A Deep Dive into BTC Mining & ERCOT’s Four Coincident Peak Program (4CP)

In this article, we dive into the concept of 4CP, its benefits to the grid, and how Bitcoin miners can effectively strategize to capitalize on its opportunities.

Authored by Energy Portfolio Manager Doug Allen.

In ERCOT (Electric Reliability Council of Texas), a 4CP (Four Coincident Peak program) event is the one 15-minute interval that sets the highest daily usage of the grid’s total load for the months between June and September. Bitcoin miners in Texas are beginning to strategically curtail their energy consumption during these 4CP events to potentially save thousands or millions on future utility bills (depending on the size of the miner).

What is 4CP?

The ERCOT 4CP program is a crucial aspect of managing the electricity grid in Texas. It’s necessary to help keep the grid balanced without having to overbuild generation. This is done by incentivizing energy users to reduce their usage during peak demand periods, rather than build additional generators that go largely unused at high costs.

ERCOT calculates the four highest 15-minute intervals of electricity usage for each calendar month between June 1st and September 30th. These peak periods typically occur during periods of high energy demand, such as extremely hot weather when air conditioning is running at high levels, combined with industrial usage spikes. Utility companies in ERCOT use a customer’s load contribution during the 4CP event to determine certain fixed monthly charges for users during the next calendar year — therefore, participants are incentivized to reduce usage during those peak load times to maximize savings the following year.

How does 4CP benefit the grid?

In addition to cost savings for participants, 4CP positively impacts the electricity grid in Texas. By encouraging energy reduction during peak intervals, it helps to ensure that there is enough generation capacity to cover critical operations and all other end users, such as residents and vital institutions like hospitals and schools.

Additionally, ERCOT is a free market and 4CP helps control energy prices for users. ERCOT’s Security Constrained Economic Dispatch (SCED) methodology to dispatch generation resources in real time is based on economics and reliability; so, as demand rises, there is less and less low-cost generation available. When demand approaches the peak level of available generation, it gets increasingly more expensive. By incentivizing 4CP participants to limit consumption during these peak times, it helps to protect users from price spikes.

When do 4CP events occur, and how does pricing respond to demand?

4CP events can happen at any hour of any day of the week. Historically, most 4CP events happen on weekdays near the 5:00 PM (CDT) hour, as this is when load tends to be the greatest with industrial loads still running or just starting to come off, and residential usage, like air conditioning, peaks. This is also typically the hottest part of the day. Based on a review of the 4CP events since 2008, it can be noted that:

• 4CP events tend to happen later in June and July and earlier in August and September due to the fact that statistically, the average daily temperatures in Texas increase until early August and then thereafter, begin to decline.
• All past 4CP events have been on weekdays due to larger industrial loads.
• 98% of all 4CP events (59 out of 60) occurred between 4:00 and 5:45 PM(CDT). The one outlier was a 4CP event at 2:30 PM (CDT) on September 1, 2020.

Another important consideration is that 4CP events don’t always occur on the days when the interval price is highest. 4CP events are “price agnostic,” meaning that day-ahead and real-time prices may not be very high when there is a 4CP event. Looking at the summer of 2022 and this summer so far gives us a good illustration of price vs. peak demand. 2022 was a very high-price environment, whereas this year has been a much more favorable price environment despite record levels of demand.

As we can see, a miner cannot simply curtail based on price alone and expect to avoid a 4CP event; this strategy may have worked in 2022, but as of August 15, a miner would have likely been negatively impacted by at least two 4CP events. Miners must weigh the benefits of curtailing vs. mining during these possible 4CP events.

What does this mean for Bitcoin miners?

The relationship between 4CP and Bitcoin mining in Texas has garnered attention due to the curtailment capabilities and energy requirements required to run a Bitcoin mining operation. Texas has become an attractive destination for Bitcoin miners, thanks to its abundant and relatively inexpensive energy resources and increasingly favorable regulatory environment. As the Bitcoin mining industry continues to grow, the demand for electricity increases, leading to potential implications for ERCOT’s management and electricity pricing. The grid can become more constrained with less available generation and transmission to meet the rapidly growing demand.

However, Bitcoin miners have the unique capability to be extremely flexible in their curtailment strategies. Compared to most industrial power plants who also look to avoid 4CP events, Bitcoin mining operations can easily and quickly power down or ramp up their sites in response to the needs of the grid. This capability is a key advantage when considering 4CP events.

Although the effort involved for miners to curtail is relatively straightforward, there is a significant amount of strategizing that goes into curtailing during a possible 4CP event. Miners in Texas need to be keenly aware of the grid, and ready to curtail at the right time, especially leading up to the possible 4CP event. This pushes participants to shed their load earlier in the day and while some industrial loads could take several hours to start their shutdown, Bitcoin miners can move much more quickly.

Additionally, even those miners in ERCOT that are “behind the meter” (meaning that they are directly connected to a generation source) should still pay attention to 4CP. While these miners generally do not take power from the grid, it doesn’t mean that they don’t have 4CP risk. If the miners take any power from the grid, such as when the generator is down for any reason like a mechanical failure or planned maintenance, and a 4CP event occurs, the miner will likely incur significant additional utility costs. Therefore, the concept behind 4CP is still relevant to those mining in ERCOT regardless of whether they are behind the meter.

As mentioned before, appropriately curtailing during a 4CP event has significant monetary benefits for participants. Let’s look at a hypothetical example to better understand how this works.

Oncor, the largest power utility in Texas, uses a customer’s 4CP contribution to calculate the “Transmission Cost Recovery Factor” (TCRF) line item on the customer’s monthly invoice. As of May 1, 2023, Oncor’s tariff rate for primary service for a facility greater than 10 kW was $5.044864 per kW of 4CP contribution, which is $5,044.86 per MW. For example, the monthly TCRF charge for a 100 MW mining facility that did not avoid any of the 4CP events in 2022 would see an additional monthly fixed cost of over $500,000 (or more than $6M annually) the next year. If a miner could successfully reduce their load by 95% for all the 4CP events in 2022, the monthly TCRF complement of their bill would only be about $25,000 or a savings of over $5.7 million for the year. It is important to note that utilities like Oncor may adjust their tariff rates from time to time. The above example is an estimate based on Oncor’s currently published rate and is subject to change.

Looking Ahead

According to the Texas Blockchain Council, the Bitcoin mining load in Texas is about 2,200 MW. That number represents about 20% of Bitcoin mining’s total global load. With such a significant percentage of mining load potential subject to 4CP risk, the mining industry needs to better understand the risks and opportunities associated with 4CP.

There are several different strategies miners can implement when considering 4CP events. Foundry has a team of experts well versed in both the Texas energy market and Bitcoin mining. We are here to help others effectively navigate the market and are happy to discuss your curtailment strategies.

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