Understanding a home miner’s local energy market and explaining options for switching rates to optimize power expenses.
This is the second article in a series on mining during bearish markets. Read Part 1: Setting Expectations here.
The best strategy to survive a Bitcoin bear market as a home miner is to reduce operating expenses. The primary operating expense is electricity, and ironically this is the least understood aspect of mining. Not only in terms of how electricity itself works or what the building codes are surrounding the installation of electrical infrastructure, but more specifically for the purposes of this article, the energy market itself is misunderstood. This article aims to provide clarity on how energy is sold to home miners as the consumer, and what miners can do about reducing their electricity prices.
Bear markets can be a real bummer, much of the excitement and optimism that motivated a new miner to start their mining journey can quickly evaporate. Bear markets can also be motivating, however, and incentivize home miners to find creative and resourceful solutions to problems that may have gone unnoticed when mining economics were more favorable under different market conditions. Whether a new miner is scrambling to cut costs for the sake of keeping their mining operation alive or just planning ahead and trying to trim the fat, understanding energy markets can help reduce costs where miners need it most.
This article only covers information about the North American electricity markets. North America has four interconnects: Eastern, Western, Texas, & Quebec. These interconnects make up the territory of the entirety of the North American electrical infrastructure [Fig-01].
Electrical infrastructure is made up of four primary groups: power generators, power transmitters, power distributors, and power consumers.
To figure out ways of reducing the price of electricity, it’s important for a new miner to understand who they are and how they fit into the energy market from the perspective of the rest of the market participants. Typically as a residential consumer, home miners do not have direct access to power generation, like their own gas well. Also, they will not have direct access to wholesale energy markets. For example, they cannot approach a hydroelectric dam and ask to connect an extension cord to their garage for their mining machines.
So, who are the power generators? Who is in charge of transmitting the power? How did a miner’s utility company get inserted between them and the power generator? Who regulates the markets?
These are good questions to ask when trying to identify how a miner fits into the mix. The following paragraphs and maps provide a high-level overview of how the North American energy markets are structured.
Here’s a break down of the key energy market players:
There are nine RTOs and ISOs in North America [Fig-02]:
At a high-level, NERC has authority over all of North American bulk power transmission operations. FERC has additional authority for approving prices in wholesale markets for the RTOs/ISOs engaged in interstate commerce. Then there are monopoly regions, those indicated in white [Fig-02], which will be described in the next section.
There are six entities that make up smaller regions within NERC [Fig-03], and they each manage infrastructure reliability in their region:
As a power consumer in North America, miners will fall into one of three types of energy markets [Fig-04].
Some miners may reside in a wholesale market area, but they do not get direct access to the wholesale market as an individual home miner, so they pay their utility company or supplier which has access to the wholesale market. Some businesses in certain other areas (e.g., Texas) can access these wholesale markets directly, which is one reason big mining operations are flocking to Texas right now.
Every Full Retail state is part of a wholesale market where power generators offer bulk electricity for sale to RESs and utility companies in a competitive bidding process. Miners as a consumer then have the option of choosing a RES or utility company and rate plan that best suits their needs. Miners pay the utility company, they keep a portion for delivery and disburse the remainder to the RES for the supply. Utility companies in deregulated markets are not allowed to make a profit on the supply, but RESs are.
Not all states that are part of wholesale markets have Full Retail choice however. Many of these Limited Retail states allow RESs and utility companies to competitively bid on power being sold by generators but they do not allow individual consumers to choose which supplier or utility company they use. Even though individuals do not get a choice, communities as a whole can vote on their Retail Energy Supplier through cooperative utility companies. Full Retail and Limited Retail are both examples of “deregulated markets”.
Then there are the monopoly states that have No Retail choice. These are “regulated markets”. The power generators in these states do not participate in a competitive wholesale marketplace to sell their power. The utility companies in these states are typically “vertically-integrated”, meaning that these companies own the power generation assets, the transmission assets, and the distribution assets, hence the term “monopoly”. There are no Retail Energy Suppliers, RTOs/ISOs, or FERC authority in these regulated markets.
Miners, as a consumer in one of these states, do not have any choice in who their utility company is as an individual, business, or community. Nor is their utility company accountable for bidding on the cheapest power in a wholesale marketplace. Although it seems like this would incentivize consumer price gouging, these utilities are only granted monopoly status in exchange for accepting state regulation of utility resource plans from the PUC in each state. The PUCs determine a specified profit that these monopoly utilities are allowed to generate based on a Cost-of-Service business model. For example, profit could be capped at 10% of all capital investments (power plants, transmission lines, etc.). The problem here is that this incentivizes the utility companies to spend as much money as possible on infrastructure so the value of the capped profit percentage is greater.
Readers should now have a better understanding of how North American energy markets are structured, who the players are, and how a miner fits into the energy marketplace. So, how does all of this information help a miner pay less to operate their ASICs?
Understand that electricity (in the form of alternating current) is a commodity that has to be consumed as it is produced. This is part of the reason a miner’s role as a consumer of power is so important, especially as a consumer with a constant demand like Bitcoin miners, they are creating what’s known as a “baseload”. It’s reasonable to say Bitcoin miners are the load of last resort.
Power generators, like coal or hydro power plants for example, dump massive amounts of power onto the market, tens of thousands of megawatts (MW). If there is no draw on the grid demanding that power, then it just evaporates in the form of heat and they have to try to ramp down production which takes time and money. Power plants have an incentive to sell large amounts of power quickly. Because of the wholesale markets, power plants also have an incentive to save costs on power production since the prices are set by the market. What power plants don’t want to do is sell small amounts of power to several buyers. This is where the Local Distribution Companies (LDCs) or utility companies and Retail Energy Suppliers (RESs) come into the picture.
RESs and utility companies go to these marketplaces, and they’ll buy large amounts of power so they can turn around and provide it to their many customers in smaller amounts.
Take ERCOT real-time pricing for example [Fig-05], a Retail Energy Supplier in Dallas can go to the ERCOT marketplace and buy power for $60/MW, they may buy 100MW at a time at an agreed upon look-ahead price from the local coal power plant. Then the RES will turn around and sell that 100MW at a markup to 35,000 homes in their service area, with each home drawing an expected ~2.8kW load. The utility company adds in a variety of distribution fees, transmission fees, and taxes and that’s how a miner winds up paying $0.13/kWh. For example, as the end consumer, the miner’s pricing comes out to $130/MW for what cost the RES $60/MW. The utility company collects the invoice from the miner, and they keep the price on the delivery charges and disburse the price on the supply charges to the RES.
These wholesale market prices are in constant flux based on supply and demand, but readers can start to appreciate why so many Bitcoin miners are flocking to Texas to setup large mining operations “behind the meter” with direct access to these wholesale markets from the generators directly, where they can actually get paid for their power consumption plus mine a bunch of bitcoin with that negatively priced energy.
As a residential consumer, miners are not going to get these kinds of “behind the meter” deals. But knowing how this is all working behind the scenes can help new miners, even at home.
Every utility company or LDC will have these things called “tariffs”. Tariffs are really long documents, some up to 300 pages or more, that outline all of the rate designations, pricing structures, and rules for every conceivable consumer situation. These tariffs are set forth and approved by the regulating bodies that govern the utility companies, either a PUC, FERC, or some other regulating body. The utility companies don’t advertise these tariffs, and they may be difficult to find. But every utility company is required to make them publicly available. So if a new miner puts in enough effort, they can find their utility company’s tariffs and take a look at all the rate designations.
Typically these rates will be categorized as something along the lines of “Standard Residential Rates”, “Residential Time of Use Rates” (TOU), or “General Service Rates”. Some companies have these different rates separated in different documents and some companies bundle all of their rates together in larger tariff documents.
For the purposes of home miners, this category of consumer is most likely swept into the standard residential rate when a miner originally signed up with your electric utility provider. The goal here is to help miners find a better rate and get off of that standard residential rate.
As far as residential rates are concerned, these are typically the most limited rate structures, with relatively limited choices. But if a miner can transition off the “Standard Residential Rate” and move to a “Residential Demand Rate” or a “Residential Time of Use Rate” then they will be able to save some money.
If a home miner can get a commercial rate designation, then that is where they will start to find many more options open up. Typically commercial rates are separated by “small” or “large” service. The defining thresholds vary between each utility company. In many cases, small commercial rates will be under 1MW loads.
Some miners may not have the option to have their residential meter switched over to a commercial rate, however, they may find that they can have a new service installed with a separate meter/panel to a garage, an out building, or some other structure on their property. Usually, home miners will have the option to set this new service up under a commercial rate designation.
The following example will explore how to find, interpret, and compare different rates from a utility company.
The randomly selected utility company used in this example is Duke Energy in South Carolina, USA. All of their rates and tariffs can be found on their website. This is the kind of page miners want to find on their utility company’s website.
Of the several rates Duke offers, the three rates that will be compared here are:
Right off the bat, a miner can determine a few things about Duke Energy:
Before diving into the three types of rates a miner could hypothetically be choosing from as a Duke Energy customer, let’s establish the kinds of power demands this miner will need for their machines. To keep the numbers in this demonstration nice and round, imagine this miner has 10 new generation ASICs, each producing 100Th and consuming 3,250 Watts. This would be something along the lines of a Whatsminer M30S+. But readers can use whatever specifications are more relevant to their situation. This example comes out to a constant 135 amp load (3,250 Watts * 10 ÷ 240 volts).
This plan is available only to residential customers in individually-metered dwellings. Available in single-phase 120/240 volts or 3-phase 208Y/120 volts. No resale.
Monthly Sub Total = $2,923.42
Before taxes, fees, miscellaneous charges.
This plan is available on a volunteer basis to residential customers in individually-metered dwellings. Available in single-phase 120/240 volts or 3-phase 208Y/120 volts. No resale.
(($1,736.68 * 3 months) + (1,727.71 * 9 months) ÷ 12 months) = $1,729.95
Annually Averaged Monthly Sub Total = $1,729.95
Before taxes, fees, miscellaneous charges.
This plan is available to individual customers with a demand smaller than 75kW. This would not be an available plan that a miner could switch their standard residential plan over to. This would be more suited for individuals who have a separate property that qualifies as a commercial setting or even a separate structure like a garage, barn, or out building that a new and separate service gets supplied with its own meter separate from the residential service.
Monthly Sub Total = $1,781.39
Before taxes, fees, miscellaneous charges.
Be mindful of the qualifications required for any rate designation a reader is interested in. There might be limitations on the number of meters miners can have on the property, and they may need to provide a specified minimum kW load without exceeding a specified maximum kW load. There may also be different rates for different months of the year or even different rates for different times of the day.
Here are a few other points to keep in mind:
When figuring out a miner’s desired rate designation, readers should be sure to carefully read about the riders. These are extra charges that may be based on kWh consumed and can add significant amounts to the total bill. Additionally, be aware of added taxes, fees, and miscellaneous other environmental charges, etc.
Once a miner has found a rate designation that suits their situation, the next challenge is figuring out how to get the utility company to switch them over to the new designation. This can be exceedingly difficult as often the employees answering the customer support lines at the utility company are not even aware of the fact that their own company offers different rate designations or even what a tariff is. Sometimes it can be helpful to speak with someone in the engineering department or find a local electrician who has a working relationship with someone on the inside of the utility company. Also, it is best practice not to mention that your request is for Bitcoin mining, this may lead to immediate judgment and possibly resentment from people working at the utility company. Miners never know what kinds of preconceived notions a person will have and you don’t want them to brush you off. Volunteer the least amount of information as possible, but be honest about the power requirements of your setup.
Reducing operating costs is one of the best ways to mine through a bear market. Knowledge is power, so the better informed a miner can make themself then the better they will be able to communicate with their utility company and understand their language a little better. This article should have given some better insight into how energy markets work, how miners fit into those energy markets, and how a home miner can find a better electricity rate.
This article was written for the Braiins blog by Econoalchemist, a home mining specialist, writer, and builder at Upstream Data. Follow him on Twitter.
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