How Bitcoin Mining Might Help Nations With Domestic Energy Production
- "Bitcoin mining allows for a faster payback on renewable energy projects such as solar, wind or hydro projects."
- Miners are already raising capital to finance and build their own power plants.
- "Bitcoin mining facilities can participate in demand response programs to improve the health of the grid around them."
Much has been written about Bitcoin (BTC) and its voracious appetite for energy. However, even if the cryptocurrency consumes nearly as much electricity each year as the Netherlands, there are a number of people within the Bitcoin industry who are arguing that it could end up being a net positive for the energy sector.
Most recently, analyst and Adamant Capital founder Tuur Demeester claimed (in a private Twitter account) that “Bitcoin mining can increase countries' total electricity production capacity, such that in times of peak domestic demand the market has more spare electricity to divert to households who need it.” While this claim wasn’t backed up by much in the way of hard data, Demeester predicted that as Bitcoin mining continues to grow, more power plants will be constructed, with excess energy from these plants being used for domestic consumption (in addition to mining).
According to researchers and industry figures speaking with Cryptonews.com, such claims have some merit to them, insofar as Bitcoin mining has generally resulted in an increase in overall energy capacity and production. However, commenters are split on the question of whether Bitcoin will contribute to national power grids, with some researchers suggesting that plants built for mining are used exclusively for mining (and nothing else).
Is Bitcoin mining increasing national energy production?
According to people operating within the cryptocurrency mining industry, there do appear to be some isolated examples of mining plants being connected to domestic energy grids. This is what Cryptonews.com is told by Zach Bradford, the CEO & President of CleanSpark, a Nevada-based energy technology and clean Bitcoin mining company.
“For example, for a new mining facility we are getting off the ground near Atlanta, Georgia, we partnered with the utility company to invest in new transmission lines -- benefitting not just our own facility but everyone who lives along those improved lines,” he said.
Per the CEO, they will also be participating in a local program sponsored by the utility that will allow them to purchase renewable energy credits to offset any fossil fuels in the local energy mix.
Bradford adds that the funds flowing into the program will be used to increase investment in solar energy production in the local area, thereby benefiting other consumers of energy. He also notes that other firms within the mining industry have refurbished coal-based fossil fuel plants and converted them to natural gas plants, something which isn’t particularly environmentally friendly, but does at least increase overall capacity.
This is an observation made by other individuals, both within and without the mining industry.
“Bitcoin mining allows for a faster payback on renewable energy projects such as solar, wind or hydro projects, which means more of them can be built faster in regions where it would not be economically attractive otherwise,” explained Igor Runets, the founder and CEO of BitRiver, a provider of colocation services for green cryptocurrency mining.
That said, others note that most of this new capacity is used pretty much entirely by the cryptocurrency mining industry itself, with little (or no) excess energy being distributed elsewhere.
“I am aware of examples of miners who have raised capital to finance and build their own power plant. However typically their output is wholly consumed by mining machines, and not redistributed to the grid,” said Bitcoin researcher and investor Marc Bevand.
Likewise, Chia Network Chief Operating Officer and President Gene Hoffman says that new energy capacity often tends to be isolated, particularly in the United States.
“It is certain that Bitcoin mining in the US has led to the building of new power plants and the re-opening of coal-fired power plants. However, this new generation capacity is generally very rural and thus adds to the trapped electrical capacity in the various regions like upstate NY and the Columbia River Valley,” he told Cryptonews.com.
Hoffman adds that, in both of the above places, the Bitcoin mining facilities are rivalrous with other consumers, such as Amazon’s data center in Oregon.
Will mining be used to feed power grids?
Assuming that most new Bitcoin-built power plants are being used only for mining, is it possible at least that the future will bring a scenario where plants originally built for Bitcoin will also send energy elsewhere?
“It's not just feasible, it’s happening now,” said Zach Bradford. “Bitcoin mining facilities can participate in demand response programs to improve the health of the grid around them.”
According to Bradford, participants in such programs are able to shut down when called upon, this then allows the utility to send the excess energy capacity that was created for the Bitcoin mining operations to areas or facilities which need extra energy. “This usually occurs in times of a natural disaster or times of extreme cold and heat,” he said.
Christopher Bendiksen, the Bitcoin Research Lead at CoinShares, also reports that this kind of thing is already happening.
“There are concrete examples of miners already working as demand response units in Texas’ ERCOT system. They contract with the local grid operators to take off electricity when demand is low, ensuring profitability for the generators, but shutting off operations when demand is high, ensuring availability of electricity to homes, businesses, and industry when it is needed the most,” he told Cryptonews.com.
Bendiksen predicts that the number of miners operating in this fashion “will explode over the course of this decade,” enabling much larger shares of intermittent renewables like solar and wind power in our generation mix.
Not everyone is quite as optimistic though. For Bitcoin skeptic Alex de Vries (also known as the Digiconomist), it’s unlikely that Bitcoin mining -- and plants used for mining -- will contribute in any substantial way to a nation’s domestic energy networks.
“Miners can only consume energy -- they cannot store any. In several cases, they're already taking energy that others need or could use,” he told Cryptonews.com.
This kind of thing happened, for example, in Abkhazia, resulting in rolling blackouts. De Vries notes that Bitcoin mining is also draining Navajo Station while around 14,000 Navajo homes still don't have power at all.
“Locals seem extremely angered,” he says, referring to comments left by residents in response to a Facebook post by Navajo Nation President Jonathan Nez.
Net positive in the future?
These criticisms notwithstanding, the mining industry is optimistic that mining will become a net positive for the energy industry in the not-too-distant future.
“It’s a huge positive, both for producers, consumers, and our renewal generation goals. With miners acting as demand response units, if mining gets large enough, we can vastly increase the proportion of intermittent renewables in our generation mix,” said Christopher Bendiksen.
Marc Bevand also says that mining will be a net positive, pointing out that the mining industry is unique in the sense that 95% of operational expenditures of a typical mine are spent on electricity, and that there’s no other industry with a share so high.
“Consequently, miners who have their own power plants put a lot of effort into technological advances to reduce cost, so the improvements they develop will inevitably trickle down and benefit other industries. I expect to see some of these advances in the near to medium term, especially with solar power as it is now the cheapest electricity in history, according to the IEA's World Energy Outlook 2020 report,” he said.
As a researcher into just how quickly Bitcoin’s energy demands have exploded in recent years, Alex de Vries isn’t quite as positive as those with a financial interest in Bitcoin and/or mining.
Asked whether mining will be a net positive in the future, he says, “It probably depends on who you ask. Oil and gas companies seem to see plenty of opportunities but grid operators aren't as enthusiastic (given complications caused for grid stability).”
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