in some other market that you may or may not be able to avoid In Texas is a product of the high price that you're turning off. So essentially, you're essentially removing yourself from the capacity costs in Texas.

Speaker 1: 26:03

After this past summer here in Texas, where we did see a lot of high prices, there was some journalism about essentially ERCOT putting its thumb on the scale of over-precuring ancillary services in order to take away from the energy market and to drive up prices there. Do you think that was a little bit too cynical or that there's some truth there?

Speaker 2: 26:27

So every ISO has an independent market monitor and so in ERCOT it's a company called Potomac and they essentially report on how this grid operator is performing and what they're doing well or wrong or its guidance over how's this market operating.

Speaker 2: 26:45

So this has kind of been the opinion of folks. Potomac specifically is that ERCOT has been being on the safe side with what happened in Winter Storm Uri, so maybe they're over-precuring to kind of make sure that there's enough generation resources put aside and online, which could result in higher ancillary services. But there's this these reports come out annually and there's always back and forth in kind of these state quarter groups on, because in ERCOT every stakeholder is represented and so there's representation from industrial large loads that are on there. There's large, flexible loads task force that's always represented and so for these additional costs that would show up on somebody's bill, there's a natural pushback on saying do we really need that because I'm paying for that. But going back to your question was ERCOT over-procuring? Is like the market model thinks that they were over-procuring and there's always this balance back and forth and.

Speaker 1: 27:47

But we had a reliable grid right and so yeah, it's kind of this dilemma of, well, it's an insurance policy and you might feel like you're throwing away money by having an insurance policy if you don't need to actually call on it. But then when we look at this past freeze, this kind of cold snap that we had here in Texas, which is not comparable to URI because it was much smaller but nevertheless it seemed like the grid did really well going through that. So I would say your assessment as well.

Speaker 2: 28:22

Yeah, it did do very well and I was surprised actually, like the real-time prices came out quite low and so Urquhart every day produces a day-had market price which essentially like what is the price of energy that you can buy and sell in the day-had market, and then it'll settle against the real-time settlement and the day-had prices came out and I thought the day-had prices were actually low and then real-time ended up being even lower. But just to compare and contrast a little bit about like Winter Storm Yuri versus this one, winter Storm Yuri was a very deep freeze. It was an Arctic air that came down and sat here for you know five, six days. This was a blast that came down for a day and kind of out right. So it wasn't comparable in the duration of that and kind of the effect you know when. So this did very well for this.

Speaker 2: 29:18

In addition, mentioned about some storage is that, like an observation was in the summertime we had $5,000 prices and you know some of the work that we've done on our power desk with Lansing as we looked at this and said, you know, looks like the batteries that were operating in Urquhart were essentially the ones that were set in price since that 5,000 because there was no large amount of competition saying, hey, we should put a less because we're gonna beat out this battery over here.

Speaker 2: 29:46

And so there's, there's less batteries, so call it like 1500 megawatts ish. And so that high price cap was coming in, often because these batteries are like why would you, why would you put in $200 when, if you put in 5,000 years, you're gonna get that price right? So, like they're, they're trying to profit-seek, which is a good thing, and the market signal should be correct. So with that price signal, you know, we've seen more batteries that are coming online. It feels like there's more competition amongst these batteries. We recently saw this in the winter, this recent winter storm, and a lot more batteries coming online and and they weren't setting price at 5,000 right so I think that they were, you know, kind of undercutting.

Speaker 2: 30:24

It's like it's like you do one batteries, like I'll do 300, and the price is 200. They're like, okay, I'll do 195, kale do 188, and so that's a good thing to see this, this competition. But again it wasn't a really long-term winter blast, so it's hard to really say with certainty yeah, right, so well.

Speaker 3: 30:41

I want to jump in real quick and kind of ask a question. So whenever I think of winter storm Yuri and Compared to the winter storm that we had this year in January, to me the big difference was the ice. And so my question is was Yuri bad because of the cold or was it bad because Transmission went down due to the ice?

Speaker 2: 31:02

So Great question and super loaded question. You'll hear folks saying like and I believe this as well as like, to a large part, winter storm Yuri was a natural gas story. You know, essentially like if you have a winter storm and you you can't get your car from point A to point B Because you blame something on the tires but there was actually no gas put in your car. You know, like it doesn't matter about the performance of the car there was, there was a lack of natural gas. So there were some challenges that were happening on on the actual natural gas availability for these generation assets. In addition to that, is it, like you know, natural gas plants in Alberta are built much different than natural gas plants in Texas? Or is there kind of closed-room controls, right? That, like you're used to handling these very cold temperatures? So, like some of these natural gas generation facilities you know weren't used to kind of that type of weather? So you have lack of gas coming through, you have lack of, you know, some performance issues because it wasn't built for that type of cold for that long. And then you can layer on as well that because the the target seemed to be renewables. Right, because it's a very easy target when you can say the wind and solar didn't show up, right, because you know the wind actually didn't show up for the most part, but it was a blend of you know a whole bunch of things.

Speaker 2: 32:17

And to put into context, in Urkot, I believe that in the last 20 years there's been like two or three kind of low shed moments and you go across all these other ISOs across the state and there might be like a handful it's very small right, like it's five to ten across the country. And the way these, these, these work is that you know when a grid's getting scarce on energy, they go into an energy emergency alert, number one, and that's a grid saying we're in this alert. We have to report to what's called NERC North American Electrical Liability Council that we went into the status and now we're able to pull some certain levers. We're going to call in all our demand response resources, we're going to do something with the inter ties and then it's going to go to level two, which means that we're going to do something more, and it kind of differs by ISO different, different grid operator.

Speaker 2: 33:06

And then the third is like okay, we're in load shed moments and we're actually cutting demand, cutting loads right, and we're, yeah, reducing the amount of load that can consume. And so the way that works is that the grid operator says we have 1,000 megawatts, that we need to cut the system peak of this time say 70 gigawatts. So we have one gigawatt Each utilities going to get pro out of share of what their portion is and then they need to cut loads within their utilities. So context for Yuri is that and I'll get the demand level wrong, but call it like 70 gigawatts normally a load shed is like 1500 megawatts, right, like 3%.

Speaker 2: 33:43

You're a short by a bit right, marginal yeah right, this was like 20 gigawatts Right, so like, and that's what. To the point of the question, like you know, what was the cause is, like there was so much to it, right, that it wasn't just kind of one cause and it really went deep, all right. And you know, further to that, like you know, folks that live down in the south aren't used to kind of have that cold, so some of the heaters they have in their home are super inefficient, right. So when you get cold, well now you put on these really inefficient heaters. That's really kind of sucking more power. That's not normal. So like Loaded question, but it's. There's a lot of things wrong and there's been a lot of things addressed since then and still some that haven't closed off. But this was quite a bit different than the Yuri event.

Speaker 3: 34:26

Yeah, I changed my heating source too. I went from those space heaters and then I went and I got firewood this year. So, yeah, I think the efficiency went up a lot. You know I was, I was using no electricity, I was burning wood this time around, and you have certainty now right.

Speaker 2: 34:41

Yeah that's a wood there. You know that it's like the generators like is this jar gonna work? It's like you know your woods gonna work for, kind of yeah of course, eating that up.

Speaker 3: 34:49

Yeah, there was no chances taken this year.

Speaker 1: 34:51

Yeah, Just got asthma.

Speaker 3: 34:54

Yeah, well, more like the allergies you know yeah burning wood into your house Definitely doesn't help those who have allergies, to those who suffer from allergies. But you know it was worth it because at the end of the day I had that certainty that I would have heat regardless of whether or not the power was on. And then I'm sure I saved myself a good deal of money on my power bill of just, you know, not having to use the central heating. I used a fireplace.

Speaker 1: 35:19

I do wonder you know just like high prices or the cure for high prices if outages, or the cure for outages?

Speaker 1: 35:26

You know, after Yuri, lots of people either you know they got wood fireplace or in my case, I have a natural gas fireplace and that's actually what kept me my family warm during Yuri was having that gas fireplace, but you mentioned the gas plants, that they lacked the weatherization for their supply to make sure that those pipelines are delivering gas there, and so I think that there's been a lot of work done on that. So hopefully we don't have another Yuri, but if we do, we've got a better shot than we did in 21.

Speaker 2: 35:58

Yeah, no, I agree with that and I think there's still some open questions on you know, for the natural gas delivery and I haven't Stayed in tune with everything on that, but I think there's still some Uncertainty around full natural gas delivery, but there's been a lot of steps taken to resolve that.

Speaker 3: 36:16

That brings up a question for me which types of power generations are more susceptible to being affected by, say, an icing event? I mean in my, I mean in my head, and where it goes is like well, you don't have to have a frozen pipe in a coal-fired power plant, whereas, you know, perhaps in a natural gas power plant that might be, you know, detrimental. Yeah.

Speaker 2: 36:39

So we had a weather event in Calgary, so when you were at, the recent weather through here is like we get the weather first and we send it we should yeah and so we we had a what was different about this one?

Speaker 2: 36:50

and this has to kind of volatility, is it like Normally we have weather that kind of creeps in, it gets kind of cold and then gets really cold Right. And this one was like it came in, it was fairly nice, and fairly nice, I could say, is like Fahrenheit, like 16 degrees, so like minus 5, minus 10, and then we shot down to minus 35, minus 40, and actually minus 40 is the crossover point of Fahrenheit. So minus 40 Fahrenheit is the same as minus 40.

Speaker 1: 37:17

Celsius yes right.

Speaker 2: 37:18

So like we shot down to minus 40, right and so for our power is that we had like a scarcity event. So we went into this energy emergency and you know we had a couple of generation units trip offline that were natural gas, right and so like it's. But prior to that, like if we get to kind of like the normal weather, like no problem at all, right, like we can handle that, but like even in our house is like get to the minus 40, then some things start to kind of like, you know, rattle and shake. So I'd say that like, if we get just something like a weather event here, that's kind of like a one-day pass-through, right, that's not kind of here that's lasting, that's really kind of a deep, deep freeze, right.

Speaker 2: 37:57

These generation resources are very kind of well maintained, right, and that they're. They're usually not at risk of having something happen like that and they do. You know, generation Resources have regular maintenance schedules that happen, called like every you know 18 months and they're taking an outage, they're fixing things, like they take really good care of these things, but at some deep, deep down cold temperatures, you know they're just not gonna work like they're.

Speaker 3: 38:20

They're they're supposed to yeah, growing up it's funny that you mentioned growing up my dad has worked in a coal-fired power plant in our hometown my whole life, 30 years more, and that's something that you know I always dealt with as a kid was my dad had outages like twice a year. During those months where Demand wasn't as high. They would shut down a system in the plant and they would have to go through and, you know, inspect, replace, maintain, whatever you want to call it, and it's always, you know, been interesting that my life has been close to the power generation Side and now that I work in Bitcoin, it's pretty close to yeah, well, and being a Bitcoin company, I think, is the same as being an energy company, right, and it's just cuz like so much of your business is driven by, like your energy costs, and you know this is like it's.

Speaker 2: 39:08

It's it's not intuitive for most folks, but, like you know just the value of these flexible loads for the grid that enables you to Overbuild capacity, wind and solar. So you have this, this buyer that can support some type of kind of build out for these renewables, but, at the same time, like a low that's super flexible, that can come offline. So like it's Bitcoin. Mine, I think, is like a mini power plant, but just like the reverse side of it, right, so it's. So I do think it's the same industry as your dad and coal plant. Yes, it's pretty cool.

Speaker 1: 39:37

So, on that note, I mean, we do hear metaphors of like Bitcoin, is Bitcoin mining, is a battery or a virtual power plant or you know kind of metaphors like that. But where do you think those metaphors break down? Of? Like, where the there are very real differences between A power generation resource and a flexible load.

Speaker 2: 39:58

Yeah, I I used to use like the, the battery example of my first started in a it's.

Speaker 2: 40:04

It's an easy attack on saying, well, you can inject power in the grid, which is very true, right, and so, like you know, I there's a term that's like it's a valley filler Right, essentially like when you have like a power system that has kind of these gaps and kind of where they're not kind of, like you know, filled for kind of the power side.

Speaker 2: 40:20

But I like to use like an example for folks on, like I think, that we mentioned about there's, you know, the four flexibility kind of levers and you know one being batteries and one being demand response and so, like, every grid is gonna need, you know, has a specific need and you know, sometimes the battery is better than Bitcoin for solving that problem and sometimes Bitcoin mining is better for solving that problem. So the example would be that, like, if you're up in the panhandle right, which can have, you know, high amounts of wind that come through for many days, right and in in Texas, there's this limitation on the power flows that come from the panhandle that go across into East Texas, and so they're constrained on, like, the size of the pipe, the wires that can bring that out, and so when all the wind is really blowing for kind of you know, and combine some solar right Like essentially the pipe gets full right and at that point you can have you're gonna get negative prices For a long period of time.

Speaker 2: 41:14

And so now put in the battery into that place and say like this is gonna be Five days of kind of wind, well, the battery is gonna charge on the battery and then you can put it in the battery. And you can put it in the battery and you can put it in the battery, it's gonna charge on day one for the first five hours that are negative and then has to wait five days To kind of come out when price are negative, because if that battery Re-injects that power into the grid, well, price are still negative.

Speaker 1: 41:38

They're actually Doesn't help further.

Speaker 2: 41:39

Yeah, right, yeah right, so they're actually, you know, not doing any benefit, right, yeah, where's he? Have a Bitcoin mine? That's essentially. You know they're consuming and then, like during this, you know, high wind is like they're consuming as much they have. Right, so, like, you're now Providing kind of a higher price floor for these renewables that incentivizes more, so you've increased that price based instead of a generation, and then when the prices go to a certain price or higher, you know, the mining just turns off when it gets above, like a break-even price.

Speaker 2: 42:07

So the use case for mining is more specific and more relevant in that, that that use case where you think about, like a battery and kind of like you know some things that were happening in Um, you know, say, there's some intermittent price spikes that are happening during the day, right, that the battery needs to kind of be the one that can, like, inject power into the grid, to kind of kind of bring that down or to, you know, providing some type of backup power. Right, there's use cases of battery that, like, bitcoin can't exceed, but then there's some that bitcoin can. So it's like, as a grid operator, you want to be like an and statement, right, like I have batteries and I want demand response.

Speaker 2: 42:42

I don't want an or statement, the um.

Speaker 1: 42:46

Something I've noticed with batteries is that they'll, they'll, they'll buy. As you mentioned, they'll buy a negative electricity price and then they'll sell and I'll see them Discharging at like 80 dollars or 60 dollars a megawatt just because they they're they're arbitraging, right, that that swing during the day, um, and that that is still below the break-even for bitcoin miners. So, in a way, like when I look at that, I see, okay, well, batteries are powering bitcoin miners right now and the economics are working for everyone, obviously. I mean, I'm sure the batteries would like to have higher prices and the miners would like to have lower prices, right, but that that's a trend I've been seeing when just looking at, kind of the the urkot dashboard, as Batteries are participating in the energy market below bitcoins break even yeah, yeah, and it makes sense where, like you know, the battery economics are twofold, was one is like the energy they mentioned, and A perfect market is somewhere that has really cheap prices and then some you know Good high prices to kind of take that time spread.

Speaker 2: 43:47

And then another market is one that has, you know, ancillary prices that are you know. So urkot is this you know isolated grid, so they have to procure more Grit, stability products, these ancillary services, and so you're in a good market that they can provide the whole suite of ancillary services To the grid opera. So it's been a real kind of good environment for these batteries. But, as mentioned, we're now seeing a whole flood of them where, like you know, high prices, careful high prices and pendulum swings, and so you're, you're short kind of these levers. And then I think that we're going to a point of like I'm not exactly here on the exact Economics of the batteries, on where they they can't make it work and like, is it like an energy of you know $50 for how many hours per day, and like I'm not sure the exact break even points.

Speaker 1: 44:31

Yeah but they're probably gonna start looking other markets now because Urquat's now Compressing that volatility and some of those ancillaries are coming down, so it'll likely start to move around different locations interesting, and the other trend I've noticed is that it's really two periods during the day You've got like there's that morning period and then that evening period, and then in between you've got the sun. So even if you don't have any wind, you've got sun, and then at night, there you just don't have the load, and so that seems like a really good use case for battery that you've got those like 30 to an hour, you know, 30 minutes to 60 minute windows.

Speaker 2: 45:09

Yeah, there has been good opportunity and it shows up on just the amount of batteries, I think but it's a big capital cost, right, is that the constraint? It is and you know, I think that kind of last I checked it's about a million bucks a megawatt.

Speaker 2: 45:26

Right and so, like you're having to kind of pay for that, to say kind of, what do I, what's my upfront capital, to kind of collect on what I'm gonna make capital later. And you know it's easier on some of the Bitcoin economics because you can say you know, here's the cost of my, my load, my, my machines that are kind of be acting like this kind of you know flexible load. What am I gonna receive in kind of like the value of a hash rate, which is the commodity? And then the real juice is saying, okay, what is this extra value that can do for providing the same in slowly services that are being provided by other resources? But I'm doing it and this isn't always clear to folks is that like you know generation when they're providing in slowly services? You've got it like a call like a Natural gas plant right, and it's a hundred megawatts of capacity, and you can use that capacity to sell energy or Instillery services.

Speaker 1: 46:15

But you can't do both Right, so like with the answer, your services, you're being paid to stay off until or cut wants to deploy you.

Speaker 2: 46:23

That's right. So assume you're like a hundred megawatts and you've sold 80 for energy and you have 20 that you've put an ancillary. So you're running your planted like 80 megawatts, mm-hmm, so you're getting paid for the ancillary services but you're not gonna pay for the energy because you have to wait for them to call on and if you do your, you turn up to provide that, whereas in Bitcoin, mining and other flexible loads Is that they're actually getting paid for the insolvies to consume, so that the behavior they're doing is no different, but they'll be called on by the grid operator to essentially turn down, the same way a gender turns up. So, like, these flexible loads have the benefit of it's. Like it's not an and statement, it's like sorry, the other ones have to ignore a statement reminding is that you get to consume energy and and provide the insolvies at the same time.

Speaker 1: 47:04

Yeah, it's funny when, when, when the critics of that coin mining say, oh, bitcoin miners are being paid to turn off, like yeah, but you know, like generators are paid to turn off as well, so it's, it's just part of you know, the engineering of the system. Is that you, the ERCOT needs to have that level of control.

Speaker 2: 47:21

Yeah, I think something that's Sometimes not as clear to folks too is that you'll you'll see headlines about miners that are getting paid for turning down, or you know certain revenues and, like you know, going back to kind of the energy in the ancillaries is like in ERCOT, like ERCOT doesn't pay any Generator or any load just to turn off during high prices, right, what they do is they say, well, if you've turned down, like you're just not buying the energy, right, and on the ancillaries is like you know for you know for riot, as you participate in these insolvies service markets, it's like you are competing against like the whole suite of resources out there and that you're gonna get paid the same way that these other resources are getting paid, and so ERCOT will pay you for this Reliability product that they're procuring from you.

Speaker 2: 48:03

And then you know, for companies that have like an energy hedge Right, that they actually, you know, say they bought like a fixed price energy hedge for you know 50 bucks and then they turn down. Is you know they're essentially getting paid to turn down by their, their energy supplier, right, because their energy supplier gave them a fixed price contract and it was based on, you know, take or pay, and if they turn it down, they're gonna pay them what the real-time price was, because they're exchanging a fixed price for an index.

Speaker 2: 48:30

Yeah so it's that difference of you know getting paid to turn down because when miners enter these energy supply agreements, like it's not riskless right, like it's not a guaranteed.

Speaker 1: 48:41

The price could go up or down and, and you mentioned earlier, you know if you've got negative electricity prices but you're in a contract that's at $50 a megawatt, you pay $50 a megawatt. You don't magically get out of that totally.

Speaker 2: 48:55

Yeah, and the analogy uses kind of like it's like your neighbor Pre-covid well, started co-vid went and got like a 30 year mortgage for 2%.

Speaker 2: 49:05

Right and, by the way, at that time, like it didn't seem riskless, like there's a lot of stuff going on, right, yeah.

Speaker 2: 49:10

And then you know interest rates go to six, right, like so they're benefiting by this shift, right, but that could have gone down to, you know, one or zero and a half, so like it wasn't a riskless thing. And so the same with you know, companies like yours that have had, like energy hedges and you know it wasn't a guarantee that the price of a go up, otherwise the price that we would have bought the start was like it would have been a higher price, right. So like, when you enter these deals, like that is the market price and it could go up or could go down, and so like the only way you actually make money on these long-term contracts in the long run is that, like if the price actually Settles above where we bought them on average. So, yeah, it's definitely not riskless and it's not free money, but it's definitely something that kind of adds to kind of revenues when you turn down if you do these contracts right, and and the, the, so the, the energy producer on the other side.

Speaker 1: 49:59

Why are they entering into the contract? Right, because that's the other thing is that People will say, oh, you know, these Bitcoin miners are getting a sweetheart deal with their energy provider and I'm like, well, these are for-profit companies that are also trying to profit maximize, so there's no like sweetheart deals. It's a very competitive market, very much so what's what's in it for the power generating company to enter into a PPA?

Speaker 2: 50:21

Yeah, so I mentioned the company I worked for where you went from, you know, regulated guaranteed pay to deregulated, and what you're trying to do is that you want to have like sustainable earnings right.

Speaker 2: 50:32

So you have power generation, that you have these assets that produce power for 25 years, and you want shareholders want to be betting on the power Companies operations. When somebody invests in power companies, typically they're not betting on power prices, they're betting on the operator and their ability to monetize that asset and kind of bring value. It's what they want is have like stable, predictable earnings to go through. And so when the end of the contract is like they're gonna go to market price and saying if we do nothing, right, we don't sell to anybody. We're just taking the index price, which means that we're gonna generate power. We're gonna sell it in the Urquhart and Urquhart's gonna pay us the price that are our node for that power.

Speaker 2: 51:09

And you're taking your whole portfolio at the node price yeah, right, which is not gonna fly, but but some there's Very few companies that have a model that's purely merchant, where investors can say I'm betting on lectures prices, whereas you know a company that would sell to riot would say I've got this generation. And at the time when you're entering the contract, use examples like we're gonna sell riot $50 power For 10 years, right, and they know what their cost of generation is and talk about heat rates.

Speaker 2: 51:39

Mm-hmm and they say, well, I'm gonna source it off this plant that has an eight heat rate and gas prices are $3, so I'm gonna go out and buy all my gas yeah for this lock in a $24 cost. I'm gonna have some Operations of maintenance, cost of lamb cost, so my cost produces 30 bucks, right, and then I'm gonna give you a fixed price of 50. So I'm they're not making that much, but they're gonna be collecting some additional margin on that.

Speaker 2: 52:06

But they're locked in right and so their investors are happy and then, when you go and turn down, is that you have this $50 Guarantee from them, right? Is they're gonna pay you index because they're injecting their power to index anyways, right? So there's gonna be this, this natural Continued lock dollar amount that they're getting over time, and so that's the benefit of for them. They're happy. Now they got like sustainable earnings. Their investors say, okay, this is great, you're getting good margins, you're a good operator for riot. You say I got a $50 hedge, I've got certainty on my prices. Right, I know how to operate these and plus, I'm gonna get more value. This because I'll be able to turn down for certain hours. So there's some upside if the power prices go up right.

Speaker 2: 52:42

Yeah, but if they go down, I'm at least I'm guaranteed that this lock price and you have certainty around that.

Speaker 1: 52:47

That is fascinating. And do they use those PPAs to make investments? Essentially of saying, okay, well, we locked a 10-year contract, now we need to build a new power plant because you know this is gonna help us with financing.

Speaker 2: 53:01

They would love to have somebody come to them and say Build me a power plant, I'll sign a 25-year offtake. Your cost for use is 30. I'll pay you 40.

Speaker 1: 53:11

Yeah right.

Speaker 2: 53:12

And so the challenge is is that, like the majority of power consumers are short-term window right. And so think about like your retail contract at home, like mine in Alberta, is One year fixed price. I've signed up for right. So, like nobody in a retail contract wants to sign for 10 years and the power company sign with you, they don't want stomach the credit risk of you just defaulting, walking away.

Speaker 1: 53:39

Right.

Speaker 2: 53:39

So there's very few industrial customers that can actually sign a very long power contract right, because there's also the collateral that needs to be posted around that. But power companies would love to build you a power plant and just clip the coupon and saying I built the power plant, my cost was this, we put on some adders, cover my capex and I've taken this off. Take who's next.

Speaker 1: 54:02

Right, right, like. So they love that. Yeah, and it's interesting, you know, at the retail level, people look at their power bill and they'll see 12 cents per kilowatt hour and in megawatts that's $120 a megawatt, which is you know. And then they look at a Bitcoin miner and they're like well, bitcoin miners getting, let's say, five cents a kilowatt hour, and so that's where they're like well, why are they paying so much less than I am? Um, but, as you mentioned, if the price of electricity uh were to go down, uh, that retail person would have to post collateral. You know, they've got 48 hours. Wire $10,000 to your electricity company to keep the power on. Uh, it's kind of it's. They're comparing apples to oranges.

Speaker 2: 54:45

Completely and I'll use an example in that it's like so your, your power bill as an industrial customer is that you're, for the most part, you're consuming flat, you're turning down for these, avoiding this high price hours, right, whereas a retail contract is, you know, pretend you're consuming one megawatt around the clock. For the retail contract, there's two parts of the bill that are really Change kind of the value, and they're on the energy and the transmission side. So, on on the energy side is that in the morning they're only consuming point 25 megawatts right.

Speaker 2: 55:15

In the cheap times, but in the day times when it's more expensive they're consuming 1.75. So they might average one megawatt. But their consumption is super low during the cheap hours, a lot more during the high price because this is matching kind of the supply and demand side. So they're going to have a higher energy cost because their consumption is way more correlated with high price. And second is that the way transmission costs work is that they you pay for your transmission based on your peak consumption for that that month so which makes sense because the transmission needs to be sized to that peak.

Speaker 1: 55:48

That's right.

Speaker 2: 55:49

So, like as a Bitcoin miner, since you're consuming a megawatt all the way around the clock, you know that dollar per megawatt hour, if you want to calculate, would be, say, $7, right, but with the retail load that's consuming up here for this peak part, they got way less megawatt hours to compute, so like their number, for yours was like seven, but their shows up as like 25, right, because they have to pay for that peak capacity but they're not actually using power all the way through where the industrial customer is so like there's a huge disconnect. Folks think that there's way more advantage to be an industrial customer and the answer to that is they're more than welcome to consume around the clock similar to like these industrial loads, and they can mirror the rate structure for the most part as another industrial load.

Speaker 1: 56:30

Yeah, it's like do you want to be a night owl, like doing your laundry at three in the morning so that you know you're shaving your peak? And then also in Texas, I mean it's a bad air conditioning, right. It's like, okay, well, how much do you want to invest in insulating your home versus paying your power bill is kind of the trade off that you'd have to face. And then the comfort level do you want to be at 74 degrees or at 84 degrees in your house during the summer?

Speaker 3: 56:59

It sounds like we need to have air conditioned units with their own batteries.

Speaker 1: 57:02

That you know what, if you can afford it, you can get a Tesla powerwall. You can be energy trader from home.

Speaker 2: 57:09

Yeah, Do you know what is like. We've got a place in Montana that we just bought a parcel land and we're developing it and you know it doesn't have electricity. It didn't have electricity right. And then you know you think about all of these options on what can I do to get the electricity put? Some solar panels can I do like a smaller generator and at the end of the day, like we had to pay like quite a bit more because we had to go like a long distance trench kind of you know the wires down to kind of our lot, and like it is far cheaper to using the kind of the power that's produced by the utility company than to go your own path. So like all these kind of like unique solutions, that kind of like you know fiddle away at, is like usually the cost benefit is it's much higher cost than the actual benefit you're getting. And like this utility solution is just like we are super fortunate to have 24, seven reliable power.

Speaker 1: 58:03

You go to different parts in the world and that's not the case where there's just regular rolling outages, and so like yeah, it's like economies of scale, right, that, hey, even a solar farm will just have far greater economies of scale than putting solar panels on your roof. And although I got solar panels on my roof after Yuri, I was like more of a as almost a backup, right, I've got two power walls, the solar panels. And now I had a friend who was like, hey, you need to get a generac too. I'm like, okay, hold on. Like my power bill is already twice what it was before Yuri, because of you know, I'm adding this, this luxury of. I want to, hey, I've got little kids, I want to keep the power on, you know, even if something happens. But it's not, it's, it's. I thought it was going to be a cost saving going into it, coming out of it. I'm like, no, this is definitely adding, adding to the cost.

Speaker 2: 59:01

Well, I think what's pretty cool is that? So, coming from Calgary, it's like an oil and gas town, like similar to what you know. Houston you know was before. It's more diversified now. But you know, like in Calgary, like power was never on vogue, right, and it feels like power is definitely on vogue and people are talking about it because you see it front of mind, right, and so like, um, yeah, it's neat that it's a everybody is now aware of it. People are saying, like you have a generator at home or power walls and so like, people are finding all these solutions. So it's really neat to see kind of this. You know transition happening and just people aware of you know kind of power and the importance of power and the importance of you know these. You know the narrative is now shifting on these. You know flexible loads like mining is like the significance and importance of them in this transition, which I think is a pretty big deal. Yeah.

Speaker 1: 59:51

Um, how are we doing on time game?

Speaker 3: 59:53

We're closing in on about an hour right as we speak. Actually, um, just to close out, that thought and you guys mentioned it yourselves is like the stark difference between the United States power grid and those of other countries, and how now, all of a sudden, because of these winter storms, that the power generation, the power grid, is on the front of everybody's mind. Well, imagine how much it would be on the front of your mind if you lived in another country that had rolling blackouts daily Like it's. It's pretty insane, I mean I'm. I wonder if their entire lives are consumed with thinking about power or they've just lived with this for so long that they don't even think about it. They just say, oh, there goes another power out.

Speaker 2: 1:00:27

I've talked to somebody, um, on a podcast before where he was from South Africa, and they have like the same way you kind of like, uh, buy minutes on a phone, like they buy kilowatts, right, that actually plugs in a code for their meter and what they get, and in his area in South Africa is that like there's a scheduled window for when your outages, and it changes every week, so everybody's paying attention to it and so now it's. You know, when we did the podcast we had to kind of shift the time to the where he had.

Speaker 2: 1:00:55

Certainly they was going to have power, but like it's normal for them now it wasn't not too long ago, but like that's just kind of like a way of life and you know, imagine in Texas if there is a rolling schedule that two hours per day, that you know people have no power, right, like that'd be it's unimaginable right. Yeah.

Speaker 3: 1:01:15

Yeah, so very thankful to live in the world. That we do are on this side of the world at least.

Speaker 1: 1:01:20

Yeah, it's. You know, in the political environment in Texas is already just because of Yuri, there's a lot of people who kind of focus in on, hey, we got to fix the grid, like the grid is broken and it's like well, Compared to what yeah? It's yeah.

Speaker 2: 1:01:37

And maybe I just kind of tie in like what I do at Lansom.

Speaker 1: 1:01:39

Oh yeah, well, so yeah, I actually I did want to ask. You know, we talked about Ansler Services and Anslery products. Um, I wanted to ask, like, what those products are, uh and um, how, how Lansom software fits into that matrix.

Speaker 2: 1:01:54

Yep, um, to start with, like, what we provide is like it's an integrated platform, right, and so it's part software, part hardware, part people. Um, so, essentially, kind of you know having a power desk as well that's looking at power markets, and what we do is we work with customers to essentially, you know, the same way, like a power generation company would have somebody that's responsible for, kind of like how do you dispatch the plant into the, to the grid for the maximizing the revenues and the equipment that's on these kinds of plants for turning up and down, is that we do that for you know this emergence of these 21st century workloads minors, electrolyzers, bitcoin mining and also do advisory services and helping them kind of figure that out. Um, so what we do, then, is you know we have the ability, uh, we have our IP that we use with certain customers that allows you to kind of convert your load into essentially a resource that is now sked, dispatchable by a grid operator, and what that's really important is is that, like you know, the same way, a grid operator has visibility around, like a generator, and exactly what is their output at this exact moment. You know, now they have these, you know control below that you can see exactly what their output is, exact, exact moment, to know that they're actually delivering and performing at that time, right. And so what we do is, you know, we work with, you know, these different customer types to really understand their business model and we provide, you know, guidance, advice, and they're the ones that are the decision makers on on what to do and how to actually, you know, make those decisions.

Speaker 2: 1:03:18

But we're helping them with delivering the lowest uh all in cost for their energy, um and uh, which is also the benefit for the grid, cause, if you think about, is, if a gas plant is being super efficient, how they're operating in the grid, they're providing the lowest cost energy, they're providing ancillary services, so it's a big win for the grid. The same way, for these, you know, flexible oats, um, so tying into, like the ancillary service products, is that, um, there's a few different products in our cot. One of them is specific to her cot, which is uh RRS, uh regulating reserve service, and that is like the frequency product, right, and that is essentially we recognize we're an islanded grid, right, and most other ISOs, all ISOs, don't procure this uh RS type product because there's enough generation on in the entire interconnect that if something went offline it's absorbed by the kind of the denominator of the generation in in those areas Right.

Speaker 2: 1:04:16

So in her cot they need to procure this RRS and so, uh, for the, the control below, they're able to participate in the full suite of all ancillary services in her cot and for this one, uh, was very much a premium product, um, because it's so.

Speaker 1: 1:04:31

it's such a short timeframe that you have to be responsive on that's right.

Speaker 2: 1:04:36

It's kind of like do you think about like ancillary services, as, like you know, different types of cars is like RS, is like the race car and then, like non-spin, is kind of like the diesel truck. Yeah, that's right, right, and so like it needs to be super responsive and reliable, uh, and automated, right, and so that, for example, if a frequency happens, you know within milliseconds, right, you're actually changing the consumption, your load, to drop to that frequency, right, that's in relation to the amount of load that you have, and your response is expected so that you're kind of addressing that frequency shift on the grid, so that you're able to kind of stomach those kind of contingency events and to be able to provide that kind of support until they can call on additional generation, right, so it's like you need this immediate response. So that's the RS.

Speaker 1: 1:05:21

I'm sorry. Is it a response to a signal from ERCOT or is it a response from the monitoring of the grid by the software?

Speaker 2: 1:05:30

By the software, so it's automated, so it happens so fast that you can't actually just wait for the grid operator to say we need you Wow okay.

Speaker 2: 1:05:38

Right, and so this is why, like you know, generators are good at this, because they're spinning mass that can automatically make those changes, and so miners as well as, like you, got to detect that there's been a frequency change, make that drop, and then, the way that you know, ercot audits you to make sure that they go back and say, hey, there is a frequency event, let's observe what you did for kind of how much you came offline. Okay, good, you met the requirement for what you were supposed to do for qualifying as this type of load in ERCOT. To resolve that.

Speaker 1: 1:06:05

I see yeah, that's fascinating.

Speaker 2: 1:06:09

Yeah.

Speaker 1: 1:06:09

Yeah, the longer time frames.

Speaker 2: 1:06:11

Yeah, and the other ones are like there's two other classes One is just called regulating and this is all ISOs and essentially, like a grid operator is going to make a mistake every five minutes on just over under on how much generation they brought online, and so they need to have this ability to actually control the generation by sending like four second signals to them to say hey, turn up a bit, turn down a bit because we missed forecast.

Speaker 2: 1:06:32

So this is called reg up, reg down, right, and so this is kind of like you know, hey, we need a little bit more or a little bit down. So that's the regulating. And then the contingency reserves are essentially what happens if something trips offline, right, and so like, and there's different classes on how fast you need those. We call those ECRS is a shorter time frame and non spin is, you know, 30 minutes. So there's all these classes of ancillary services. That are the first classes, the frequency, and the second one is how do we manage that contingency after we address the frequency?

Speaker 1: 1:07:02

Yeah, and I think what they were deploying during the summer, when you had the sun setting and the solar was ramping down, was ECRS.

Speaker 2: 1:07:13

Yes, yeah. So ECRS has also been used for the the ramping hours right to make sure that they can kind of handle the ramps.

Speaker 1: 1:07:21

So it's a multi use product for you know kind of ramps, plus also contingencies which is astonishing because it's like 12 gigawatts of solar, I think, is where we're currently at.

Speaker 1: 1:07:31

And just seeing that ramp up or down, you know, and within an hour time, front window and the grid needs to like navigate that in real time. And then on the wind side, I have a background in sailing, not not not professionally or competitively even, but just let's call it recreational sailing. You've got puffs of wind. They'll blow in or out, you know. So it's like that. That's what. If you're relying on wind, that's going to add some variability. That then on the on the load side or in some mix of the generation portfolio, needs to be offset.

Speaker 2: 1:08:07

Yeah, very much, and a product that I'm an upgrade to an existing product that affects miners I'm excited for is that there's an NPR, which is a protocol rule revision in ERCOT that's been accepted and they just need to implement it and it's for non spin CLRs and what it allows you to do is that if you, you can sell this non spin and solar service, but if the price goes above $75, you're able to turn off yourself and auto turn off right. So what does that mean? Is that you know currently as a, as a flex below, is that if you've sold an solar service, like you need to be consuming energy at that point so they can call on your energy and you have to wait for the dispatch from ERCOT to provide that for generation. For when generation has this non spin I think I mentioned this when we're talking about a conference before is that you'll see this $75 price point right and a whole bunch of generation around the $75 that is available.

Speaker 2: 1:09:02

It's because, like for generation, you can sell this non spin right and collect on that and then if the price goes above $75, right, you can actually dispatch up and be called on so you can, you know, self select to be called on and then you're online for 75. As a control below right now is that you're not able to do that, you have to wait for ERCOT's direction to turn offline. But once they actually, you know, implement this through the systems that ERCOT, you could sell a non spin and then, when the price comes above 75, you can, you can turn down because in the status quo, you're taking on some price risk of.

Speaker 1: 1:09:36

okay, we're at $300 a megawatt, but ERCOT has not called you yet, and so you're kind of eating that loss. And now you factored it in when you were bidding into Insilier services. But what you're saying is that with this improvement there won't be that disconnect.

Speaker 2: 1:09:51

That's right, because you get people sometimes say is like your facility was online yesterday and prices were $500. Why Right? It's like, well, we didn't think they were going to be $500. So we participate the Insilier services and with the rest of generation. We're providing these services to ERCOT, like these other generation resources, and we're only getting paid $100 per megawatt hour from mining. We're paying 500. So it's not so good.

Speaker 1: 1:10:13

Yeah.

Speaker 2: 1:10:14

Right, but we're providing the service for the grid operator and we can't come off until they tell us to do so. And this other outcome is that you can actually provide that service and then, when the price go high, you can you can turn offline, so you actually turn off and you still receive the Insilier service for that. So you're complying to that.

Speaker 1: 1:10:30

And it is the thinking there is the because, because the energy price in real time has gone to that level that we do need to have some. I guess in my mind then it gets into like is non-spin really about reliability or is it about keeping prices low?

Speaker 2: 1:10:51

Yeah, good question, and I read the Potomac kind of the market reports every year to kind of hear their saying what they're saying. But yeah, it is a bit of kind of price on that, right.

Speaker 3: 1:11:05

I find it fascinating that all this stuff is going on in the background and nobody has any clue. Like you know, the layman person would have no idea that every 30 minutes, every four seconds, that these things are ramping up, ramping down, it's incredible yeah.

Speaker 1: 1:11:17

Yeah, imagine if you turn on the light switch and it's like hey, you have to schedule that with ERCOT. You have to say, hey, at 9am I'm going to turn on my light switch so that you guys are ready. And that's what SCED is basically like is giving that visibility to ERCOT.

Speaker 2: 1:11:33

That's right. And one other kind of thing that's in the pipe that I think a lot of miners are excited about is that all loads across Texas pay zonal pricing and there's kind of four major zones across Texas like West, north, south, and you're going to pay essentially the average price across the entire zone for your price, whereas you know generation gets paid at the exact node, right and the reason for that is, that you want to have the right price signal to say power prices are very expensive over here, we need generation over here, so the node should be expensive to kind of attract generation to come there.

Speaker 2: 1:12:09

We're now at a point where these you know, very fast growing kind of flexible loads are like they can choose their location and they can actually go to a location that could actually be a hindrance on the grid, because the signal is at the zonal level, right, and so the shift to actually having these controllable loads receiving nodal prices is a big deal for two reasons. One is it is a signal that's the same way for generation, right? So it's saying hey, there's cheap power up in the panhandle, there's cheap power down here in the south. You should go locate next to these nodes because there's an abundance of cheap energy, right? Yeah?

Speaker 1: 1:12:46

And vice versa. Stay away from these nodes if they're, you know, expensive. So it's kind of realigning the physical reality with the financial reality, right, so that the incentives are working well.

Speaker 2: 1:13:00

Yeah, and so with the load zone prices, especially in the west right like you can have the less west load zone at, you know, $100 and there's these nodes that are like $3 and $5, right. So it's gonna be a big benefit for getting these kind of loads exactly in the right location for them and then getting the benefit of price right that you're getting cheap energy.

Speaker 1: 1:13:18

Yeah, the grid is constantly improving. It's fascinating, sean. Well, thanks for coming on. This was really a fantastic deep dive. I think we could probably keep going for a couple of hours, but hope to have you back on soon and we'll keep peeling the onion here.

Speaker 2: 1:13:35

Thanks for having me.

Speaker 1: 1:13:35

Appreciate it. Thank you, and we'll see our audience again next week. Please leave a five star review in your favorite podcast directory. Subscribe to the YouTube channel and also check out Lanthium's YouTube channel as well. They've got some really great content up as well. This has been fascinating. I hope you found it as interesting as I did and, yeah, we'll see you again next week. Thanks for tuning in.