24 May 2022

On today’s show, Preston Pysh talks with energy executive, Shaun Connell. They discuss how Bitcoin strengthens the grid and acts as a buffer to consume surplus baseload energy generation.

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  • How Bitcoin first got into Shaun’s life as an energy executive.
  • What was the reaction of most energy company executives that are learning about Bitcoin?
  • How fast is Bitcoin being adopted into the grid’s infrastructure?
  • How does Bitcoin impact the bottom line for energy companies?
  • How does Bitcoin impact the energy grid’s stability?
  • How policymakers understand the advantages of Bitcoin mining.
  • How energy prices may impact the value of Bitcoin moving forward.
  • What’s the momentum for adding Bitcoin into the energy sector’s asset mix?
  • As the price runs, does it become harder for the physical hardware infrastructure to capture the margins?


Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

Preston Pysh (00:00:03):

Hey, everyone. Welcome to this week’s episode of the Bitcoin Fundamentals podcast. On today’s show, we dive into the fundamentals of the Bitcoin network by talking to energy grid expert, Shaun Connell. This was such an eye-opening interview for me because it’s not something that most of us hear or see when we think about the growth in the Bitcoin infrastructure. During the interview, Shaun talks about how advantageous Bitcoin mining is to the energy sector to help offset surplus base load generation. As you’ll find in the interview, his decades of experience in energy is a fascinating angle that many might not have considered or thought about when considering how impactful Bitcoin is to this particular sector. This isn’t an episode you’re going to want to miss, and it’s definitely a show to forward to all your friends that say Bitcoin consumes too much energy. With that, without further delay, here’s my interview with the thoughtful, Shaun Connell.

Intro (00:00:52):

You are listening to Bitcoin Fundamentals by The Investor’s Podcast Network. Now, for your host, Preston Pysh.

Preston Pysh (00:01:13):

Hey, everyone. Welcome to the show. Like I said in the introduction, I’m here with Shaun. Shaun, I saw some clips of you talking on the internet and I was like, “Oh, my God. I got to get this guy on the show immediately,” because you were just spitting fire, man. Absolute fire. Welcome to the show. Great to have you here.

Shaun Connell (00:01:31):

Cool. I appreciate it. Thanks for having me on. I’ve been a big time fan for a long time. Fantastic.

Preston Pysh (00:01:35):

Awesome. Well, I’m very excited to have you here. Let’s start off with just your background, because what I like about your background is you started off in energy. Correct?

Shaun Connell (00:01:45):

Yeah, that’s right. Yep.

Preston Pysh (00:01:47):

I love this because this not the normal path. Talk to us about that background and then talk to us about how Bitcoin just popped up into your everyday life.

Shaun Connell (00:02:00):

Yeah. Sure. My background is that I came into energy in 2002. I’m from the East Coast of Canada. I got a one way plane ticket for graduation gift, and I moved out to Calgary, Alberta, and I was essentially looking for anything and everything, any job opportunities here. I’d had like a real fascination around trading for a long time and a real interest in it. One of the places that I put a resume to was called TransAlta and it was energy marketing. I just finished a business degree and I thought that marketing was traditional marketing. I didn’t realize that it was the energy marketing of marketing power. This was right at the time in 2002 that power markets were just deregulating. Right?

Shaun Connell (00:02:42):

What that meant was is that companies that used to have customers that were really just rate payers, right? They didn’t have a say in anything. Essentially, markets were deregulated where they separated the generation from the transmission, from the person that sends you the retail bill. In this process, a lot of these generation companies found themselves in a position where they had a lot of generation that they now need to find a home to. That was kind of the genesis of trade floors coming around, around the year 2000. I started in 2002 where I found a company here that was energy marketing, got a interview and took them for a tour at the trade floor, and I fell in love with it and was super excited and said everything I could to get a job and then spent the next pretty much 20 years with that company where essentially starting on a narrowly desk and a real time desk, and then growing up and helping build this desk and leading this desk that was responsible for optimizing a fleet of natural gas generation assets in Ontario and some other assets in different markets.

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Shaun Connell (00:03:41):

What was really neat about it and has this overlay with Bitcoin is that when markets were just deregulating at this time, so 2002, there was no books on how to trade power, right? It was kind of like the Wild Wild West, and you’re trying to figure out how to make this work. Right? The people that figured out fastest and earliest were the ones that really did well in the company that did well. It has an overlay with mining right now, right? Because it’s like this place where there’s no books on how to do mining. There’s no agreed to commodity of saying that the… I believe that there’s a megawatt of power and MMBtu of gas, and I think in the future, we’ll talk about exahashes, which I believe is like a billion, billion hashes.

Shaun Connell (00:04:21):

I think that’s going to be the commodity. There’s no playbooks on how do we value the exahashes or Ford market for exahashes? What does that mean? It really ties into minors, because miners have efficiencies that how many exahash per megawatt hour they can produce based on different miners? Really, it’s a perfect overlay with power plants, right? Because there’s natural gas plants and they have something called a heat rate, right? A seven heat rate plant uses seven years of gas, produce one megawatt. A gas peaker will do something like a 13 heat rate, but it’s really this perfect overlay where you see what happened in power markets and how that evolved over time and really matured. Then, you see this kind of thing at the start of Bitcoin. Right?

Shaun Connell (00:05:00):

My introduction to Bitcoin was a friend of mine gave me a call in 2017 and long time friend respect his opinions. He was telling me about, “Had I heard of Bitcoin?” I was like, “Yeah. I’ve heard about it.” He gave me the digital gold narrative and I bought into it quite quickly. Then, the question was, I said, “Okay. Well, how much does it cost?” Right? At the time, it was 10,000. I said, “Well, how much does it cost to make? How else can you get?” He said, “Well, you can buy it or you can mine it.” I said, “Okay. What’s the price?” He’s like, “10,000 to buy, and it was like 200 to make.” Right? Coming from a background in commodities is just over time, commodity prices always converge. They arbitrage the way the spread.

Preston Pysh (00:05:40):


Shaun Connell (00:05:41):

Right? There’s this mining industry where it’s just this hype happening, this excitement and you see this pulling apart and you say, “$10,000 of Bitcoin can make it for 200.” Something’s got to give, right? It’s going to be, “What’s the correction?” That’s where I really fell in love with understanding mining for… Because for me, to invest a meaningful amount of time or money in something, you really got to understand it. For me, that started the journey or ran down this rabbit hole of understanding the fundamentals of mining and the polls on those. Over time then, I was at my company there at TransAlta and then, we’re considering, “Should we do mining?” We’re looking at what’s the opportunity to do that and realize just how much of a tremendous opportunity this was going to be.

Shaun Connell (00:06:32):

You think about just this new technology where when I was first introduced to the company that I’m with right now, it’s called Lancium, and what they do is they essentially take these large Bitcoin mining facilities and they turn them into a power plant, but in reverse. Right? What that means is you can dispatch down these facilities the same way as you can with a natural gas plant or a coal plant or whatnot. You provide all the ancillary services that are like backup power for a grid. For me, at that time, I realized how big of a role this could play, and I didn’t think that [inaudible 00:07:09].

Preston Pysh (00:07:10):

It was more than a light bulb moment. Right?

Shaun Connell (00:07:12):


Preston Pysh (00:07:13):

It was like, “What did I just discover?”

Shaun Connell (00:07:15):

There were stages of the light bulb, right?

Preston Pysh (00:07:19):


Shaun Connell (00:07:19):

The light bulb goes off and then you find out more, you’re like, “Oh, my goodness. This is a bigger light bulb.” Then, more and more and more so that was a very long winded way of saying that I started in energy markets, did that for 20 years, realized the comparison of energy markets and Bitcoin mines, how they’re maturing. The first 10 years of those energy markets were so exciting that I wanted to have a repeat of that, and to take the opportunity to say, “I’m going to go join this new space with this company that’s in this space and have another fun 10 plus years.”

Preston Pysh (00:07:48):

Well, let me ask you this. When you were understanding this and you’re explaining it to other executives in the energy space, what was the reaction?

Shaun Connell (00:07:58):

It’s a great question. I go to observation and a little bit of opinion. If you’re an energy company that is already involved in fossil fuels, like say you’re an oil and gas company, you’re probably going to be more receptive to it. Right? Because you’re already labeled as fossil fuels in bed that… Taking on this initial initiative of something like Bitcoin mining, it’s great because it’s another way to monetize an asset at one of your facilities. Power generation’s different, right? Because power generation is where I’m grateful for being part of… Like in a career in electricity is it’s every fuel type, because there’s renewables. There’s coals. There’s natural gas. There’s oil peakers before. You get to have an exposure to all of these and over the past 10 years as this narrative was developing around essentially this energy transition, like moving to sustainable energy is a lot of these companies are very cautious about being the first mover. Right?

Preston Pysh (00:09:00):


Shaun Connell (00:09:01):

If you are a power generation company that’s trying to brand yourself as renewables, what will the market say? What will the market say if I’ve got renewables and Bitcoin mining? Is that good or bad? This is now tying into the kind of opinion, is that I think it’s going to take a large power generation company to be the first one. Then, once they take the brunt of kind of, “Was this deem to be excellent? A good idea?” Based on the outcome of that company going forward, I think that you’re going to get the companies to follow in behind because it’s a remarkable way to monetize generation that previously required wires. Now, you can do with ethernet cable.

Preston Pysh (00:09:47):

I would describe what I think I just heard you say is they’re open to the idea, but there’s a massive education gap for the population to fully understand what it would even mean, and it poses a potential branding issue for them until the population understands or somebody else goes out before them and lays the path that’s a major energy producer that basically sets the precedence for it not being a branding issue. Is that correct, or…?

Shaun Connell (00:10:24):

Yeah. That is correct. I’d put on one other… A layer to that is that… In 2017, what I was hearing around for other power companies was that the lack of understanding what Bitcoin was? Is it a Ponzi scam? Is this going to be around for a long time? Because if you think about like the traditional model for power generation companies is that they’re going to be connected to the grid and they’ve got a couple choices to monetize that. One is they can inject that power into the power grid and you’re going to get paid whatever the spot price of energy is for that injection point. The second part is that you can have customers that are behind the fence. There’s like industrial customers where they can take steam electricity for some big industrial processes. Right?

Shaun Connell (00:11:11):

By being behind the meter where the power plant is that you’re avoiding a lot of the costs that would do with the transmission distribution costs and whatnot. That’s the normal playbook is saying, “We can head behind the fence so we can do the grid.” Now, go back to 2017 again as saying, “How much of the value chain do we want to partake in?” Is it really our time to extend the value chain of saying, “We’re a power company. We produce megawatts and we sell them to customers that use those megawatts.” There’s, “Do we want to just have the same model of having miners co-locate with us the same way as these other industrial customers, or do we think that this is something that we’ve developed for competencies over the past 20 years for optimizing assets that we could do a better job of saying we’re essentially going to think about this as upgrading our facility to refine local megawatts into global megawatts and we’re going to take the value side of the mining.” Right? Which I think is a natural fit, but that’s a struggle that I think some companies will have. Just especially back in 2017 of saying, “Is this thing going to be around in five years? Should we make this CapEx investment in something that may or may not be here?”

Preston Pysh (00:12:16):

Let me ask you this. On a scale from one to 10, one being nobody understands it and it’s nowhere to be found in the power of space to 10, everybody understands it. Everybody has spent the CapEx and has it on board and it’s just part of everyday operations for pretty much any energy producer in the world. Where are we at today? How fast is that trend moving on that scale from one to 10?

Shaun Connell (00:12:47):

My observation from a few years ago, so two years ago was that we were mostly at about a one or a two. Right? That means that we don’t understand it. There hasn’t been enough mining companies going public that we can look at the appendixes and really understand how do they calculate the value of mining. Right? Because that’s a black box. Another thing is just in the past, and this is the comparison of how I think about mining is what’s the value of an exahash and what is the revenue per megawatt hour for that mining? In the mining space, it’s more about what is the dollar per day per terahash. Right? That’s not linking to an executive at an energy company. You really don’t know what that means.

Shaun Connell (00:13:30):

It wasn’t kind of an apples to apples comparison. We’re transitioning to that. I’d say that two, three years ago was that one, people didn’t know what it was. They didn’t know how to value this. Right? I’d say that today, in conversations I’ve had with several friends that work for other power generation companies, it’s on everybody’s radar. It’s beyond on the radar, I would say that some feel like they’ve missed the boat and they’re frustrated. Right? Then, others are like, “Well, we’re still nervous about this, and we still don’t know what we’re going to do, but we now feel more confident that it’s here to stay though.” Right?

Preston Pysh (00:14:08):

Yeah. Okay. One of the things that I heard Michael Saylor say in one of his interviews was just the network effect that is now being constructed for proof of stake because of this integration with power companies and what it’s going to do for them. Generically, the first question I got for you on that idea is if a power company has a top line of 100 and a bottom line, I don’t know the margins here. I probably should. Let’s just say the margins are what? Five, 10% after tax for a power company. We’ll just say it’s 5% for simplicity, but let’s say the top line is 100 and the bottom line is a five, if that power company would fully embrace Bitcoin mining as an additional strategy, what would that do to their bottom line of five? Would it bump it up to a seven or a 10? What are we talking here?

Shaun Connell (00:15:05):

This would require you to be looking back in hindsight, because hindsight would tell you what you would’ve made for revenue per megawatt given certain machines that you have set up. You assume that we would say like, “Hey, we’re a power generation company.” We’re going to do a look back over the past four years, and assuming that we bought the latest gen miners at that time. Right? In the pay difference for having that upgrade, it’s massive.

Preston Pysh (00:15:30):

It’s more than doubling the bottom line.

Shaun Connell (00:15:32):

I would say more than… Multiples of that.

Preston Pysh (00:15:34):


Shaun Connell (00:15:34):

Because we’re in this early timeframe though. Right?

Preston Pysh (00:15:37):

Yeah. Yeah. Yeah.

Shaun Connell (00:15:38):

We’ll get into more details because I sometimes get down to the wage too quick, too fast, but the punch line of later are saying that the people that are getting this early are saying like Bitcoin right now is the buyer of first resort. That means that it’s willing to pay higher than the rest of the customers on the grid for the majority of hours. Then, when energy’s scarce and expensive, no problem to turn down. Right? It’s going to be consuming this and it’s converting those local megawatts into global megawatts and they’re getting that premium for being a first mover. If you look back at the past four years, you might have received as a power generator of revenue, top line revenue, $35 per megawatt hour. If you would’ve purchased these minors, you would’ve had something in the neighborhood of 300, right?

Preston Pysh (00:16:25):


Shaun Connell (00:16:26):

But here’s the other catch on this, and this is really important is that you’ve got this CapEx depreciation schedule. Usually, a power generation is depreciate over 25, 50 years. Miners are depreciating four years. Right? On a new gen miner that costs like say one megawatt, $3 million-ish, that means you have to recover $100 per hour every hour of the year for four years just to recover your CapEx, but you’re still multiples above. Now, I’d layer on the second part of saying, “You don’t always have to buy new gen minors.” Right? Now, think about you’re ignoring the base load, natural gas plant or whatnot. Let’s go to a wind farm. You can look at this wind farm and you can say in 2020, Bitcoin price was, I think it was like six or 7,000 and hash rate was high.

Shaun Connell (00:17:16):

The revenue for megawatt hour for an S9 miner was $30 and people were giving these away for free. They say like if you pick it up, you can take it or there were $20 a piece. What that works out to is you could have bought one megawatt of S9 miners for about $15,000. Compare that to the new gen miner of $2 million for megawatt, this is those peanuts. You could then take these S9 miners and you’re on some type of wind farm or solar asset, and you say, “On hours when the price is too low, I now have an option of saying I can sell to the grid or I can sell the Bitcoin mining. Because the flexibility of my CapEx was so low, I don’t have to try and I’m not chasing to try and recover that CapEx spend.” It’s a one time spent for infrastructure. Then, it’s almost like free for those minors. I would say the economics are significantly higher too on these intermittent resources that can get paired with an older miner with a lower CapEx cost.

Preston Pysh (00:18:21):

Yeah. When you just look at the energy expense, if it’s truly stranded and there’s just tons of energy seeping out of wherever, and there’s just no demand for really that energy and it’s priced extremely low, you’re going to find all these old rigs just naturally migrate themselves to those jurisdictions because they can still make money plugging them in, even though they’re pigs, what they’re consuming, but the energy’s spewing out anyway. I think that’s something that’s majorly lost with politicians and policy makers in this space is that idea. One other thing that I want to just hit on from a depreciation standpoint, I love accounting, and I’m just looking at this and you’re talking about some of the multiples that come out of this, especially for new hardware. I think if today, and you might have a better beat on this than me, but if you’re capturing energy for six cents per kilowatt hour, five-cent per kilowatt hour, and you got a new rig and you’re plugging it in, you’re basically doing 100% on that expense of the rig. If the rigs 10,000, you’re going to make 10,000 in Bitcoin in the first year.

Preston Pysh (00:19:32):

If you can depreciate that over a three to four-year period of time, that hardware expense over three to four years, that’s a nice expense to be able to write off on the income statement and it hides a lot of what you’re being able to retain in profits that I don’t think a lot of people fully appreciate, especially maybe in the energy sector, they do, but I know what you’re saying. It’s a lot faster cycle rate than what I think a lot of executives are used to where they’re seeing 20, 30 years of depreciation on certain pieces of hardware. The hurts on this depreciation is a whole lot faster, but the return is astronomical compared to what they’re used to getting from just a regular consumer. Fascinating. Absolutely fascinating stuff here.

Shaun Connell (00:20:23):

I’ll chat more about the stranded energy, because this gets lost on most people. Right?

Preston Pysh (00:20:28):

Please, yes.

Shaun Connell (00:20:29):

Is that there’s a belief in the world that energy is scarce everywhere and all energy’s created equally, right? Like converted energy, biotype energy. You think about moving energy around is the easiest way to move, something would be like coal. Right? Put it on a truck, put it on a train, move it around. Next is oil, put it in a pipeline. Next would be natural gas and pipelines as well. The hardest one is electricity, right? Because the network of electricity, it’s not like you can have an excess amount of wind and some electricity in one area and say, “Hey, Europe. You need some electricity. We’re just going to ship it.” Right. It’s in an area that’s constrained by the wires in that area, and the investment that was made and customers having a rate base that you’re paying for these wires.

Shaun Connell (00:21:13):

It’s really kind of… Back to energy is very complex, is there can be real pockets of excess electricity. Without having the ability to move a load to that area, the only option is building out transmission lines. There are cases like in West Texas where 10% of the hours last year were negative, which means that the grid operator’s sending a price signal that’s so low that you should turn down. That means that energy’s being curtailed. That’s not going anywhere. You can’t ship that anywhere else. Without some type of load that’s co-locating right next to it, you really are going to be spilling wind. You’re just going to say, “We can’t do it.” Just an important point and most understand is that you can have energy abundance in certain areas and not in others.

Shaun Connell (00:22:02):

I think about the idea that I’m from Alberta and back in the ’80s, that people would go buy land for the mineral rights or underneath them. All you had to think was, “Is oil going to be valuable in the future? Because if it is, I got long oil just from buying some land.” I think about this in the renewable space right now is that, there’s been these massive deposits of wind and solar in certain areas, given the certain kind of the geography, the weather and whatnot that you couldn’t tap into before, because there’s no power lines there. You couldn’t monetize it. For the first time in history now, you can actually bring a load to this deposit of sunshine and wind that couldn’t get tapped into before, because you couldn’t pull it out of there. That’s a neat concept Bitcoin’s really unlocking.

Preston Pysh (00:22:51):

It’s almost like the ultimate capacitor that you could stick anywhere with near perfect efficiency. Would you describe it that way or would you describe it in a simplified kind of way? Would you describe it different?

Shaun Connell (00:23:06):

I’d start with is that power generation provides two main services. They provide energy to the grid for realtime supply demand balance, and they provide backup power, which is called ancillary services in case something unexpected happens and you can come online to make up for that. Right? Up until now, demand has been perfectly inelastic because… What’s the price of energy right now for you where you’re at, Preston?

Preston Pysh (00:23:34):

I would say 11 cents per kilowatt hour, 12 cents, something like that.

Shaun Connell (00:23:38):

You’re guessing with the realtime five-minute prices in your area, but if it was really, really high, you wouldn’t know and you couldn’t turn down because you don’t have the required equipment or telemetry in your house to respond to prices. Right?

Preston Pysh (00:23:53):

Yeah. Yeah.

Shaun Connell (00:23:55):

How much would you really turn down if a price signal went to a certain point is maybe limited and they’re improving on this and having loads of the response of the price. I mentioned this on Peter’s podcast, but just to zoom out and to say that I think that when you frame Bitcoin mining as is it just or not, everybody’s going to come away with a different opinion. You’re not going to get away on board. That’s a really hard thing to do. But if you think about what we’ve been fortunate about in Bitcoin and mining, how it relays energy is that for the past several years, countries have been pledging to say net zero emissions by 2050’s one of the main timelines, right?

Shaun Connell (00:24:38):

It’s a real noble thing to do. It’s the right thing to do, but there’s a ton of implications on that. What it means is that to go to economy where your net zero emissions means that you need to electrify everything. Right? That means that cars go from combustion engine, you’re going to go to EVs. Right? The holdings are going to be electric. That means you’re going to have a lot more electricity demand because you’re going to electrify everything. It works out to be about a 3x, an electricity demand over a 30-year period. Electrifying everything at the same time is that to decarbonize means that you’re going to retire fossil fuel generation, which is your natural gas and fossil fuel plants, not in coal, whatnot. What are you going to replace that with? Right? The answer’s been that you can replace it with renewables. Hydrogen’s part of the solution, but in this example is that you’re going to essentially -1x your fossil fuels, and you need to 15x your wind and solar capacity from current levels, right?

Preston Pysh (00:25:33):

Yeah. That don’t work on a variance level.

Shaun Connell (00:25:35):

Right. Right. Zooming out again is like three times electricity demand, -1x fossil fuels, 15x wind and solar. What that’s going to do is going to create a lot more volatility for intermittency on the grid, right? When is the wind blowing? When is the sun shining? To balance that, what you need to have is you need to have flexible resources, and new flexible resources that aren’t fossil fuels, but resources that can come to the grid and can balance during those periods. I’ll use an example in ERCOT, there’s 10 gigawatts of solar right now, and their average demand is approximately 45 gigawatts. Over the next year and a half, they’re going to go from 10 gigawatts to about 20 gigawatts. On this average day, about half of your generations come from solar.

Shaun Connell (00:26:23):

What happens when the sun goes down at the end of the day is you have this really big two-hour ramp period where you need to bring on a whole lot of resources to make up for the fact that you’re losing your solar resources and the current solution right now is natural gas, right? It’s a great load balancing resource phenomenal, but what happens when you lose these is that you need to have new resources that can do this. Going back to the example is with all this intermittency, you essentially need to have a 4x on your flexible resources that you have available to grid. Currently, 95% of flexibility comes from generation right now, and 1% comes from demand response and batteries. Then, the IEA put out this publication and their forecast, it says that batteries and demand response need to do 50%. You’re going to go from 1% to 50%. What is Bitcoin mining?

Preston Pysh (00:27:22):


Shaun Connell (00:27:22):

Bitcoin mining is demand response. It’s the Rolls-Royce of demand response. It’s the pinnacle. The way why this is that think about the current Rolls-Royce of demand response for industrial manufacturing would be the steel plant. The reason why is it’s got one single energy intensive application, which is the arc furnace. There’s literally somebody that’s sitting by a switch and when they say, “We’re going to come down for a couple hours,” they hit the button and they can come down for two hours. They’re going to drop 95% of their peak electricity demand, but they can only do it for two hours. The reason is because the steel’s going to harden. It’s going to turn into ingot. It’s going to cause a whole bunch of problems. You got to turn the arc furnace back on.

Shaun Connell (00:28:07):

That’s an example of demand response. It’s the best one that there is today until Bitcoin mining. Now, the way to think about Bitcoin mining is the arc furnace is like that assembly line. You’re going through this process and you have the arc furnace, and then it goes to a ladle. I forget all the other pieces, but it’s like an assembly line for a car. They got to go through these stages. You got to interrupt the process when you do this demand response. Bitcoin mining, if you think about like 100 terahash per second Bitcoin miner, that’s the equivalent of saying you have a machine that can start, finish and monetize 100 trillion jobs per second.

Preston Pysh (00:28:48):

Right. It’s unreal.

Shaun Connell (00:28:52):

There’s no work in progress, right? It’s completed jobs, right? You didn’t have wasted effort prior to that. Those throw away. You were able to stop it immediately and you turn it down and as soon as their price changes, or if you’ve been called on to provide one of these ancillary services, you can go back up, but you’ve got the ultimate flexible resource now that can do this type of low balancing.

Preston Pysh (00:29:16):

When I think about all the issues that you’ve seen crop up in the last five to 10 years with the inflexibility of the grid all around the world, I know you guys have had issues in Canada and the US all over, this solves that problem. It makes the grid robust. When I’m thinking of it from just a policy standpoint, it just seems so obvious that this needs to be embraced by across both party lines, whether you’re a conservative, liberal, whatever. It just seems like such an obvious solution to a real world problem that both parties would want solve. Do you think that it’s moving politically? Maybe you can only talk on the Canadian side, do you feel like it’s moving in the right direction politically, that decision makers are understanding these very strong arguments as to why this needs to be built into the grid?

Shaun Connell (00:30:14):

Yeah. I live in Canada, but the company I work for, Lancium’s a Houston based company and I’m down there half the time. I’m pretty well versed with ERCOT. That’s where I’ve been spending a lot of my time. About a month ago, the interim CEO of ERCOT, his name is Brad Jones was… I was looking on YouTube and I saw this, it was a CNBC clip and it was Brad Jones and it was talking about mining. I flipped it on and my jaw dropped. ERCOT has been the early adopter of these controllable loads. The controllable load is what allows you to determine these power generation reverse. They have the benefit that they are an islanded electricity grid where they’re not connected to the rest of the US, which allows them to do things without meeting FERC approval, which is a federal approval.

Shaun Connell (00:31:02):

They can experiment and do things faster than others. They’ve been very kind of… I call it the entrepreneurial mindset, like down in Texas. These controllable loads have been coming on in Texas, and you’ve probably seen the news, some of these large sites that are coming online. The interview was with Brad Jones and it was the ultimate perfect interview that you would say, “What would you hope the CEO of the power system that is being bombarded with massive amounts of Bitcoin mining, what is he saying about this?” His message was… One of them, he was saying, “Hey, we’ve got this amazing wind and solar resource in Texas. We want to build that out, and we want to have some type of load that can soak up that excess renewables, because you don’t want to turn down that resource.” One part, he said… He also commented about when there’s a plant that could trip offline is that there’s been a track record for these loads being able to do frequency response.

Shaun Connell (00:31:56):

What that means is that the heart rate of the grid is at 60 hertz per second. If something trips offline, the heart rate changes and you can’t wait for a dispatch. You got to automatically sense… These power jars do, they automatically senses a change in the frequency. Then, they inject more power or for these controlled loads is they turn down. They do this right away. He made a comment in his video about how that’s been proven that this is working in the state and then he’s tying back into that. There’s certain types of flexible resources. There’s four categories, right? There’s power generation. There’s inter ties. That’s your grid connectivity. There’s batteries and there’s demand response. ERCOT’s an island, right? It’s an island that doesn’t have hydro.

Shaun Connell (00:32:43):

Hydro is a great flexible resource. It’s like a battery. It’s storage. They don’t have any batteries. Since they’re an island at grid, they can’t lean on their connections with the rest of the United States to pull power if there’s any type of problem. They really got to be self-supporting. Brad Jones’ message was saying that they’re really embracing these miners because they’re offering a lot of flexibility to their grid operas. It’s essentially like a grid operator’s Swiss army knife where it’s like, “I can use this for backup power. I can use this for energy,” depending on how the owner of the facilities offered it into their grid, but it’s this great resource for helping them balance their grids, especially as they’re transitioning to more renewables.

Preston Pysh (00:33:26):

Well, they can give them what they want, the miners what they want as well, because they can give them a sweetheart deal in pricing of the energy that they’re consuming as the homeostasis back to the power generator is that flexibility, and having that there to have that agreement in place to either turn them off or leave them on. Right? I would think that in the negotiation of some of these contracts with some of the larger miners, the incentives align for them to get along. Right?

Shaun Connell (00:34:00):

Yeah. Zooming back out on power markets is that I hear often the news that said that a miner got paid by ERCOT to turn down right, which is false. Right? Because there’s different types of… Again, back to the components, there’s their wholesale generation. There’s your wires company, your utility company, and your retail supply side. When you go into a market like ERCOT, which is deregulated, is that if you go into some utility company area where it’s an investor owned utility, which is approximately I think about two thirds of Texas, that means that the rate for the transmission is set by the public utility commission. Right? There’s no negotiating, right? It’s just, “This is what the rate is. It’s great because it’s transparency.” It’s not backdoor deals or something like that.

Shaun Connell (00:34:48):

You know what you’re going to be getting and on the energy side is that you’re going to be purchasing energy from the grid operator who’s… ERCOT, all they’re doing is they’re a clearing house. They’re essentially taking all the generation and they’re saying, “Who’s willing to sell power for what price? I’m going to stack it up. Here’s where the demand is. I’m going to set the price at that marginal megawatt.” If you’re in one of these areas where it’s an investor own utility, you’re essentially able to buy at the spot price, at this clearing price, and you can also do hedging for that location, which is essentially a contract for differences, because you’re going to buy your physical power from the grid operator. Then, you can have this financial hedge on the side that’s like a contract for differences to hedge that risk.

Shaun Connell (00:35:31):

In the example where somebody says, for example, winter storm Yuri went through ERCOT, February 2021, caused very high prices. There were a lot of miners that did very well. The reason was, is because they turned offline. They weren’t consuming energy during this event. They had this contract for differences hedge. They’d entered into a contract for differences hedge where it’s saying, “We bought at $50 per megawatt for X number of years around the clock.” Then, prices during that time settled, there were several days that settled $9,000. It was the Black Swan of Black Swans. Right? They got paid on this contract for differences, right? They didn’t get paid by ERCOT. They just did the right thing. They did what made sense is saying, “This price is way too high for me. I can’t afford to pay for that. I just need to be offline,” which is good for everybody else because energy is scarce and had that same miner said, “Instead of turning down, I’m going to be selling ancillary services. I’m going to run and I’m going to be the best low cost option providing ancillary service.”

Shaun Connell (00:36:36):

Well, ERCOT’s going to pay them for that ancillary service and the miner’s going to pay for the energy and you net those two together. That’s the net cost that they would’ve had, but back to the point of saying, ERCOT’s not making arrangements with miners on saying, “Hey, to turn down… It’s what’s great about Texas. It’s very open market and here’s the rules.” Yeah.

Preston Pysh (00:36:56):

The essence of what you’re getting at is humans that need power at emergency periods of time or in a more competitive space are going to out prioritize Bitcoin mining just naturally through an open market competitive environment, which I think people that are hearing this, that might be a concern that they have. As they’re listening, they’re like, “Well, these things are going to take over.” If the margins are that fat, they’re just going to take over and the person who just wants to turn on the power at their house aren’t going to be able to do it, but what you just described is not that fascinating stuff. My gosh.

Shaun Connell (00:37:35):

Think about this. For these new gen miners, their break even right now is about $200 a megawatt and the average price for the past five years or so has been about $50. Right? They’re well above the average, but whenever there’s price hikes, they turn down. Some of the education that needs to be shared with folks on this is saying that they’re always going to be turned down when the price above 200, but imagine the story of saying this miner only turns online when the price is below $20. Right? This miner is only going to consume that super excess energy and you can tell it’s excess because it’s so cheap.

Preston Pysh (00:38:09):

Cheap. Yeah.

Shaun Connell (00:38:11):

Everybody I think would be saying, “Holy crap. That’s amazing. We can put these facilities next to these renewables.” Since power’s mostly always over $20, they’ll be turning off, but this is the greatest thing in the world. This is where… I get excited about this as well, is that where the power markets start in 2000 versus where they are now in 2020 was much different. Where mining is today and where it’s going to be in 10, 20 years is completely different. We’re going to have a great experiment in the next year because for a long time, these miners have had such a high break even point they’re running 95% of the time, because prices only go above that certain amount of hours per year. Over the past 16 months, gas prices tripled.

Shaun Connell (00:38:56):

Over the past four months, it’s more than doubled. Right? In power markets is that natural gas is your marginal unit. It’s the one that balances your real time load supply. Again, back to the past five years is 35, $40, the price of power for the balance of year across the United States now with this 3x in gas prices is north of $100. Right? In certain periods like summer, the average price for the… They call them peak hours, which is Monday to Friday, 7:00 in the morning until 11:00 at night, that’s priced in at $200. The off peak, which are the morning hours is priced at $100. The average for summer is 150. Right? What happens if you have an S9 miner in ERCOT, and your break even right now is $80. Right? That miner’s coming off a lot. Right?

Preston Pysh (00:39:47):

It’s coming off. Yeah.

Shaun Connell (00:39:49):

Some of these other miners that are… I talked about that $200 average, that means that there’s going to be several hours above four or $500 if this materializes. Right? Because it’s just the average of the month’s averages for those peak hours. I think that we’re going to see for the balance a year, and this is where mining has an opportunity to shine is you’re going to see this evidence of these miners turning down because if power prices have tripled, that means that economics of mining is going down, which I’ve listened to you in another podcast, and that you think about the price of mining is the floor for energy. We’ve just tripled the floor.

Preston Pysh (00:40:27):


Shaun Connell (00:40:29):

You’ve now priced out a bunch of these miners. If they do another doubling of hash rate over the balance of the year, that means that it’s twice as more difficult on the mining. In listening to you in the past, it sets up that kind of next push, right?

Preston Pysh (00:40:43):


Shaun Connell (00:40:44):

But the real story on this is like, I think we’re going to have evidence at the end of the year on just how these miners were operating in an environment when power prices were very high, and you’ll see them turning down at different times that even when there wasn’t scarcity events, because the power prices were just too high, which goes back to that narrative saying, “In the long run, Bitcoin will be the buyer of last resort,” but we need to transition there and it’s going to take time, but with this extreme vault that’s happening right now this year in power markets, it’s going to foreshadow what that looks like, I believe. It’d be a pretty neat year to see that.

Preston Pysh (00:41:20):

I think to your point as well, is those rigs that are in a geographic location that is not turned on because of the prices. They’re going to sell them. They’re going to sell them to other geographic locations where the energy costs… Hey, maybe they’ve got a volcano. Maybe they got something else that is generating energy at an extremely low cost, and they’re just going to gobble those things up for pennies on the dollar and plug them back in. You’re seeing this from a different lens than most people in this space that I’ve talked to, at least. Is there anything that’s going to stop this or slow this down at this point, or is there so much momentum in the energy space to lean into this?

Shaun Connell (00:42:05):

I feel very confident that it’s going to keep going. Everyone say never on this stuff. Right? But if you check the boxes and say, “What is Bitcoin mining?” It’s like that rabbit hole of… For me, in my experience was that you go to Bitcoin and then it takes a three-year rabbit hole of what is money and what problem’s being solved? It’s amazing rabbit hole that gets you into all these books that you never thought you’d read and it’s phenomenal. I feel like we’re now accidentally getting the benefit of Bitcoin solving another big issue and saying, “What is energy?” Right?

Preston Pysh (00:42:39):

Amen to this. I’m with you 100%.

Shaun Connell (00:42:44):

I think that Nick Carter was early to recognize this. He’s just like, “I think this is that really important piece of information that we need to really figure out,” so that we can… Yeah. I shared this on Peter’s podcast is that something I think is really important for everybody to be educated in the space and to understand the value is that if nuclear generation was invented today, it would be the magic pill. Right? We wouldn’t have all these perceptions and beliefs about this being bad and that it’s going to be…

Preston Pysh (00:43:14):


Shaun Connell (00:43:15):

Right? It would be like, “We found it.” The concern I have is that we’re at this very pivotal place for Bitcoin, where it’s hard to put the pieces together, but why this is amazing for energy, amazing for money, and has these great characteristics. But if it goes down this wrong path, and then too many people start believing a certain thing, and then it starts… An executive order happens. Right? You have to ban mining. That’s a fear word. I feel like we’re ahead of the narrative now, and it’s starting to pick up. My observation has that been for the past few years is miners are tremendously smart folks that know their business inside and out, but when asked for how’s Bitcoin benefiting renewables? They’re like, “I’m not too sure, but I just know it is.” Now, it feels like the pieces are coming out where it’s really data backed and you can see it and you’re like, “Yes. Now, I can communicate this and share that.”

Preston Pysh (00:44:12):

It takes a lot of effort and it takes a lot of different voices of people to lay out all the evidence. There’s a lot of research there to piece that together and be able to view it from that lens, but I think we’re at that point now where we have enough people and enough sources. For example, the Saylor and Jack Dorsey response to Congress just this past three or four days ago, responding to… I don’t know how many questions were laid out here. It looks like eight different questions in this document. They just take it task by task, laying out why there’s confusion in some of these questions. I’m curious, did you have a chance to go through that document and see how they responded to some of these things?

Shaun Connell (00:45:03):

I did. I think Nick Carter might have been on there as well. I think he might have had an influence on the writing of that document. I think that our signatures on the back on one of the last pages, our company. Yeah. It’s great that we now have the information and they did a wonderful job preparing that response.

Preston Pysh (00:45:29):

I’m going to read one here. I don’t want to take away from the questions here, but I love this response to one of the questions here. I just want to read this for the people listening. One of the questions, it states we have serious concerns regarding reports that Bitcoin mining facilities across the country are polluting communities and having an outsize contribution to greenhouse gas emissions, less energy intensive cryptocurrency mining technologies, such as proof of stake are available and have 99.99% lower energy demands than proof of work to validate transactions. This was the response in the paper. This is, once again, misleading. Proof of stake is not a mining technology. It is a technique to determine authority over a distributed ledger, but it does not achieve decentralized distribution.

Preston Pysh (00:46:19):

Moreover, it has a much more limited track record, is controlled by founders, has single points of failure, and it remains dubious as to whether proof of state can effectively govern a global apolitical monetary system in a manner like proof of work, and it goes on and on. Some of these responses in here were just absolute fire. It’s nice to know that we have a community of people that are taking them on blow by blow. Who eats who here? Do the energy companies eat the mining companies, or do the mining companies eat the energy companies?

Shaun Connell (00:46:56):

I don’t know if it’s framing of who eats who. I think it’s more of where does the market share go? Right?

Preston Pysh (00:47:04):


Shaun Connell (00:47:04):

You think about the hash rate market share, and I’m making this up and I’m going to be wrong is that say its public mining companies are 75% and the rest, 25%. In the future, what is the blend of public mining companies, public or private energy companies, other mining companies? I think that the actors in the space on the energy side, they all see this value and they recognize that the current customer they have, which is a grid, sometimes is a great customer, but if you own a business, wouldn’t you rather have two customers versus one. Right? You can almost look at this as like… The way that I was thinking about it when I was with TransAlta is just like, “What would it cost to buy a strip of put options on power?” Right? It’s just like, “Well, you can buy the miners for cheaper than that. You’re actually arbing the price of these put options, assuming you’ve got the capacity of doing that. Right?

Shaun Connell (00:48:02):

It was the same thing with those Bitcoin miners when they weren’t virtually free in 2020 and saying, “What is the cost of a strip of call options on Bitcoin price?” It’s like, “Well, what’s the cost of these Bitcoin miners?” Because there’s an arb there, but you need the infrastructure to plug it in. I just see these as it’s not like these energy companies are going to be saying… I believe that these energy companies are going to be all in where all they’re doing is mining. They’re going to be saying, “Hey, we need to have different options for monetizing our energy,” and there’s certain benefits that accrue to all by them doing that. Yeah. I see a future where… Another big reason for education on the mining side here is that we often frame this back in the category of it’s a good use of energy.

Shaun Connell (00:48:45):

One of the common rebuttals is saying that we just use a fraction of the energy of the world. Right? Which is true right now, but if it does what we think it’s going to do, then that means that the 15 gigawatts today in 10 years from now is more like 300 gigawatts, which is not insignificant. We probably have to shift away from again of just like, “Is this good use of energy?” Versus saying, “Do we think of batteries as green or dirty?” Because batteries are withdrawing power from the grid and then injecting back into the grid. Are we assessing who’s getting those megawatts that are coming out of the battery? It’s like, “No, this is a tool for the transition.” If you think about in uptime, it’s maybe like a 50%. Half the time it’s injecting withdraw, whereas mining can be up 95% of the time. For these miners that are all gen miners, it can be at the money where they can be 50% up and down, but when you frame it more on saying that this is a tool that helps with these transitions, you get away from that. Having to say this, is it just use of energy? We’re just insignificant on the total quantity.

Shaun Connell (00:49:52):

My prediction in the future is that I’ll use 20 years out, because everything’s possible in 20 years. It’s hard to say that’s wrong is that the current cost for a megawatt of wind and megawatt of solars is roughly a million dollars and the infrastructure required for a racking solution for miners is call it a quarter million. Now, think about you’re doing this new wind project or solar project, Bitcoin’s been around for 30 years. Right? You’re saying, “Okay. I want to go to connect to the grid.” Actually, you’re probably not saying, “I’m going to connect to the grid.” You say, “How do I monetize this to your starting point?” It’s going to probably be a blend of mining it and in the grid.

Shaun Connell (00:50:24):

In the future, I predict that the decisions on when you’re doing this capital outlay for wind and solar projects will just naturally have this quarter million dollar purchase for your racking solution, and you’ll have a strategy that after every one of these havings, or just during these down periods where you have public miners with lots of capital that can replace these miners and essentially retire the old ones, you’re going to have these renewables projects just sit on the side just like a bid. Right? They’ll say, “We’ll take whatever you got, because we’re just going to put this here and this is better than getting paid -10 if we get to the grid.” Right?

Preston Pysh (00:50:56):

Yeah. Yeah.

Shaun Connell (00:50:58):

I think it’s going to go part in that decision.

Preston Pysh (00:50:59):


Shaun Connell (00:51:00):

That’s every energy company will say, “How do we think about pairing this with some type of racking solution that allows us a non-wires alternative for selling our power?”

Preston Pysh (00:51:12):

How do you think about the centralization of mining rigs with all of these mining companies? Now, anybody who understands the space knows that these miners participate in pools and they can reallocate their hash rate to whatever pool, if they feel like one pool operator is not doing the right thing and that it’s becoming too centralized or whatever, but what are your thoughts on so much of the miners being controlled by large companies now? Do you have any thoughts around that idea?

Shaun Connell (00:51:45):

I think it goes maybe in the category of mining pools and hash rates and now, there’s a blend of… I haven’t looked in a long time, but say it’s 10 big pools and 10%, and it’s not a central attack, but I generally think that again, I bought a Tesla in 2014 where I flew out to Vancouver and I drove it back to Calgary and it was a nightmare because there was no charging stations and it took me two and a half days. There’s a lot of stories behind that. But that state of 2014 when there’s no charging stations is much different now in 2022 where I can go anywhere and charge these things. Right? Framing the… Centralized the mining is just like, we’re now at a 15 gigawatt. There might be pockets of centralization, but you go to 300 gigawatts and it’s a global mining operation. Right? It becomes, I think less of an issue because it’s not just focused on a region in the US or in some types of states. It’s gotten to some massive adoption level that it’s very global distributed in the size of the capacity of megawatts or securing the network is much larger.

Preston Pysh (00:52:52):


Shaun Connell (00:52:52):

It’s less significant in the future.

Preston Pysh (00:52:54):

Yeah, I agree. Here’s one I got for you, Shaun. When we look at the price action, call it five years ago, seven years ago of Bitcoin, and we look at how much hardware had to come online to capture the spread or the margin that was created out of those price runs, you could bring quite a bit of hardware online relative to that price jump and then capture the margin, capture the spread and bring it into a production cost. We saw this in 2018 enough hardware came online. The price was coming in at, I want to say like 8,000 and then you saw a big capitulation because basically all the hardware that came online from that peak into the following year brought the spreads down significantly, and there just wasn’t a whole lot of margin to be made and you went into a miner capitulation and everything kind of reset itself. That happened fairly quickly.

Preston Pysh (00:53:54):

I think today, when we look at the spread that currently exists, the margin that exists, it’s still pretty massive. For all intensive purposes, we’ll just call it a 50% pullback from the all time high that was set at close to 70,000, and the margin is still there. It doesn’t seem like the hash rate is picking up at a pace that would capture that nearly as quick. When I’m thinking about this dynamic that’s playing out, I’m thinking, “Well, it requires so much more hardware now to come online to capture that spread. What in the world would happen if the price went on a real tear and let’s say it went to two or 300,000?” It’s almost as if the price appreciation doing these big jumps, it’s harder for the physical infrastructure to keep pace to capture those spreads as the price would continue to potentially run. Are you seeing that way, or am I out in crazy land with how I’m looking at this? It almost seems like it’s not a linear comparison as the price would continue to go higher.

Shaun Connell (00:55:02):

I think that over time, these come back and they make sense. Right? Just something that got me excited recently with this power price move is it actually made the economics of mining not so good. Right? Because if you had this miner that was in 2017 that was making $500 a megawatt hour for some months, and then in 2020, it was down to 30. Right? Again, just like this overlay of power generation is there’s this kind of similar behaviors where power companies will build generation because even though the market says they don’t need it, they think that when they put it online, it’s going to be there. Right? I come from a trading background. I say there’s a better way to express that view than to build an asset that’s out of the money on the start. Right?

Shaun Connell (00:55:50):

You could buy call options on power that could accomplish that instead of buying this really big physical asset and maybe you couldn’t get off the amount of volume that you wanted to do. I see these behaviors that are happening in mining that overlay the same behaviors to people. There’s just people making decisions. Right now, we’re at a point where I mentioned that some power across the United States going to be like 150, $200, which means that these new gen miners are going to be out of the money. In Europe, the price of natural gas in Europe is something like 25 to $30 on MMBtu. Here in the United States today, it’s about $8. That means that you can’t do mining in Europe because gas is three times more expensive there, which means the power’s way too expensive. Right? The power prices here, if you would’ve gone back in January, margins were fat. Right? It was good because this big gas move hadn’t happened. I think we’re experiencing that right now.

Preston Pysh (00:56:47):


Shaun Connell (00:56:48):

Is that these miners that were deep in the money are actually… Some are getting out of the money. Some of these new gen miners might need to turn off for some periods during the summer times and later in the year. I think we’re in that mode right now. I don’t think the margins are really good right now for these miners. Well, step back, they’re okay right now for the last two months where power plays as a…

Preston Pysh (00:57:11):

Yeah. They’re not nearly as fat as they were before the big macro energy moves that we’re seeing.

Shaun Connell (00:57:17):

That’s right. The price of power year to date has been $45, and the price for the balance a year is 120.

Preston Pysh (00:57:26):


Shaun Connell (00:57:28):

Comparing the economics for the past four months isn’t the right proxy for what’s coming up. Back to again, your narrative where this mining set in this floor, I think there’s going to be some hash rate coming offline at that time because it’s uneconomic and you’re going to see some discomfort.

Preston Pysh (00:57:43):

That is fascinating. That is fascinating to me.

Shaun Connell (00:57:46):

Yeah. Right?

Preston Pysh (00:57:48):

I’m looking at it and I’m saying, “Hold on a second, the infrastructure cannot keep pace with what I suspect the price is going to do in the coming five to 10 years,” but I never thought of it from the perspective of the energy cost blowing out in Fiat terms and how that’s going to cause not issues, but that’s going to help keep everything much more imbalance and you’re not going to see such a drastic spread because everybody today is still denominating those expenses for the hardware in Fiat terms. They’re looking at it in Fiat terms as they’re paying their energy bills until we eventually get to a point where everything’s going to be denominated in Bitcoin. We’ll see where it goes. Right? Wow.

Shaun Connell (00:58:35):

You’ve got some dance thinking there, Preston.

Preston Pysh (00:58:37):

That’s interesting. No, I love your comeback on that because it combats… Not that it combats, but it lessens the burden of it being so obvious to energy producers because the spread would be 300% plus, and it’d just be super obvious.

Shaun Connell (00:58:58):

I think that we’re now maturing in… Again, it’s like reference of power markets when they’re deregulating 2000 to 2010. I remember trading New England power market, which was a lot of natural gas there. There’s expensive natural gas in New England because there’s not many pipelines. It’s constrained up in that area. You would see the price of power for the next day at $200 and you do the math and you say, “Do you know what? Based on the price of gas, it makes more sense for them to sell back their gas and to not run their plant than to run their plant because that’d be uneconomic. It’d be a bad decision.” Right? I got burned so many times in the beginning in 2003, ’04, ’05, because these companies hadn’t developed the capabilities in house or through third parties to essentially make those changes for how they’re dispatching these generation assets.

Shaun Connell (00:59:50):

We’re starting to see that now in the mining space too, because you’ll see some of these miners that maybe they don’t turn down all the way because they’re just realizing that they’ve got this facility that can be dispatched up and down and it has this additional flexibility. The takeaway on this is that the same way power generation had to mature as this deregulation happen, we’re seeing that maturity happen with these mining companies as they get bigger and more sophisticated in how they’re operating their sites. It’s a very similar reference.

Preston Pysh (01:00:21):

What is something that most people are misunderstanding or just totally missing about this particular space right now?

Shaun Connell (01:00:29):

I would say that… I was making a presentation to an independent market monitor about the benefits. This is somebody that would look at ISO, one of the jurisdictions for the rules and essentially make some suggestions on how could they improve their market, right? They’re responsible for being this third party that can look at the market and then make suggestions to the state or the utility commission on how to improve. I presented to them two years ago and what I was trying to communicate was saying the same way you think about batteries, that you can put them on certain parts of the grid to relieve congestion, right? Because they can come up and down and they can respond to price signals is that I would encourage them to think about these controllable loads as the same way.

Shaun Connell (01:01:17):

The reason is because… And this goes back to how power markets are formed over the last 100 years and load being not responsive, right? Load can’t respond to prices perfectly in elastic. Generation will get paid at essentially the node they inject in the grid, it’s called the LMP price, locational marginal price. They get paid at that node, whereas a load will take the volumetric weighted average across all the nodes in a certain area, and they’re going to get the average price. The message I was communicating with this independent market monitor was saying, “Encourage you to think about these as the same as batteries.” These should get actually L&P pricing, right? Because they can actually relieve congestion to that point. Also, you want to send the right price. Right?

Shaun Connell (01:02:00):

You want to have the right signal. You want to have the right market behavior… Market outcome, pardon me, that says, “Hey, there’s cheap electricity up here, go locate load here and if you can have that nodal price.” After winter storm Yuri, the observation, some reading says that when power systems get to about 25% renewables, you look back and 25% energy came from wind or solar, they need to do these market reforms on rules and products for managing the grids because when power markets were deregulated in 2000, it’s like there was no wind or solar. Right? Of course, the market rules, wouldn’t have taken that into consideration. Long way of saying this is that like, when I was sharing this information with the market monitor, I was saying, “The reason why it’s probably not on your radar is because on 2017, this is Bitcoin mining.”

Shaun Connell (01:02:43):

I showed a picture of a two megawatt container in some industrial park and a transformer on. Then, I shared a picture of what the Rockdale site looks like in Texas, which Chad puts up there on his Twitter and copy and paste out there. You can see this is what it looks like. Then, I showed a picture and said, “This is what it can look like in the future. It has battery banks and located right by solar and wind, et cetera.” It was just their jaw dropped. Right? What they’re missing was it’s happened so fast, right?

Preston Pysh (01:03:10):


Shaun Connell (01:03:10):

That you went from two megawatt containers to this Rockdale facility with riot is now coming up along north of 500 megawatts, got things coming online here soon. What’s happened so fast is not…

Preston Pysh (01:03:21):

It’s unreal. It’s unreal.

Shaun Connell (01:03:22):

It’s not surprising. It’s not on the radar. Right? What’s lost on people is just the impact that these facilities can have because of the size they are and how they can balance these grades and provide the same services it generates, but if you think of these as just like these two megawatt containers, it’s like, “Come on. There’s not enough scale there.” What’s lost on people, I think is just how big it is. Yeah.

Preston Pysh (01:03:44):

It’s unreal. Shaun, I can’t thank you enough. We have got to do this again. You are such a wealth of information. Give people a hand off to your Twitter. When we post this, people are going to see your account, but man, you need people following you because you just have such a breadth of knowledge. My gosh, give them a hand off to your Twitter and anything else that you want to highlight.

Shaun Connell (01:04:06):

Awesome. Yeah. Thanks for having me on the show, Preston. I was excited that you reached out to me. Thanks for having me on. People can reach me on Twitter. It’s @shaunenergy, so S-H-A-U-N, and then energy. Most of the stuff that we’ve shared here today, I post a lot of pictures and slides and stuff like that on this. Yeah. Love for people to reach out to me and I think hat’s it.

Preston Pysh (01:04:30):

One final question for you. If you have a quick message to any policy makers that listen to this show, what would your message be to the policy makers as they’re trying to wrap their head around all this stuff?

Shaun Connell (01:04:41):

Yeah. I think the first stop, but I’d encourage them all to go listen to Brad Jones’ five-minute CNBC clip. You say as a policy maker saying, “What is the CEO of the grid that has the most amount of mining that’s had some challenges with some outages in the past years?” Think about this, right? You couldn’t have somebody promote it any better than him. Then, I would say just list off four bullet points on saying, “Why is Bitcoin a great tool for the energy transition?” First, I’d say this is a tool for energy flexibility is you’re having a lot more intermittent resources. You need to have something for balance in the grid. This is something that provides second as ancillary services.

Shaun Connell (01:05:18):

All the backup generation that’s been used in the past, this is new flexibility for these intermittency. You’ve now got a global floor price of energy, right? Anybody in around the world can monetize the generation asset now with mining. Then, last is just a cherry on the top is you’ve got a new offtaker for renewables where some of these renewable projects that were stranded in certain areas is struggling to find a buyer because they were being curtailed or wouldn’t have a buyer. You now have somebody that can come to this area and support the growth of this renewable space.

Preston Pysh (01:05:48):

I’m going to have Brad’s clip in the show notes if people want to watch that. Shaun Connell, thank you so much for coming on the show. My goodness, you knocked this one out of the ballpark, sir.

Shaun Connell (01:05:57):

Thanks, Preston. Thanks for having me.

Preston Pysh (01:05:59):

Thanks. If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for We Study Billionaires. The Bitcoin specific shows come out every Wednesday and I’d love to have you as a regular listener. If you enjoyed the show or you learned something new or you found it valuable, if you can leave a review, we would really appreciate that. It’s something that helps others find the interview in the search algorithm. Anything you can do to help out with a review, we would just greatly appreciate. With that, thanks for listening and I’ll catch you again next week.

Outro (01:06:33):

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