Rahil Mittal of itomarkets, who builds compute forward curves, proposes that compute pricing has a “silicon…
Compute forward curve pricing is weirdly elegant Such a silly financial product: part non-storable electricity flow, part exponentially depreciating capital bond (?) The price floor is bounded by what I like to call the "silicon spark spread"... electricity cost multiplied by datacenter PUE plus opex - Front trades at super violent backwardation - Back faces silicon obsolescence If there's any power market quants out there trying to figure this compute nonsense out: Front of the curve behaves like jump-diffusion power flow and the back converges to a capital replacement cycle
The spark spread works in power because a plant can shut when the spread goes negative. A GPU cannot. The capex is sunk and depreciating whether it runs or not, so the floor is not fuel cost. It is whatever the operator with the most sunk capital will accept.
I hear u but that is sunk cost fallacy. Capex depreciates whether the server runs or sits cold, but running an H100 pulls ~1kW of power plus cooling... if bids fall below marginal electricity cost, running the job literally burns additional cash compared to idling. The short-run shutdown rule applies to silicon just like it applies to power plants ! (I actually have spoken to data centers who shut down operations when this happens... grid operators like ERCOT offer them fat ass incentives to curtail during peak hours)
An H100 SXM is 700 watts, and with host and cooling call it 1.3 kW. At 10 cents a kWh that's 13 cents a GPU hour, so the power floor is pennies. The data centers you talked to are shutting for another reason. They only take the curtailment money if it beats what the chips earn.