Karthik Rammohan - Bitcoin Incentivizing Renewable Energy

JohnPaul: [00:00:00] Hey everyone, welcome to the podcast. I’m your host JohnPaul and this is Digital Gold. Known to many as the Bitcoin Kid, I started my own cryptocurrency out of my parents’ basement back in 2013. The goal of this show is to simplify the crypto world and explore how it changes the way the world thinks about money through conversations with thought leaders [00:00:16] in this space.

[00:00:17] JohnPaul is the founder and CEO of Orm Capital Ventures. All opinions expressed by JP and podcast guests are solely their own and do not reflect the opinions of Orm Capital Ventures. This podcast is intended for informational purposes only and should not be relied upon for investment decisions.

JohnPaul: [00:00:44] Welcome to the Digital Gold Podcast. Today I’m here with Karthik who is a power and environmental product, market professional with ten years of experience and risk management, fundamental analysis and trading of electricity and renewable energy. He’s also been a Bitcoin investor since 2013 and served as an advisor to Orm since early 2020 providing insights and information [00:01:01] based on his deep understanding of the energy market. Karthik, welcome to the show. Glad to have you.

Karthik: [00:01:05] Thank you for having me. It’s a pleasure.

JohnPaul: [00:01:07] I’m excited to talk more about the energy business Karthik with you on the podcast. Thanks

Karthik: [00:01:11] again for coming on. The first thing I want to talk about is the Texas snowstorm. Can you talk to me about what that did to the markets and how you think it’s going to affect them over the next couple of months or years to come? Yeah, absolutely. I should first start off with a little story about the snowstorms here [00:01:26] in Texas before talking about the actual implications on the market. I actually, with the current company that I’m working with, I help manage our risk associated with our power contracts in the Texas market in Urkhat. During the storms, I had no internet, no power, and I was just bundled underneath my blankets, gathering the internet on my laptop to my

Karthik: [00:01:51] phone and keeping in contact with my coworkers because we were affected quite a bit on the business side due to those freeze-offs and resulting blackouts and super high power prices that resulted, $9,000 per megawatt hour. It was one of those unforgettable situations where you’re freezing your butt off, but you still, this is probably the most important [00:02:14] time in my career that I need to pay attention to work. That little juxtaposition was truly unique and something that I will never forget. The fallout from that event has been pretty substantial. One thing is that politically, you’re seeing a lot of blowback against renewables, a specifically wind generation in Texas because of the freezes associated with the turbines

Karthik: [00:02:37] at the wind farms in Texas. Basically, there was hardly any wind power that was generated during that time. You had natural gas freeze-offs, but it’s become a very political situation to the point where you have some bills in the Texas state legislature that are putting the onus. I don’t want to get too deep into what’s happening, but they’re putting additional [00:02:59] responsibilities on renewable generators and essentially adding to the costs of operating wind generation in Texas. Obviously, you’re going to get response on the other side from the environmental side saying, this isn’t appropriate. There needs to be something else that’s done. The political fallout from what happened has been massive. You combine that

Karthik: [00:03:20] with Biden getting elected and taking over office in late January, and then boom, this thing in Texas happening. Biden has big energy ambitions, and I should say clean energy ambitions. The combination of all this stuff has just made for an exciting time in our lives to see what’s going to be the true long-term fallout of all this stuff happening. We’re in for some [00:03:43] pretty intense political fights associated with both what’s happening at the federal level and with what happened in ERCOT back in February for sure. People who aren’t as familiar, can you give like a two-minute overview on what played out and what order regarding generation going offline during the cold shortage or during

Karthik: [00:04:00] the ice storm? It’s pretty straightforward. You had wind turbines that froze and that couldn’t spin, even though it was windy. You had wind turbines freezing off and you also had at the same time just gas power plants that were not able to operate either due to pipeline issues or [00:04:15] due to issues at the power plant itself. If you’re taking out a good portion of the wind generation and you’re also taking out a fossil fuel gas generation at the same time, you can easily understand why there was very little, there was not enough generation available to fulfill the demand requirements, the power demand requirements around the state of Texas.

Karthik: [00:04:35] So you had blackouts. Blackouts are merely a way to just, it’s the last resort, but that’s a way to manage the demand kind of over blow that you saw during this event. And as a result, you saw power prices head up to $9,000 per megawatt hour, which is the kind of the cap that Texas has. Power plants don’t just sell power into the market. They also sell what are called ancillary [00:04:59] services. So these are services that maintain grid stability for the most part. So you can sell energy into the grid, but you can also provide ancillary services that maintain grid reliability. And one of those ancillary services went up to as high as $20,000 per megawatt hour. But you had all kinds of issues that started from those high prices. And just to kind of dig

Karthik: [00:05:23] one step deeper, because I think this is important with a lot of wind generators, wind generators will hedge their forward power sales into the grid. So they will do forward sales at fixed prices for their generated power. And the assumption is that these hedges are on, but you’re going to, you know, you’re short on the on the hedge side, but you’re going to make it up by generating [00:05:46] electricity during those times. But what ended up happening was that you still you have your hedges, but you don’t have the wind generation on the other side to make up for it. So you’re just, you just kind of have a naked position of being short. And so if you can imagine, if you’re selling power at $40 in a hedge, and it goes up to $9,000, that’s a lot of money, that’s a loss on your hedges.

Karthik: [00:06:05] So you have credit issues with counter parties, wind farms, not being able to pay their counter parties. The widespread effect of this is, I don’t think it’s necessarily understood by everyone just yet, but yeah, it was, it was a disaster for a lot of parties. Now, on the other end of that, if you’re serving load in the state of Texas, and you have one of your customers that is blacked out, [00:06:30] when you’re serving load, you’re buying hedges. And so if you’re long the hedges and your customers are kind of blacked out, well, you get you benefit from that, because you know, you bought those hedges at call it, you know, $30, $40, $50, and they’re settling at $9,000. So depending on what your load profile is, you could have very much benefited from what happened also.

Karthik: [00:06:50] And for those people that are hedging and didn’t actually generate wind, what happened to them? Because I know there’s people that made hundreds of millions of dollars have the best three or four days of their lives of the wind generations live. And then there’s people that, you know,

JohnPaul: [00:07:03] went bankrupt. Can you explain that? Is that the main difference? Is because they had the hedge

Karthik: [00:07:07] on or hedge off there? That’s exactly right. It depends on your hedge profile. So there, there could have been power plants that weren’t hedged at all. So you know, usually your peak or tight power plants that kind of just operate when prices go high and they’re kind of able to turn on and off. I don’t want to say easily, but easier than other bigger than other power plants. [00:07:25] It depends 100% on the risk management associated with the project and how you structured those hedges. And so it’s not necessarily easy to know how every single power plant did that, but there were definitely different profiles of hedging that went on. Now, to talk to your question about when, and this has been publicized, a lot of these when projects have tax equity sponsors that are

Karthik: [00:07:48] usually big financial institutions, banks and certain others too. And what’s been happening is that these wind farms have been filing force mature claims on what happened, essentially saying that the weather event was quote unquote an active God and these guys have hedges, right? So we shouldn’t be liable to fulfill these hedges because of a force mature event. And those are kind of [00:08:10] going back and forth. Now you have lawyers that are involved. And so this is, it’s getting ugly. I think it’s the main conclusion. We haven’t seen the full fallout from this just yet. So I think it’s very important to kind of pay attention to what’s happening and more importantly see what changes come about in the coming months and years as a result of this. We mentioned still not done

Karthik: [00:08:31] yet. And I’m one of those big things that there’s a lot of credit swaps out there by Shell and potentially BP. Are you familiar with how those are handled or kind of what’s the next steps for there? Shell and BP have separate businesses that provide as kind of a backstop for certain smaller retail electricity providers. And so those retail electricity providers, you know, [00:08:51] essentially went under so they by default at the end of the day are operated by Shell and BP. BP just a few days ago actually magically announced that they’re going to start a retail energy business. And so I think part of the reason they’re doing that is because they have all these retail contracts that they took over as a result of what happened in Texas and they could decide to sell

Karthik: [00:09:13] those off to other retail entities or they could just start their own retail energy business and manage those contracts associated with the contracts that they inherited. So yeah, I think the retail electricity business was hit very hard, especially the residential because residential with your commercial and industrial retail electricity, a lot of those entities were blacked out during [00:09:35] the storm, but your residential, you know, you have people living at home who were trying to turn on their heaters, trying to keep themselves warm. Those were the ones that got hit very badly. And I think the most publicized example of that is Gritty. Gritty essentially provided contracts to residential customers that in which you were priced at a variable rate according to the whole

Karthik: [00:09:54] sale price of electricity. You know, they were, they’re gone now, but other residential electricity providers that provide fixed price contracts to their customers and maybe didn’t hedge as well

JohnPaul: [00:10:04] as they should have, they got hit very hard for sure. And how do you see Bitcoin miners coming in

Karthik: [00:10:09] and helping improve the role ecosystem in the, especially the Texas markets? As we know, there’s, you know, thousands of megawatts looking to come online in generation, but then also in consumption now with Bitcoin miners and ancillary services available. Yeah, now we’re getting to the, now we’re getting to some creative solutions that I’ve been thinking about. First, we should [00:10:27] take a small step back and look at how the Texas market operates and how other markets in the US operate. So if you go to the grid operators in the Northeast and the Midwest, so that’s, you know, New York, PJM, Neeple, which is the kind of the New England area, and then MISO, which is essentially your Midwest. All of these grid operators have what are called capacity

Karthik: [00:10:48] markets. And so what a capacity market is, is it is an incentive built into the grid operator that incentivizes power plants to just be available during times of need, during times of emergencies. So you’ll have power plants that participate in these capacity markets. They could not be generating any electricity throughout the year, but they’re getting capacity payments because they’re [00:11:13] quote unquote available when need be. And so this capacity market has provided an additional level of grid reliability in these markets at the Northeast and in the Midwest. The way that Hurkott operates is that there is no capacity market. It is what’s called an energy-only market. So the way Hurkott thinks about things is that, you know, we have Hurkott has a price cap of $9,000.

Karthik: [00:11:38] So the potential benefits of participating in the energy market outweigh the additional cost to customers that is required to have a capacity market. Because if you have a capacity market, you essentially have another line item on customers bills that says, you know, you’re paying for energy, but you’re also paying for capacity. And so at the end of the day, it makes retail electricity [00:11:59] more expensive for customers for a capacity market. So the way Hurkott thought about it was, let’s have an energy-only market. Let’s try to make power essentially as affordable as possible to the customers within Hurkott. Now, what we found out was that the price you pay for providing that low price of electricity 99% of the time is that 1% of the time or 2% of the time,

Karthik: [00:12:21] you have the potential for disaster. I don’t want to say it’s been a political kind of difference, but it’s been a philosophical difference between Hurkott and the other grid operators for a long time now. And this is where I think Bitcoin mining can come in. I actually think that Bitcoin mining in Hurkott and in other, you know, what’s happening in the markets that I mentioned before in the [00:12:42] Northeast and the Midwest is that those capacity markets are pretty low. There’s the capacity payments that power plants receive are not enough to keep them afloat for the long term. So this can also be utilized in those markets too, but to me Bitcoin mining presents an opportunity to utilize itself as a kind of a proxy capacity market. So the idea is is that you have power plants

Karthik: [00:13:06] 95% of the time mining Bitcoin and during times when they are needed during situations like this, or even when power prices are high enough to justify, you can have those power plants sell their power into the grid. And it’s as simple as that. In this way, you don’t need to implement programs like capacity to implement any changes in a grid operator takes a long time. And for me, [00:13:26] a Bitcoin mining presents kind of an immediate solution to not subsize, but to incentivize power plants to operate by mining Bitcoin, but also if power prices do get to a point where it’s economic for them to sell power into the grid as opposed to mining Bitcoin, they have the optionality to do that. And that optionality is only is that’s available in Texas, but you think

JohnPaul: [00:13:46] that is going to continue to be a large revenue stream or for Bitcoin miners? What do you think

Karthik: [00:13:53] that’s going to fade out as more miners joining? I think that’s a bloated question. It depends on the cost of mining. I think that with where Bitcoin is right now and the profitability profile associated with power prices in Texas, the numbers worked out for sure. Now, if power prices start to go up because essentially Bitcoin mining gets to the point where a lot of power plants are [00:14:19] seeing Bitcoin mining is more profitable than selling power onto the grid, I think you have market mechanisms to fix that. If power prices get high, then that incentivizes more renewable generation to get built, for example. So I think the important aspect of this is that you keep you’re not waiting for a central entity like Urkhat to come up with a solution. The solution

Karthik: [00:14:39] is already pretty much there. And the solution provides forces that will change power price dynamics, but you can respond to that. You can build more generation. You can build more renewable generation more importantly. And so I think it’s a much lower hurdle to present Bitcoin mining as a solution than waiting for the state of Texas, Urkhat to present a solution is kind of the way I look at [00:15:03] it. That is a good way to look at it. The free market is you’re saying the structure is already built and now Bitcoin miners are going to come in adopt that structure and use it. And even if

JohnPaul: [00:15:11] it’s scaling up, you know, gigawatts, it’ll go each way. What are your thoughts on some of the,

Karthik: [00:15:18] any of them? Will there be new tariffs introduced because of the snowstorm into the markets? You mentioned on renewables, will that increase the price of power or tariffs even for ancillary services? How might those change due to the snowstorm? And we mentioned I’m talking previously about the potential to build a, I believe a supply market or some sort of market that Texas doesn’t

JohnPaul: [00:15:37] have that other markets have. Can you talk a little more about that? Right now, what’s in Texas,

Karthik: [00:15:43] the state legislature, are bills to essentially charge renewable facilities with ancillary services are charged to load, meaning to customers, retail customers. And the bill essentially moves those charges from customers to renewable generation, which it’s an additional cost for renewable generation. And so if you have an additional cost, they’re going to be offering in their power into the grid [00:16:06] at higher prices to pay for that cost. So ultimately, it’s going to cause prices to go up for sure, if that’s passed. I don’t see a capacity market being implemented in Texas only because, but again, this is, this is political. You know, what do I know? I think that that veers a little too far away from how the market has operated historically. I hate to say this because this, it was a tragic

Karthik: [00:16:33] event. I mean, there were a lot of lies affected, but before the event, Texas had the lowest power rates of any state by far. And that’s a big, it’s a big advantage for the state of Texas to have that. So you really have to balance the additional costs associated with the capacity market with trying to maintain low prices within Urquat. And I think to me personally, I think Bitcoin mining [00:16:55] satisfies both. You know, if you have Bitcoin mining, the Bitcoin mining itself is the incentive that power plants need to kind of not sell power into the grid. And to me, it’s a perfect solution to this little problem. I think we both would agree that it’s a perfect solution, Karthik. But how has your discussions been with power producers and energy companies before Bitcoin’s price rise

Karthik: [00:17:15] and maybe after the price rise in 2021? Has that changed? Bitcoin mining is a very new concept to most people in the world. And I think generators are slowly kind of coming around to the fact that this is a viable opportunity to monetize on power generation. A lot of power plants have these long term hedges and those hedges are retiring. So they’re going to be selling into a merchant market. And [00:17:37] so if you’re selling into a merchant market in which prices are low, even after the snowstorm in Urquat, Urquat prices are still, if you look at the forwards and kind of what’s happening, they’re still relatively low. So I think at the end of the day for your investors and for management, you want to maximize profitability in the operations of these power plants. And Bitcoin mining is the

Karthik: [00:17:59] way to do that. There are some hurdles associated with that. There’s credit issues with miners and things like that. But I think that slowly but surely, generators are starting to see the light in

JohnPaul: [00:18:11] selling their power to miners, for sure. And let’s talk about those credit issues. So traditional

Karthik: [00:18:15] contract, when you build a power plant, you have a PPA. It’s for 10 to 15 years, you’re able to go get a finance or on the deal. Bitcoin miners can’t provide that level of guarantee, let alone five years, let alone even a month. Right now in the industry, what we do is one or two month deposits, and then you’re paying for the power before you use it. So the thought process is the credit risk

JohnPaul: [00:18:34] is going to be limited. But you’re not able to finance out a new project. Can you talk a little

Karthik: [00:18:37] bit more about how that might be changing? To tell you the truth, I think you would know a lot more about this than I would. Once we have a history of Bitcoin mining performance, to which you can evaluate the credit risk, you can evaluate the revenue risk, I think that’s when the comfort will increase. But until then, I do think that at the end of the day, unless you have kind of [00:18:58] some good infrastructure to give generators that confidence that the credit risk is worth it, I think it gets easier as we move forward in time is all I guess I’m saying. Because for me, a lot of the Bitcoin mines that I’m seeing build that are pulling electricity from existing generators are pulling from generators that are smaller, that are generating electricity from

Karthik: [00:19:18] more expensive fuel feed stock. So something has to give is I guess all I’m saying. And at the end of the day with where Bitcoin prices are trading right now, I don’t think there’s an issue with Bitcoin miners paying a little bit more than what other offtakers are willing to pay. And so I think that’s where the slack kind of gives. I think that’s where Bitcoin miners can come in and really make [00:19:38] a mark. I definitely agree with you on that. I think that as the industry matures, hopefully the offtake agreements that’ll be able to hedge your Bitcoin out six or 12 months, be able to head stuff like that, it will mature. But I mean, we’re still not seeing that in the industry at all in any way. So it’s very disappointing that these power companies are like, oh, you know,

Karthik: [00:19:55] how do we get 10 years of offtake? Which sadly, you’re just not going to be able to get in the

[00:19:59] current structure of Bitcoin. But that is, it’s a feature in a bug. BORM provides a bridge to the

Karthik: [00:20:04] digital currency mining world for individual investors, financial institutions, and energy companies. By combining over 70 years of mining experience, 24 seven management and directly aligned incentives, ORM’s managed mining program is the simplest way to enter the digital currency mining market. To learn more, please visit or on capital ventures.com. [00:20:26] One thing I will say is that I think you’re going to start to see entities that are interested in becoming middlemen between the generators and the Bitcoin miners, because the math is very persuasive for the viability of Bitcoin miners. So I think what’s going to start to happen is you’re going to start to see, I don’t want to call them traders, but entities that are willing to

Karthik: [00:20:44] take on the risk of the Bitcoin miners, but that also have, can back to back with these generators and that are maybe a bit more quote unquote credit worthy. So I think that’s where the opportunities will start to happen. I don’t think it’s at least in the beginning, it’s going to be directly between generators and the miners themselves. I think there’s just going to have to be some [00:21:04] middlemen that come in and see the opportunity in providing that service, essentially a credit sleeve between the miners and the generators. 100%. I think that’s a huge market opportunity that most people aren’t looking at because they don’t see it as a market opportunity or even understand the risk associated with it. Do you see Bitcoin mining companies moving into the electric generation

Karthik: [00:21:26] space or do you think the electric generation companies are going to come into the Bitcoin space faster? Because there’s one Bitcoin mining company up in New York that owns a power plant, the first ones that filed in their S1 with support.com that they own this mission plant and they’re one of the first people to do that. But do you see that trend continuing [00:21:42] in the asset acquisition of Bitcoin mining companies or do you see that credit issue holding a lot of problems for them? I think that’s actually more possible. You’re going to start to see investors become a little creative. Bitcoin mining is not just a crypto plant anymore, it’s an electricity play. If you’re making plays in electricity, you buy power plants. What I see is more

Karthik: [00:22:06] crypto mining companies and people like yourself coming up with creative mechanisms of potentially, if there’s an issue with negotiating power purchase agreements with power plants and just buying the power plants of themselves. I think that is more likely than waiting for the comfort level of generators to come to fruition. And are traders trading firms looking at Bitcoin mining as an [00:22:29] opportunity or even Bitcoin and any of these as wasted sell electricity in different markets? I think it’s definitely it’s nascent. But I do think that trading companies, I was talking about potential middlemen between power generators and Bitcoin miners. I think trading companies are perfect candidate but to be those entities. So absolutely. It is like I said, it is pretty

Karthik: [00:22:52] nascent right now. But again, once the comfort level is there and the understanding of how Bitcoin miners operate is there, I think it will accelerate the participation of traders for sure.

JohnPaul: [00:23:04] How has your involvement or work in Bitcoin affected your life and how do you see it continuing to

Karthik: [00:23:08] affect the energy industry or specifically as a trader? We just kind of touched on firms jumping into this space. But personally, how has it changed how you view the world, how do you view the energy markets? Oh, massively. I mean, it’s kind of funny because I got into Bitcoin. I started investing in Bitcoin in 2013. And I was at the time I was involved in the power trading space. But I never [00:23:30] saw the real connection between the two at that point in time. As I’ve kind of understood talking to people like you, the relative flexibility of Bitcoin mining, for example, the ability to participate in demand response programs, for example. And I think I really see Bitcoin mining as a way to stabilize the intermittency associated with renewable generation. The big issue that

Karthik: [00:23:56] comes up and what we saw in Texas recently is that renewable generation is not the most reliable form of electricity generation. And I think you have issues where your renewable generation is overproducing and you have other situations where it’s underproducing. One situation where it’s overproducing Bitcoin mining is a perfect balancing plate, for sure, for overproduction of [00:24:18] renewable energy. And it works out for Bitcoin mining because usually when you have overgeneration of renewable energy, your power prices are also very low. On the other side of the coin, after what happened in Texas, I started thinking about capacity markets and how they operate and other I couldn’t help but think, well, if you have Bitcoin miners as kind of a backstop to reliability

Karthik: [00:24:39] to power plants that can provide reliability in situations like this, it’s the perfect solution. So I really see Bitcoin as a big participant in the balancing of power generation profile in the world, but especially here in the United States going forward. And so I think that that’s the big opportunity with Bitcoin mining is to really be an interplay with the power markets [00:25:03] and to really provide a bit more certainty when evaluating renewable energy generation. So I think you’ll read a lot about kind of how Bitcoin mining contributes to, contributes to emissions. I actually see the opposite. I actually see Bitcoin mining as a method of making renewable generation more profitable because of its availability. So I actually think you can see more renewable

Karthik: [00:25:26] generation as a result of Bitcoin mining being and just being there.

JohnPaul: [00:25:30] When people who aren’t familiar with the wind farm process, can you explain the tax equity

Karthik: [00:25:34] structure and how those farms currently move off of a tax equity deal? I can talk about the tax credit structure for wind and for other renewables too. But essentially the way it works is right now there is a production tax credit of roughly $24 per megawatt hour for 10 years that wind generators receive. And so when a wind generator starts generating [00:25:56] electricity, it receives this $24 production tax credit for 10 years. And this tax credit, because the developers of wind farms don’t really have an appetite, they hardly have any tax liability, this benefit of the production tax credit on the wind side is sold off as a source of financing for the wind project itself. So the tax credits are essentially sold off to mainly financial entities

Karthik: [00:26:22] that have use for them, that have tax liability, and that have a use for these tax credits. And in exchange, they become a tax equity investor in the wind project. Now, I think someone’s going to have to check me on this, but I believe tax equity provides roughly 50% of the financing needs for wind projects. So it’s a big deal of the selling of this tax, this tax benefit is a major contributor [00:26:44] to the financing structure of wind facilities. And that’s hence why when you see negative prices on the grid, the reason prices are negative is because you want to maximize the receipt of these tax credits. And in order to do that, you need to be generating. And so even if you’re generating at a time when the power really isn’t needed, you’re still incentivized to pay someone

Karthik: [00:27:05] to take that power, because you’re receiving $24 in tax credits from the federal government. And so those are the times when you have your over generation of electricity. And when I say, well, if you have Bitcoin mining that kind of takes up that extra generation, then you really balance out the grid. But you also provide, you provide price stability for the renewable projects themselves. [00:27:26] On the solar side, there’s what’s called an investment tax credit, meaning it’s an upfront payment of 30% of the capital cost to the developer themselves, to the developer. And so same thing, the developer will sell that upfront receipt of the investment tax credit to tax equity sponsors. And that’ll finance a portion of the build out of the renewable facility. That’s kind of how

Karthik: [00:27:50] the structure of the tax benefits works. Now, we’re going through this real time. President Biden is trying to extend these tax credits. They’re not going to be as high as the $24, but they’ll probably be at the 60% of that. This kind of incentive structure is likely to exist for a while going forward. And is a big reason why we’ve had this massive build out of wind here in the [00:28:12] United States. And so once these farms come off their tax credits and they’re producing power, the market’s going to negative, are they turning these wind farms on and off? Or are they like, because they don’t want to have to pay someone if they’re not going to need tax credits? So, are the wind farms being controlled or are they just always on? Or they offer into the grid at

Karthik: [00:28:29] their cost of operations. So they’re not offering at negative prices anymore. Usually what happens is that there’s what’s called, there’s a process called repowering. So you actually have the option, once you get to your 10th year, to basically replace your turbines, upgrade all your equipment, and then qualify for an additional 10 years of production tax credits. So a lot of wind farms [00:28:50] will go through this process of repowering. But if that option is not there, then, yes, they operate like a merchant asset and they’re offering into the grid at the economic price. It depends on what wind farm you go to. They’re not going to be on all the time, but like other wind farms. So, you are correct in that. There is a bit more planning needed in terms of how to operate

Karthik: [00:29:12] wind farms after their production tax credit. Usually a lot of them will still have PPA’s, will still have power off-take agreements with other entities that are still going on. So they will still sell power into the grid, but they won’t be offering it at the crazy low prices, because of the production tax credits. So there’s some gymnastics. And that’s what’s happening with [00:29:31] a lot of wind farms right now. These are coming off their 10 year production tax credits. Some are coming off their long-term power sale agreements. And it’s a conundrum. I don’t think there’s a straightforward answer in terms of how to manage power wind plants after the PTC and the

JohnPaul: [00:29:46] power off-take agreements come off. You mentioned that upgrading the turbines. Can you talk a

Karthik: [00:29:51] little bit more about that process? And so as a Bitcoin miner, if I’m plugging into a facility and they have to do that, they’re doing that 10 year upgrade, we saw in the past, they’re like, okay, we have credit issues now because you can’t guarantee the off-take. We can’t finance

JohnPaul: [00:30:05] a whole project. We want to sell in the next 10 with the PPA for the next 10 years. Can you talk

Karthik: [00:30:09] a little bit more about what that process entails and how that could affect mining firms? Absolutely. I mean, yeah, it definitely affects mining firms. And it’s something that needs to be looked at obviously before. So essentially, I haven’t been too much on the wind development side, but there’s definitely a portion of time where your wind farm is not [00:30:29] operating from the, due to the upgrade processes we just talked about. So it is something that needs to be paid attention to. So anytime you’re doing an off-take from a wind generator, it’s definitely a good idea to know where they are in the timeline of receiving their production tax credit, where they are in the timeline of their PPA off-take, and really understanding

Karthik: [00:30:50] like how that affects the mining operations. If you don’t have the wind farm, if you’re in a regulated grid operator, okay, we’re not, there’s no wind, okay, so then we’re probably going to have to pay more for the time that we’re sourcing power from the grid as opposed to the wind farm. So that’s definitely something that needs to be taken into account because yeah, you’re not going to

JohnPaul: [00:31:09] have that wind blowing for a good portion of time. Can you explain a little bit to me, Karthik,

Karthik: [00:31:13] as well like PPA agreements and how those work? Because I understand like, does a PPA buy have to be local to the electric, to the wind farm generation, or can they be like in California?

JohnPaul: [00:31:24] Like how does that work? Because I know the stranded energy is the whole problem. It’s like

Karthik: [00:31:27] these wind farms are built all in areas where no one buys the power, and are you telling me they’re financing these deals with companies that are saying we’re going to use clean energy in

JohnPaul: [00:31:35] California because we’re Shopify? Like how does that work? That is a very, very loaded question.

Karthik: [00:31:40] It wasn’t meant to be, I’m just curious. Yeah, yeah, it’s a very, it’s a cause of quite a bit of debate within the renewable industry. So I think it’s appropriate to kind of start with a little timeline to help answer your question. So when companies and different types of offtakers were trying to find quote unquote renewable energy, the first thing they kind of did was just buy [00:32:01] the renewable energy credits, which are the renewable attributes associated with renewable energy generation. So when you had situations like that, you had entities say in New Jersey buying renewable energy credits from renewable generators in Texas, for example. And so there’s no power deliverable, there’s no power delivered to the entity in New Jersey. It’s just you’re just buying

Karthik: [00:32:23] the renewable attributes from that facility, and then you retire them and you can claim that you are being environmentally responsible, or you can make the ESG claims that you want to make. Now, kind of what’s happened is that that practice has been called out a little bit, and now you see more physical offtakes. Now for a physical offtake to work, you do have to be in the same ISO. So if [00:32:47] you’re in PJM, you can be you can be a factory in Pennsylvania, and do a physical power renewable purchase from a wind farm in say Indiana or Illinois, which and because they’re both in PJM, you do need to be in the same ISO in order to do kind of the underneath the behind the scenes business of scheduling and deliverability and all that good stuff. It is possible to purchase renewable power

Karthik: [00:33:13] from a facility in another ISO, but you have to go through the process of actually scheduling that power into the interface of the two ISOs and actually delivering it into the set. It gets more complicated as you kind of deviate away from the ISO that you’re in. And so I think the answer to your question is that you really have to read the fine print of these offtakes to truly understand [00:33:37] what level of scrutiny companies are going through to get their renewable energy. Are they just buying renewable energy credits, retiring them, or are they actually going to a facility, scheduling the power, delivering the power to the load? So it’s just it’s different from agreement to agreement. And I think we’re going to see a lot more scrutiny on the claims that are made by entities that

Karthik: [00:34:02] are doing these types of deals. And so that’s a that’s a challenge. Now from a Bitcoin mining perspective, I think with Bitcoin miners saying if you’re an ercot, I think having proximity, if you’re a Bitcoin miner in West Texas, you’re going to be mining most of your electricity using renewable energy because most of the electricity in West Texas just comes from renewable energy. [00:34:23] And so it just depends on the level of comfort you have of making those claims. I think the point of that answer is to really explain the level of grayness in actually making these claims and the different options that are available to to make these claims. But at the end of the day,

JohnPaul: [00:34:39] it depends on the fine print. I think is the answer. No, I appreciate you giving me that answer. And

Karthik: [00:34:43] do you have you looked at Energy Web Token or any of those other projects that are on the blockchain to try to decentralize energy trading? So I’ve been hearing about this for a while. There have been a few projects that have come out that are that are kind of doing this. Those are only going to, I think, ironically, the solution to what I just mentioned about sourcing renewable energy and [00:35:04] really quantifying the deliverability of it is going to be a blockchain solution. So I have looked at there have been some projects going. There was a pilot project in Brooklyn that created essentially a peer-to-peer energy training system amongst participants in the blockchain network. This was a few years ago, I think. And so there have been, you know, I have been hearing bits and pieces of

Karthik: [00:35:25] how blockchain can really enhance the analysis of how renewable energy is being utilized and where it goes. So I think that in terms of me keeping in touch with kind of what’s going on, I wouldn’t say that I’ve been doing that. But having said that, I think the scrutiny of how renewable energy is generated and delivered is only going to get higher moving forward. And [00:35:46] the blockchain solution will only serve to make that happen. I definitely agree there, perfect, on the blockchain solutions. It’s like you said, which one’s going to scale, who was going to adopt, where’s the real use cases, is it in electricity trading or is it in just like the carbon markets and how are organizations going to move forward on this technology?

Karthik: [00:36:06] I think, is there anything else you wanted to touch on that we haven’t talked about today? I think just one thing is that the next year to two years is going to be very important in how the energy market, the electricity market here in the United States evolves on a looking forward basis. We have legislation both at the state level and at the federal level that’s really going to [00:36:28] change quite a bit of how the electricity market works. And as a result, is going to change how Bitcoin mining works too. So the one thing I think I want to say is really pay attention to what happens in the next year to two years, because it may dictate what’s going to happen for the next 30, 40 years. So I think we’re at a really unique time to where we need to really pay

Karthik: [00:36:51] attention to what’s happening and glean the results of what’s happening. So it’s an exciting time. So I can’t wait to see how things unfold and see the opportunities that arise from these changes that are occurring. And Karthik, we talked a lot about PPA’s, renewable energy, energy production, distribution, different markets. But is anyone talking about grid stability or [00:37:14] building out better grid infrastructure? Or there’s just no incentives there? Absolutely. Especially after what happened in Texas and February, that is a bigger and bigger conversation. I can definitely say that at the federal level, it is being talked about quite a bit. And it’s a balancing act that’s going to have to be taken into account. The more

Karthik: [00:37:31] renewables that you have on the grid, pretty much the less stability you have. And you have storage as a solution, hydrogen as a solution. But those aren’t going to be solutions in the short term for the stability issue that you’re talking about. So I do think that there’s going to have to be a balancing act that’s played between now and when those other technologies become [00:37:51] more viable. So it’s definitely a wrench that’s been thrown into the discussion. It was kind of in the discussion before, but it’s a much bigger topic of the discussion when asking how do we modernize our grid going forward? So that’s what people that are much smarter than me are going to have to figure out quite frankly. So hopefully Bitcoin mining is a part of it. I think it’s a very

Karthik: [00:38:13] natural solution in the short term. But we’ll have to see. We’ll have to see. And Karthik,

JohnPaul: [00:38:19] where can people connect with you online and just stay up to date on what you’re working on or

Karthik: [00:38:23] what you’re interested in? I think the best place is on LinkedIn. Just search for my name, Karthik Ramohan on LinkedIn. And yeah, that’s probably the best place to connect with me and

JohnPaul: [00:38:33] engage with me. Well, thanks for sharing that information, Karthik and for sharing everything else today on, like I mentioned, the PPAs and the Bitcoin mining side. I’m excited to see where

Karthik: [00:38:41] this space is going to go. It’s only growing. It’s only maturing. It’s only getting bigger. The energy consumption, if a Bitcoin in my opinion is a feature and not a bug. Have you heard any internal communication about the carbon footprint of Bitcoin mining and maybe how that could be perceived as bad or people talking about energy usage of Bitcoin mining as a problem in the energy [00:39:02] sector? Or is it being viewed more of like as a solution to the problems that you’re discussing such as good reliability? And maybe that’s just more on the news front or the kind of the people that are not necessarily understanding the full implications of the energy markets and how intricate they are and how many how consumption and production really go hand in hand.

Karthik: [00:39:20] I will admit, I think most of the public impression that I’ve heard about Bitcoin mining has been more towards the contributes to more emissions. I think I don’t want to I don’t want to by no means do I want to toot my own horn. I haven’t heard of anyone talking about Bitcoin mining as a solution for grid reliability to tell you the truth. I think it’s a very natural solution, but [00:39:41] I haven’t heard too many people talk about it. I think that the public opinion seems to be that it contributes more to global warming. Actually, I was just watching I watch Bill Maher on HBO and he just talked about this two weeks ago. And I think it just kind of like you said, it kind of shows there needs to be a bit more understanding of how the electricity markets work. And one

Karthik: [00:40:01] thing that I’ve always talked about is yeah, Bitcoin mining can be used as a balancing entity for renewable generation. It can be used as a solution for grid reliability. Bitcoin mining can also if you’re a Bitcoin miner, you have you’re going to have some good tax liability. There are advantages for Bitcoin miners to themselves fund renewable generation in the areas that they mine it. And so [00:40:24] one idea I’ve kind of thrown around is that if you’re a Bitcoin miner for every megawatt hour or megawatt of mining capacity that you have invest in two megawatts of renewable generation. And it’s only going to help everyone involved. So I think, you know, and renewable investment in renewables is, you know, when you take into account kind of the different cash streams that

Karthik: [00:40:45] are available, it’s a great investment. So I think there needs to be kind of more thought put into how Bitcoin mining can help in balancing out the grid. And if there’s a bit more thought put into kind of how Bitcoin mining can actually enhance renewable generation, I think it’ll be easy to see that it’s actually it’s a great solution to a lot of the issues we see in power markets. [00:41:08] You were the one who sent me the ARK Invest article, correct?

JohnPaul: [00:41:11] I think I did. Yes. Yes. Can you talk a little bit more about what, you know, what they got right

Karthik: [00:41:15] there and what they potentially might have missed off or can miss calculations if you’ve got a chance to review it? I think the one thing they got right off of it is the potential for balancing. I think that was the one thing that kind of came out to me. I haven’t really been able to scrutinize the numbers that they have in the article too much. But I think the, and you kind of mentioned [00:41:36] this before, the power markets are a very granular market, right? Like you need to match generation and consumption for, you know, every hour or even sub-hourly. So I think at the end of the day, when mining provides the opportunity to make that match impossible. And that article does a great job of highlighting that conclusion, that is what I’ll say. 100% agree. And I think we’re here

Karthik: [00:41:58] for here for the ages until the last Bitcoin mining block is mined in 2140 and I’m super excited. To be working with you, Karthik, on this and excited to see what the energy industry is going to, you know, make of this space in the next 10 years as it grows to consume a lot more power.

JohnPaul: [00:42:14] And hash rate only looks like it’s going up. So thanks again for the time. And this was a great

Karthik: [00:42:19] opportunity to record one of our conversations and jump on. And next time we got out, we’ll see how it gets. But this was great, Karthik. I enjoyed it. Absolutely. It’s definitely an interesting intersection of two markets with crypto and power. So I’m definitely excited to see where

[00:42:35] this comes. Awesome. Well, thanks, Karthik. Again, everyone, mine on.