In this episode we are re-joined by Blake King, a Power Systems Engineer. Blake has extensive experience working on modeling power grids. We dig into decentralized versus centralized mining setups, ERCOT and the Bitcoin mining renewable energy.
Timestamps
- 05:58 Mining at energy source vs mega mines
- 07:56 Mining at source w/ containers
- 11:56 Demand response
- 16:44 Curtailment coordination
- 20:43 Different rules for different sizes
- 23:36 Stranded energy
- 28:25 Demand/supply issues
- 29:51 New demand changes the market
Audio Version
Transcript
Foxley: Welcome back to the Compass Podcast. Today, we're rejoined by Blake King, a power systems engineer. Blake King has extensive experience working on modeling power grids. We dig into the decentralized versus centralized mining setup debate, ERCOT and the Bitcoin mining renewable energy conversation. This podcast is presented ad-free by Compass Mining, the largest marketplace for Bitcoin mining, check out compassmining.io today if you want to buy, sell, or host an ASIC and now on to the show. Blake, welcome back to the Compass Podcast. Good to see you again. Glad to be here. Last time I saw you in person was at a Compass party back in Denver, but your life has changed a little bit since could you give our listeners an update on yourself? And where you're at?
King: Oh, sure. So my name is Blake King, Power Systems Engineer. Met Will and a bunch of Compass folks at a Denver happy hour, I think it was since moved to Asheville, North Carolina. I've got a wife that's, you know, 39 weeks and some change pregnant. So if I leave or something, that's probably why. And yeah, that's pretty much it, you know, I've worked in power my whole career, which is, you know, five or so years now, and I've been a Bitcoiner for pretty much just as long. So it's really, really been interesting to kind of learn more about my industry and keep in touch with Bitcoin and inject ideas where I can.
Foxley: So yeah, your Twitter is a great place for people to get to know you, and also follow along. So we'll include that in the show notes. But I think the most important perspective that I've seen so far in some of your writing, and also some of your tweets and other podcasts is that you come from a renewable standpoint, where a lot of these Bitcoin miners are coming maybe from like a Bitcoin standpoint, or maybe from like an oil and gas standpoint, or just like a pure energy like infrastructure side, and you're coming from the renewable side, which, maybe we can, let's dig into what that means for the firm you're at and what you do there, but it's definitely a different perspective than a lot of other Bitcoiners have. And I appreciate just the sometimes the rebuttals but also just the clarity that there's there's more going on in this conversation than a lot of the Bitcoiners are just putting out on the surface, but what do you do exactly at RAS?
King: So I have to start obviously, with a boilerplate that, you know, my my opinions are not those of my employers, past, present, future, whatever, you know, these are my own opinions as a Bitcoiner. And I'd also say that, you know, to your point of me, you know, saying the renewable side of things I usually do that more as like a steel man like I see an argument that I think clearly misrepresents what's actually going on and I feel the need to to rebut that, you know, I am in no way like a renewable maximalist or things of that nature, which, you know, there are people you know, I, I straddled Bitcoin, Twitter and energy, Twitter, which is actually kind of like climate, Twitter, you know, like all these people that are net zero carbon, you know, and I'm certainly not like, I'm not of that nature, you know, but I do try to disabuse ideas whenever I see them. But yeah, so I work for a renewable developer. Yeah, after I say all that, you know, I worked for a renewable developer. And basically, my role there is to analyze the grid. So I, you know, I do analysis of the grid, identifying certain locations, what's going on, you know, where's their congestion, things like that. And then I also do kind of strategy of like, okay, what should we do to develop more projects, that's like, you know, without getting into the nitty gritty, that can be kind of understand understood is what I do on a day to day. And like just a little bit more background, I came, I came to this company after a short stint at Oak Ridge National Lab, doing power system modeling, kind of like a niche area. And then before that, I actually worked at ERCOT. Also doing modeling. So just kind of went from building models, researching models, and now like actually implementing models and most of the jobs in this industry now are for renewable developers, there's basically been, like a gold rush, if you will, of renewable development recently. And so that's where a lot of people with my skill set kind of ended up.
Foxley: It's great to get your perspective on these things. Because just like you laid out there, like you've been in almost every single part of the energy infrastructures or modeling side, it seems. And that is like the core thing that people are battling back and forth on Twitter is like, what does a Bitcoin mining energy grid look like? What is the model for that? What are the assumptions we're making or those assumptions Correct? Where could we be wrong when need some tweaking? And for right now, just to like lay the conversation out there we have basically two models, which is the decentralized hash hut somewhere your like little container somewhere next for an energy source, whether it be stranded energy, maybe it's some sort of solar setup or hydro setup like stranded energy in a small containerized unit, or we have these huge mega mines, interconnects that are taking up a large sinks of energy. So like, think of your Riot Blockchains and Rockdale, where they're soaking up, you know, 400 plus megawatts of energy. So we have the two systems that are, they're clashing back and forth, at least on Twitter. In reality, there's, there's these smaller guys out there who are using like retrofitted spots here and there taking between 20 and 100 megawatts. That's probably actually more common than either one or the other. But that's not the conversation. The conversation on Twitter is this decentralized model versus the mega mine model. And we had Steve barber on a few weeks ago, talking about the folly of the mega mines. He had a nice abstract piece about, came on the podcast gave his opinion, and totally stirred up some controversy, you got a lot messages asking about he was talking about so I wanted to bring you on to get some of your thoughts on his model, what you thought about it, what you saw was right with it, what you would critique with it, and how Bitcoiners can think about grid modeling going forward? So I think we could just start right there. How do you think about his decentralized model? Where we're bringing containerized units to the energy source? Is that a reliable way of building a Bitcoin mining infrastructure? Does it work with the grid? Are there problems there?
King: Absolutely. Like just to set the stage I think, I believe, I agree with 90% of what Steve wrote, you know, like, I think it's smart spot on, especially for someone that doesn't work in power systems, his intuitions are great. Like, you know, sourcing, you know, the transmission losses piece not to get into specifics, but the transmission losses piece is a little iffy for me, because losses are kind of like, you know, they're just kind of accepted if you're talking about renewables, and you need to go where it's sunny and go where it's windy. And that's far away. But Steve's pretty spot on in terms of intuition. Now, the fact of the decentralized decentralization versus centralization, like Bitcoin mining is just too lucrative, it's going to have to mature and it's too lucrative of a resource to not end up on the grid being used in some sort of fashion, there's no way to stop it. Like, generally, the decentralized model is going to continue to work, they're still going to be off grid, you know, natural gas wells, they're still going to be home mining. And I think the no KYC coins are going to have a premium that's going to make that type of mining a little more lucrative. But I think we're going to end up just like a situation where the mining on the grid is going to get more regulated, more centralized kind of fashion. And that's, that's going to benefit from, you know, the benefits of this scale. And then you're also going to have the no KYC version, I think they're going to coexist, for sure. Now, what did you ask something about Steve's specific point? Oh, that was the mining on site, right?
Foxley: Yeah, the containerized model where basically, I move a container full of ASICs to the site of energy, and basically soak up that energy at the location. And he had a few justifications for that, whether that be like loss of transmission, loss of energy or transmission line, or there's a few reasons.
King: The bigger variable there is, and I just wrote an article about this, there's a good section about it, which is, you know, firming up revenue for the generator, you know, a lot of a lot of producers of energy be that oil, which I'm not super familiar with, or, you know, wholesale power, they're, they're at the mercy of whatever their wholesale market can provide whatever their off taker can provide. If you're a wholesale solar or wind farm, you're purely at the mercy of grid pricing, when it comes to your off taker and whatever kind of PPA you can secure with Bitcoin. Now, all of a sudden, there's an alternative, like now someone can bring the power to you. And, you know, you can go behind the meter, which the meter is the actual, like, that's how you actually play in the market, right is like, you know, you could be like 10 miles along a Gen tie, and your meter is all the way over here. So you're producing 100 megawatts, all that power flows on your agenda, and you actually get to sell 97 megawatts to the grid. Well, now you can put a Bitcoin mind behind your meter, and, you know, have like a bus bar PPA effectively and have like a secondary off taker, or you could put just an empty warehouse and sell the Rackspace. I mean, the flexibility is huge for a power producer. And that's what I'm saying, which is that, like, it's too lucrative to not happen in that kind of model.
Foxley: So the model makes sense. The contrast here of course, was like the mega mines.
King: I mean, it's tough. The problem is the power you have to deal with the power producers if you go behind their meter and sometimes they want to play and sometimes they don't, I think it makes more sense for them to play with you and give give you room on their bus bar. If they're suffering, curtailment or if they're suffering from poor pricing. Like if you're if you're a generator and all of a sudden, you're missing out on revenue that you thought you would have, like, you've got to make that up. And a Bitcoin mine makes sense to do that. Whereas these mega mines, that's just part of their business model, let's connect to the transmission grid. Let's take the wholesale pricing here, or let's take the load zone rate. But let's hedge with a PPA, which gets kind of hairy. But you know, when you connect on the transmission side, now all of a sudden, you can act as a grid resource, which I think is the piece that Steve is kind of missing, if you will. And that I think that was the big, the one part that I messaged you on Twitter about after listening to that podcast? Is his model of the distributed demand response about how, you know, you don't have to be a miner of size to do demand response. That's not really correct. Like, if you're a resource on the grid, the grid operator can use you to do things like they can use you to solve constraints, which is, you know, it's a hairy term, I can talk about it, but like, if there's an overload on the transmission system, the grid operator can use you to free that up. If you are a distributed network of miners, it's not that easy. Like is it doable in theory? I guess, but Is it doable in practice? Not right now, like the, you know, the transmission level system stops at substations. And then there's a distribution level network, which is like, a crazy, you know, it's like a crazy string of wood pole distribution system that then eventually drops down to houses. And it's like, how do all of those miners coordinate to do stuff? It's kind of like a fuzzy hammer, you know, like you can you can lower the load, generally, but you can't do the types of things that you can do on the transmission network. So that was like, my main thing is that, like, you know, that's not really possible nowadays.
King: Yeah, no, let's walk this out for the audience, because I think it is, it's pulling on multiple, multiple different disciplines. And so it can get a little hairy pretty quickly, I'm going to boot it over to you. But just to set the stage, when we're talking about demand load response in Texas, we're talking about how the grid needs energy for whatever reason, say it's a really hot sunny day everyone's flipping their AC on. And all these retail buyers, or maybe even like larger players are trying to purchase energy from the grid, they need to pull that energy from somewhere. And often case, you can pull it from some of these industrial players who can flip off the switch. Bitcoin miners are really good at this. But so that's like the basic model, right? But how does that change when you have a decentralized model, like Steve laid out versus a centralized model, like we have, like with these Riot players, and the larger mines okay, so generally power systems. So generally, power systems are made, or, you know, tried to be operated to handle whatever the expected load is, right? There's a lot of statistics that go into this. It's really like forecasting, and there's a lot of like, X sigma events, right, like whenever are caught has a 72 gigawatt peak, right, like that's higher than they've ever had, you know, like these events where there's a lot of load. So you need to make sure that you can handle that demand with the amount of generation assets that you have online. Well, what if part of that 72 gigawatts of demand doesn't actually need to be on what if they would rather be off? Right? And so the point and this is like a whole domain of power systems is, is that's like, you know, demand response, peak shaving, like ways that you can change the shape of that demand, such that you don't need as much generation. So what's what's happened is whenever you put a load on a transmission system, that load can then participate in this wholesale market, like a generator, like like a generator can meet the demand, the load on the wholesale market can drop, you can kind of do this on the distribution system, but it's not as it's not as one to one, it's not as clean, it's not as easy. It's not as transparent like this is what smart meters do. Like when people say, oh, let's put the smart meters on our houses. And then maybe we give the grid operator control of our meter during hot sunny days, and then we get a pro rate. So let's say, you know, you're a residential customer in Texas, you paid nine cents a kilowatt hour. Well, ERCOT says, hey, we'll give you a smart meter. And if you let us control your thermostat, we'll give you you know, one and a half cents off all the time. Right. So really, your all in cost is now cheaper. But on a hot day, your thermostat might be like 82 degrees and you didn't set it like that. But because because you have now given the grid this option of using you as a resource, you know, they have now given themselves some firepower to lower that demand. Right? And so this is the thing a big mega Mine, right? Like, you know, like the riot places? They are, they're now a grid resource that the grid can say, Okay, we want you to shut off, you're not actually part of the scarcity demand, you're just like a base demand. You know, there's there's like further more mature conversations that we can get to about like, well, if they're adding load to the system, doesn't that raise prices for everyone, but you know, generally what that means is that they're not there whenever it's like the riskiest time whenever the peak is there. So, and it's easier to dispatch them, if they're in one central place, you know, then if it's, you know, 10,000 different people all with five kilowatts of hardware, you know, the coordination problem of ordering them all to ramp down. And then like, does that reduction in demand actually flow to where it's needed? You know, or does like, there's not really, to be completely honest, there isn't really that much awareness of distribution, topology, like, oh, from this substation, these lines go here, these lines go there, like there isn't really situational awareness of what lines are in service and what lines aren't like that level of granularity isn't even there. So saying that we could turn off a megawatt worth of bitcoin miners in neighborhoods and have the same impact as a megawatt miner that's on the grid. It's just not true. And that's, I'm not saying it shouldn't be true. I'm just saying that it's not like not nowadays, it's the same with rooftop solar, you know, there's, like a lot of people spend a lot of time trying to figure out, okay, how do we combine rooftop solar in a meaningful way to play in the network,
Foxley: It seems like it's a coordination game, which is really important for these open energy markets that they're trying to create, or God is like, obviously, a great example of or at least like the example that's in most every headline when we're talking about free energy markets. And you do have a lot of problems with that coordination. And you need that coordination to produce a price for people to buy energy off the grid. So you said geography slash topography, like, where is this excess energy located? And is there someone using it at a moment's notice, contacting them and getting like the system set up in place, like some sort of computer protocol or whatever to get the energy turned off, I mean, I've even heard it down to like the ASICs, like, there's not firmware, or backdoors, for some of these ASICs that you're able to control them in a way that would be able to turn them off and give that energy back to the grid. Like, there's not that specificity of remote control software yet, like it's being built. But I've, I've heard that that has even been an issue.
King: There's a distinction here that's important, which is that you can also just turn the ASIC off, I mean, turning turning the ASIC off and fully reducing your load is incredibly useful. For a grid, you know, if the grid needs megawatts, it's willing to pay you to turn off and that will happen. Now, the distinction there is that that's, that's just a load resource that's willing to drop, if you want to use the firmware to actually control the output of the ASIC. That's a whole nother order of magnitude of complexity. Right, like, and in that regard, only the transmission level grid resource, I think makes sense to do that with because, you know, like, let's say, you have a 100 megawatt mine, that you could overclock your machines to 115. Or you could maybe ramp them down to like, 20%. You know, that kind of controllable load resource on the grid is pretty much effectively what, you know, thermal generators do now, like you can play in the market very, very well. Now, would you want to do that with new generation ASICs? Probably not, but it depends on how much ERCOT is willing to pay you to do it, right? Like, if you are, if you're paying three cents a kilowatt hour to run your machines in ERCOT is willing to give you a 25. Yeah, a 2.5 cent credit. So allowing them to do that would get your all in cost to like less than a cent, then maybe you do, you know, maybe that math does work out. But you won't be able to control your ASIC in your house with enough granularity to to have changes on the higher level transmission network, like it's basically lost in the losses at that point. So there's two distinctions there, like you can just drop your load, and you can control your load. Controlling your load is, you know, it's called a controllable load resource and ERCOT. And that was like another thing that I was gonna bring up with Steve's point, which is that you know, controlling your Bitcoin miners output with grid signals, is kind of like a point of contention in ERCOT. With intellectual property big his lance Lance Ium, has effectively patented the concept of doing this. And that's why in their, in the articles from Bitcoin magazine, and Lance him says, Oh, we we own and operate all of the CLRS and ERCOT. And I'm like, Yeah, because you've patented it. So So you know, that was going to be another thing that I wanted to bring up on Steve's point is that, once you start talking about using grid pricing to dispatch your miners, then you're going to run into this kind of situation where there's a little bit of people in the market have done some intellectual property and some moding, around this concept that is going to have to get worked through before you can fully believe in, you know, that you'll be litigation free and doing this kind of stuff.
Foxley: Yeah, what I'm getting out of the conversation so far is like there's, there's aspirations, and then there's reality. And those two things are not matching up very cleanly for a lot of these arguments, which I think is why you mostly see retrofitted mines that have between like 20 and 150 megawatts in most locations, because the small decentralized model is an aspiration that hits up with a pot of problems, and then the mega mines take a lot of capital. So when those two things collide, you get a different product.
King: It's also just a different business model. I mean, like I said, in this article that I put out, these mines that are connected on the transmission level, like they are going to have rules like they are going to there, there are going to be additional rules for them. Because it's not necessarily like the grid is trying to be, you know, draconian, it's not that ERCOT has a problem with Bitcoin as a money, it's that there are real risks. Whenever you have 100 megawatt load that can drop in an instant, like, that's, that's a risk, you know, ERCOT has to be able to fix frequency, when you do that, when you drop 100 megawatts frequency is going to skyrocket, and ERCOT only knows how much resources they need, if you tell them that that's going to happen. So there's going to be all these new rules for Bitcoin miners interconnecting like, they're going to have to prove redundancy, they're gonna have to prove that, you know, an 18 T worker can't like, drop their load randomly, you know, so it's a different business model, if you want to not worry about all that stuff. You know, like, for generators, if you want to come on to the grid, it's like a three year wait time as a critical path, and like one year of that as EPC. So if you're a bitcoin miner, and you want to get stood up now, like, you're probably not going to want to go through the grid route, or at least not after these new rules come in. So there's a lot of variables at play, and this industry is like 10 years old. So you know, all these things are still, they're still shaking out on what the inevitable model will be. I think, going back to what I said, originally, I think in like 20 or 30 years, you're gonna have, you know, the suit model, with people on the grid that do the interconnection that run that. And then you're also going to have the off grid model with the KYC being a premium the no KYC being like a strong aspect of that people probably mining at a loss electrically, but able to make that up with the premium on the on the non KYC coins.
Foxley: Yeah, just to follow up on this. Texas is obviously exploding with every day I hear about it, like another 100 to 500 megawatt mine being deployed Bitcoin conference last week, like everyone was on stage talking about their new deployment in West Texas. To me, like, that's great, to an extent. But I think there's a lot of dollars chasing like few assets. And like what you're seeing right now is ERCOT has a process. It's been around for a while. And as much as like a free energy market. It's also a bureaucracy at some point. So how are they going to look at this? And how are they going to look at this, this stranded energy story that all these Bitcoin miners are talking about, like, is this like a pipe dream, or people need to like tamper the brakes and have a little perspective here about what's going to take?
King: Yeah, it's interesting. I also get messages from my old ERCOT colleagues about just the gigawatts that are coming online. And, you know, it's it's a similar story to whenever people talk about the interconnection queues for renewables, you know, it's like, oh, there's 50 gigawatts of solar coming online. It's like, hard to believe. And it's the same with the Bitcoin mining numbers, when I hear is that it's hard to believe and right now, to be honest, ERCOT doesn't really know how to handle these things. I think, I think if the amount of gigawatts of Bitcoin mining come onto the ERCOT grid that are supposed to it's a serious problem, like you can't add, you know, six, eight gigawatts of constant demand in a place where there hasn't been in a span of a year, like the grid is just not works to be planned that in that pace, you know, it's not meant to be studied in that pace. I mean, these things are like slow tortoises and how they're playing And and how they operate and things like that, which is, which is why I think the interconnection process which is what, which is what it's called the interconnection process from the time that you apply all the way through the studying through the, you know, the securitization, through the transmission system operator, like negotiations contract all the way to actually coming online, that process is probably going to just gonna be elongated, right? It's going to look more and more like a formal interconnection process where they study you, they prove that you don't do any harm. And then they finally let you come in. Because that's the big thing about these, these grids. And a lot of things is like, a lot of people that I see on Twitter talk about it like it's an affair, like it's an inherently nefarious thing, like the grids don't want you there, it's going to lead to some sort of draconian thing. And it's like, not exactly like these, these grids have to be operated a certain way. Like they have to, like if they're not operated like this, it's a risk, it's a life or death risk. And so you have to first prove no harm in what you're doing. And then it moves forward. So I, I think all these miners are in for a rude awakening when it comes to the interconnection process or even curtailment. I think it's possible that a lot of these loads out in West Texas end up getting curtailed where they can't, they can't operate because of some sort of grid constraint. You know, there's a good example of this. I know I'm kind of rambling. But a good example of this is ERCOT, built something called the CREZ. I can't remember what it is, but CREZ, something about renewable zones. And they built a huge 345 kV transmission loop all the way out through West Texas. And the point was to incentivize wind to come out here, right, the wind had just gotten the $26 per megawatt hour production tax credit, right. And they were like, oh, we need when so ERCOT preemptively built this transmission loop. All these wind generators went out there, this is years ago. This is this is why there's negative pricing now. And they all went out to gigawatts, like you'll see Shawn Connell from Lansing tweets about how many gigawatts there is. And then a couple of years ago, buddy of mine, actually, at ERCOT, was doing the study and realize that there's instability out there. So like, stability is one of the things in power systems where it's like, there's so much wind out here. And there's like one transmission path to get back like one loop. And so because of this instability, they've now constrained the whole west of Texas, right? So now there's like 40 gigawatts of stranded wind that they didn't model they didn't expect to be constrained in this way. But you can't operate a power system in conditions like that. So that's why all this negative pricing is going on. And whenever you do these huge things, like these, like, you know, I wouldn't call that a black swan but it's like you do a lot of change really quickly, things like this are going to happen. I think these Bitcoin miners, there's gonna be some that are at risk of something like that happening where, you know, you put all this capex in your Bitcoin mine, all of a sudden, you're curtailed 20% of the time. What happens you know, now you've got counterpart like, now you're hosting miners, you owe them money, like they've got machines, these machines are depreciating, you know, and I think that's a serious risk at happening whenever you put all this load in one place.
Foxley: Just to summarize, it seems like the old story with the wind was there's a huge influx of supply of energy production, and now we have a huge influx of demand for energy. And those two things aren't necessarily going to work together as cleanly as a lot of people are predicting they might
King: It they might, you know, I'm a little optimistic, but I wouldn't say that it's dead on arrival or anything like that, but I'm saying that there are you know, unintended consequences of putting tons of load or tons of generation in one place and and the thing is all that wind over there is supposed to bring $0 marginal cost electricity eastward so all that wind is supposed to be coming in and making prices for Central Texas cheaper, that's what the wind is supposed to be doing. But if you put Bitcoin miners out there now the Bitcoin miners are getting the cheap electricity. Right. So that's, that's going to be the next layer of conversation now is not only are like maybe maybe we've satisfied, the Bitcoin is a demand on the grid, you know, argument like, oh, they turn off during scarcity events, you know, it's not, the next level argument is, well, they're taking my cheap electricity. You know, even if your S9 has a breakeven price of 40 bucks, that's a price that I don't get, you know, so there's going to have to that's going to be the next conversation that we're going to have to tackle around like, how much is the Bitcoin mining worth societally?
Foxley: Yeah, no, that's fascinating, because I haven't heard a lot of people talk about that secondary part yet, but it does make sense if you're introducing new buyers, then market's going to change.
King: Every article I read from Nick Carter. Now I have to like tear my hair out a little bit, because it's like Bitcoin miners soak up all the negative electricity. And I'm like, Yeah, versus the people in that area that could be soaking it up themselves. You know, I mean, that the good thing is, is that they're raising prices for the generators, like the generators are there, the generators could be going out of business, but they're not. You're paying the generators to stay in business. That's, that's the feel good story. The other story is, it's kind of a zero sum game you're raising, you're raising electricity prices for other people, you know, there's a buyer on one end and the seller on the other.
Foxley: Oh, yeah, like the markets gonna get its cut of meat there like, no matter what. Fascinating to get that, that angle? Personally, I think Texas, it might be a little overbought, just like looking at supply chain stuff. Like, think of all the components that go into building a mine, like you might source energy, but you need the miners there, you need the facility, you need transformers, you need help with ERCOT. Like, there's a lot of layers to this. And I just talked to all these people who are building out there and at some point.
King: They posted security, like, they're in it. Like they're real. Like, that's, that's another part of the ERCOT stuff, is it? They're real numbers like they they have money on the table. And and so it's, you know, it's certainly it's certainly interesting. And I wanted to add to the second part about you know, tearing my hair out on Nick Carter's thing is that right now we're in like a transient. This is how I describe it to people I know is like we're in a transient system of hash price. Like I think, I think the margins on Bitcoin mining are going to get way thinner, like so thin to where new model machines are only going to be profitable when run at, you know, single digit cents per kilowatt hour. Like right now, you know, it's hard to see that because it's so profitable right now. And the machines are so expensive that you're like, you're breaking neck to pay him back. But I you know, we're in like I said, year, what 10-11 of like dedicated Bitcoin mining, I think in a couple of decades, the only people are going to be able to run these machines profitably are those with extremely low input cost. And that's going to really change the conversation because having an S NS nine that breaks even at $90 a megawatt hour is a different conversation than one that breaks even at 10 bucks a megawatt hour 11 Because then then the consumers are less worried.
Foxley: Yeah, my last thought on this part of the conversation before we can move over to renewables is that miners have their own economics and the grid has its economics. And putting those two things together isn't as clean as a blog post about Bitcoin mining in West Texas might make it look, there's a lot of inputs for energy grids, and there's a lot of inputs for Bitcoin mining. And at the end of the day, you'd need to be in the green for Bitcoin mining otherwise, miners will just turn off your machine and wait till conditions improve. It could really be some some burnout on that front. But, you know, more optimistic more hash rate online is a good thing as long as it's like that too, geographically condensed in my opinion.
King: Agreed. One last sentence on that is that I thought I thought Steve's point on you know, the honeypot his section on the honeypot. I thought that was very prescient. I thought it was very good point. I'll leave it at that.
Foxley: Yeah, no, I agree with you there. Renewables. Okay, so we only have about 15 minutes left. But it's rare that you get a bitcoin miner who's into renewables or at least works for a renewable company. So we are thankful and appreciative for it. And I think our listeners are as well, because it doesn't happen too often. There's been a lot of angst against renewables lately. Last week Blockstream, Block, and Tesla announced a 30 Peda hash project in Texas, I believe, to use 100% solar to mine Bitcoin. They're using like Tesla's power pack. So then you don't you can get around that constraint of only having a sunshine for eight hours a day. There was some pushback online on Twitter to say the least from the Bitcoin crowd saying like, why are you guys using renewables like this? Renewables use a lot of coal and the front end of the production enable to get in order to get these solar panels online? Tesla powerpacks use a lot of heavy metals and things that take a lot of extraction from Earth. I want to get your take on this project, the new project from Tesla Blockstream and Block and also get some thoughts about renewables in Bitcoin mining.
King: Sure. This is this is a loaded topic. So again, my views aren't that of my employer. You know, I describe the ESG as kind of a Motte and Bailey, like the strong argument for ESG, if you were to stealman, it would be that, you know, certain emissions cause issues for humanity as a whole. And sometimes those emissions don't have an associated cost that's borne by the producer. So how do we coordinate to solve that problem? Like, that's a strong argument that I think everyone would have to accept that, you know, if emissions are a problem, there has to be some sort of effort to prove that if there's a market failure in that, right, like, if, if it's cheaper to dump, you know, your output in a stream, then we have to have some sort of corrective mechanism for that be derived from property rights, you know, you're hurting the property rights of people globally. So there has to be some fix for that, or some mechanism for that, that's the steel man. And I can kind of get behind that, right. Like, I understand that argument. And I also kind of intuitively think that over the past 100 years, if we've been sending gases into the atmosphere, it's hard to imagine that that doesn't have an impact, right? Like, just intuitively, if you do a lot of stuff, there's going to be an impact. Like, on the other side of things, whenever I see climate scientists that have, you know, this very specific tuned model, you know, where they, they defined all the inputs in this way, they did find other inputs in this way, and they ran their sensitivities, and they say, you know, global warming is up by 1.6 degrees. You know, the, the engineer in me is like, I don't know what to make of that, you know, like, I don't see how you could define your variables. So precisely that it, that it gives you an outcome that just so happens to align with like the activist, you know, the activist body that also includes like government legislation, that includes subsidies, you know, there's like a lot of misaligned incentives there. So, so for me, squaring the two things, squaring that, you know, outsized gases in the atmosphere probably has an impact on the earth, and that, you know, a coordination problem to solve that would be difficult. And you know, there's a lot of modeling that's going into this that is really sophisticated, like a Rube Goldberg machine that seems to like end up with more government regulation, you know, like the libertarian to me has a problem with that. But the libertarian me also likes to solve interesting problems. And I work for a company that does an interesting thing, which is like we've we've got a product that produces energy passively based on the sun. And my job is to see where we can put that in. So that's kind of an interesting engineering problem to solve. And there's no fuel costs, like that's the coolest part to me is that once you're done, once you've built it, you're pretty much through like that's, that's pretty much it, besides some variable maintenance, like sun comes down and produces energy for the life of the project. So that's, that's the interesting thing. And that ties into the blockchain project as well. I think it's interesting, because it proves, it proves that you can do it with renewables. It's kind of a PR grab, to be honest. But, you know, that's, that's it, I think the interesting thing will be with their dashboard, we will be able to really calculate the levelized cost of solar and storage, that'll be the interesting thing is that there's letters, a lot of different numbers coming out about like, over the life of this project, how much does it need to get per kilowatt hour to break even? A lot of numbers, you know, put like solar and wind down there with the most efficient natural gas, you know, coal a little bit higher, things like that. But it'll be interesting with Blockstreams numbers to see like, Okay, how much did this actually cost for them to do this at this scale? Now, granted, it's a really small scale, I think it's a three megawatt solar facility, a 12 megawatt hour battery, and like a one and a half megawatt Bitcoin mine. So we're talking scales that, like, you know, they don't benefit from economies of scale. Let's just say that. So it's not going to, it's not going to surprise me if it's really expensive. But doing it off grid will be interesting.
Foxley: Walk us through levelized cost of solar and storage. What does that mean? I think it would be helpful for the audience to understand these terms.
King: Let's say you build a 100 megawatt solar farm, right. And 100 megawatt solar farm, the the energy yield of the farm, right, like what it actually produces, goes from zero at night, and it comes up and it just tracks the sun through the day, right now, it produces that profile of energy based on the weather for the life of the project could be, you know, 30 years could be 20 years, whatever. But there's a modelled amount of energy that it's going to create, you know, hundreds of gigawatt hours. And the idea is, however much the solar farm cost you in millions of dollars divided by the amount of energy that it produced, gets you $1 figure for how much that energy cost. And that is like a metric that's in the industry now for basically saying how much energy it cost, right? Like that's, that's the price of the technology is the levelized cost of energy for for thermals that require fuel? It's like the capital that's involved in building it, plus the fuel cost, right? Like you have to, you have to pay to build the facility, and then there's fuel costs associated. So at the end of the day, how much does that megawatt hour cost? There's a little bit of, you know, debate now over whether or not dispatch ability should be included in this, right, like solar can cost solar, it can be cheaper, but if it's not there, when you need it, or when you want it to be there doesn't really matter what it costs, you know, so there's there's talk of adding some sort of reliability metric or something like that to the figure. But you know, that's, that's how it stands now, it's the levelized cost of electricity or energy.
Foxley: Appreciate that. Yeah, it's really helpful to understand those terms. Last question for you on this topic. Coal panels. It's like the tweet has been going around so much lately. He gotta get your opinion on him. Yeah. What do you think it?
King: So I mean, I'll steal man it I'll steal Nana, so the, I don't think Steve is ever going to be able to have a conversation unless he finds a price of co2. So, for Steve, to get an honest argument over what the cost is of this, then he's going to have to admit that co2 has a cost. If it doesn't, then nothing is ever going to satisfy his need. All of the oil and gas off grid people pretty much tell everyone what the renewable arguments are. And then they answer them, like so. So the coal panel argument is that when solar says it's green, and net zero carbon, right, so they say that, and then there's usually a quote, tweet that says, you know, like, coal panels since like, but yeah, that's a straw man, like the steel man of the argument is that, you know, the solar panel offsets the amount of coal that goes into it in like, year one or two, you know, so like, if you value the fact that there's no carbon being emitted, then that's a net good, right? Like, yeah, it took coal. But if you've avoided coal, after two years of a 20 year panel, then you're netting out to positive, like, obviously, there's like a carbon accounting thing here, which, you know, it really depends on your geography, and you can get really hairy in here. But it's, it's the idea of pricing carbon, if you if you price carbon and you have a price, then you can work and say, Okay, we need to avoid this. So what ways can we do that? I obviously have, you know, some sort of issues with those kinds of things, obviously, you know, forced labor is terrible, and like, lithium mining is awful, you know, things like that. And I'm not about to get into an accounting war of like, how many tons of Earth is moved for lithium versus, you know, coal facility and like the price of coal and the emissions? Like, you can just talk about this for hours?
Foxley: I appreciate that perspective. That did answer it. I think it's, I'd love to see a battery oil, like I said earlier between renewables on one side and the coal panel crowd on the other because they do just they throw money at each other back and forth on Twitter every day. And there's a lot of characterizing I should say other other people's arguments without listening to them.
King: Yeah, my favorite. My favorite is the word renewable. And people are like, what does renewable mean? And I just sit there and I tear my hair out. And I'm like, renewable means the fuel source renews over the span of a life like like that, that word is kind of an anachronism to back whenever people thought we were going to run out of oil, right? People like we're gonna run out of this fuel, like, you know, that was the original kind of push, like, we're gonna run out. We need renewable stuff, you know, but now it's like, what do they mean renewable? They use coal and it's like, a man can't even get started here. Can't even get started. But like to hearken back to it. What I said in the beginning, like the question of is carbon into the atmosphere bad, right? Like, that's where you have to start. Do you believe that that's bad, or do you believe that that's good? Like for sake of argument, just accept like a thought experiment right, except that carbon in the atmosphere is bad. What should we do about that? Like, what steps should we take like what what kind of coordination can we as a society do to help that, you know, like, and then kind of work from there. Like if you don't accept that carbon is bad in the atmosphere, like, that's an interesting proposition. You know, but like, you're not going to have the same conversation with people that do think that, you know, all caveats of libertarianism and, you know, anytime that someone tells you that the world's going to end, it's usually not a good sign, you know, all caveats of that aside.
Foxley: Yeah. Yeah. And, you know, Bitcoin, Twitter is more than not, so a place for marketing. So, everything people are saying for
King: Yeah, I've had to pull my punches a lot of times, you know, you know, I, I see a tweet, and I just want to pull my hair out. And again, like, in my line of work, I'm usually the person that's, you know, steel manning the opposite, you know, I'm making the opposite. But then on Twitter, it's like, all of a sudden, I'm here defending renewables. And, you know, I write this good tweet, you know, and I'm like, oh, man, I really express myself, Well, I think it's good. And I, like, never get a reply, you know, it's just like, it's not, you know, I just have, I've had to pull my punches and like, not even engage anymore, just like, whatever. Like, and there's a lot of talking your book too, you know, I mean, if you are obviously in the oil and gas industry, then, you know, the arguments that you know, best are the ones for oil and gas, you know, if you're selling a product, like I'm not saying there's an incentive there well, but but there is but that's just the arguments, you know, you know, so there's a little bit of that,
Foxley: Yeah, no, there's definitely a lot of bit of that conversation there. I really appreciate you coming on and talking about the grids in Texas. That was a different perspective than I heard from a lot of people and also renewables. Great having you on and hopefully talk again with you soon.
King: Always a pleasure. Thanks.