Dive Brief:
- Stronghold Digital Mining and its subsidiary will pay approximately $1.4 million due to violations of PJM Interconnection market rules, as detailed in a settlement agreement approved recently by the Federal Energy Regulatory Commission (FERC).
- Stronghold and Scrubgrass Reclamation, which operates an 85-MW coal-fired power plant in Pennsylvania, will return $678,635 in capacity revenues to PJM and pay a penalty of $741,365 to the U.S. Treasury.
- This enforcement action occurs as Stronghold and Bitfarms, which is in the process of acquiring Stronghold, explore the potential to expand their Bitcoin mining operations in Pennsylvania by as much as 955 MW.
Dive Insight:
Stronghold typically purchases power plants to set up Bitcoin mining operations, generating revenue through either Bitcoin mining or selling electricity in wholesale markets, depending on which is more lucrative. The company also owns the Panther Creek power plant, which has a capacity of 80 MW and burns waste coal from mining activities.
According to FERC, the Scrubgrass plant was classified as a capacity resource with mandatory offering requirements from 2018 to 2022. This means Scrubgrass was generally expected to offer its available capacity into PJM’s energy markets every day.
However, from June 2021 to May 2022, the plant did not offer its available capacity in 67% of day-ahead hours and 69% of real-time hours. During this time, it used some of the electricity not offered to run its Bitcoin mining rigs. Additionally, Scrubgrass bought power from PJM at wholesale rates approximately a quarter of the time during the agreement period, with some of that power incorrectly labeled as “station power,” which is the electricity required to operate a power plant.
By June 2022, Stronghold and Scrubgrass decided that Scrubgrass would no longer participate in PJM’s capacity market and used a bilateral agreement to exit its capacity obligations for the 2022/2023 delivery year.
Despite this, FERC noted that Scrubgrass is still required to submit capacity offers to PJM. The plant can be relieved of these obligations either through an exception or by transitioning to an energy-only resource, which it has yet to accomplish.
Stronghold’s Panther Creek and Scrubgrass plants recently cleared PJM’s latest capacity auction at a rate of $269.92 per MW-day, as reported by the company in a recent filing with the U.S. Securities and Exchange Commission.
In this auction, the Panther Creek plant cleared 69.2 MW, which Stronghold estimates will boost its revenue by roughly $7 million. The Scrubgrass plant cleared 75.6 MW, but due to reductions through bilateral agreements, it is left with a cleared capacity of 62.5 MW, expected to generate around $6 million.
Stronghold is contemplating exiting additional cleared capacity for Scrubgrass through further bilateral agreements, focusing on optimizing the flexibility and long-term potential of its data center operations. The two plants will have mandatory offering requirements for the upcoming 2026/2027 capacity auction scheduled for July.
Additionally, in April, Stronghold entered a partnership with Voltus, a demand response company, to enhance its capabilities in demand response and synchronized reserve programs within PJM, aiming to boost its revenue further.
The Bitcoin mining facilities at Scrubgrass and Panther Creek could potentially be expanded by up to 955 MW with added transmission capacity, according to disclosures by Bitfarms, a Canadian company set to acquire Stronghold soon.