All generators produce and submit to ERCOT (hereafter referred to as “the grid operator” ) a “bid curve”, which serves as an indication of how much money they would need to spend in order to produce a megawatt (MW) of power.

The resulting bid curve represents the marginal cost, or the dollar value required to produce the next megawatt of power. This ends up looking like a curve starting at the facility's minimum output, and going up and to the right, as thermals need more fuel to produce more power.

The entity sitting at the top of this bid stack during any interval who provides the final, most expensive megawatt hour sets the grid price for all generators for that interval, and so they are sometimes called the “price setter.” Because wind and solar both bid the market at $0, they are in contrast often called a “price taker”.

This frequency market is separate from the energy generation market, there are two markets. The energy market, in which generation is turned on or “matched” with expected load (or demand). And ancillary services, in which frequency is maintained around 60 HZ to keep the system operational and avoid blackouts. The energy market is the big, heavy dial, the ancillary services market is the small, precise dial.

By participating in the market as load resources, bitcoin miners coordinate with grid operators in ways similar to generators, but instead of ramping up generation they power down load demand in response to wholesale pricing. The result is that the miners flexibly push the marginal price of power downward for the grid. Put differently, they do not push the marginal price higher than their breakeven.

Bitcoin miners are unique because of how fast, transparent, and flexible their response can be to pricing fluctuations.

Instead of having to solely rely on grid pricing for revenue, new generators could buy “offtake insurance” that enables them to contract with a bitcoin miner if their grid pricing forecasts turned out to be a bust. This would present an incredibly novel tool for derisking generation development, allowing generators to bring their offtaker (their buyer of energy, a bitcoin miner) with them to a new site.

For renewable generators this is especially enticing.

Bitcoin’s place as a grid resource is pretty clear. Large flexible loads that have the ability to pay themselves to be online and respond immediately to frequency events is a new asset class for the power system.

Miners who can qualify to provide these types of services (by proving that they can ramp up or down and follow instructions quickly) will sell their capacity in an auction.

Firmware that allows the mining machines to be ramped up and down while minimizing long term harm to the machines would be an incredible tool for the power system.

This author expects that eventually, mining companies will pop up specifically to perform this type of service, using extremely old machines and pairing them with generators that are unable to perform this service on their own (renewables or nukes).

Bitcoin miners operating at significant size that interconnect on the transmission network will likely face interconnection rules and responsibilities that more closely resemble existing rules for generators, not rules for loads. For example, bitcoin miners will have to prove that they have redundancies in their network connections, such that a faulty cable won’t drop their entire load.

Many topics discussed in this article are generalized for the sake of simplicity, and most of the above sections probably deserve 50 pages of their own analysis.