Bitcoin

How Bitcoin Mining Can Support In The Energy Transition | Wood Mackenzie

bitcoin* mining often makes headlines due to the large amount of electricity the process consumes. but there are opportunities for it to support the energy transition.

We have identified two key near-term opportunities for bitcoin mining in the US: first, as a highly predictable and scalable demand response asset; and second, to provide additional demand for cheap and underutilized electricity generated by independent power producers and utilities.

Reading: Could bitcoin mining provide crucial demand

1. bitcoin for demand response

bitcoin is not a battery

Both in a recent article published by nick grossman in union square ventures and in an investor letter from aker, bitcoin mining was compared to a battery. In both cases, the comparison was used to invoke how bitcoin mining can help the energy transition. while the analogy is powerful in its simplicity, it is not precise.

Like batteries, bitcoin mining can change demand over time and act as a power load. bitcoin mines, however, cannot store or discharge electricity. in fact, changing mining demand literally requires shutting down computers. the true potential of bitcoin mining is in easing loads through demand response.

what makes bitcoin mining different from traditional demand response?

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Much of the load on bitcoin mines is associated with cooling systems and computing power. Historically, turning off heating, ventilation, and air conditioning (HVAC) systems, reducing industrial loads, and shifting operations has been a mainstay of demand response programs.

In this sense, what differentiates bitcoin mining from other industrial loads for demand response?

  • speed to climb

The Electric Reliability Council of Texas (ERCOT) 2020 Annual Demand Response Report highlighted three new data center registrations to participate in ancillary services such as controllable load resources. meanwhile, a press release from lancium and mp2 (a shell company) claims that theirs is the first load-only controllable cargo resource to be registered with ercot. the 100 mw of capacity can participate in multiple markets, including non-rotating frequency stabilization reserves directed by ercot.

Using data from the Cambridge Bitcoin Electricity Consumption Index, we estimate peak demand from bitcoin mines in the US in March 2021 at 1.2 GW, using 9.6 TWh per year.** in For comparison, we estimate that in 2020 all assets recorded demand response programs constituted 32.9 GW. If bitcoin and other cryptocurrencies continue to grow in line with historical trends, these data centers could grow significantly, creating tens of gigawatts of new demand.

  • reliability and predictability

While scale is important, it alone is insufficient to change the way network operators view the potential of bitcoin miners for demand response services. reliability and predictability are also key: if grid operators have highly predictable, reliable and scalable loads, they can use these assets in a similar way to peaking plants to manage peak demand. in addition, they can be used to increase demand during renewable energy drawdown events in a way that is not feasible with current demand response resources.***

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For context, the California independent utility highlighted that during the rolling blackouts of August 2020, “about a third of the demand that was counted to meet resource adequacy requirements was unavailable.”

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So what makes bitcoin mining more reliable for demand response than traditional assets? we identified three characteristics of bitcoin mining that could make it more reliable and predictable than traditional industrial processes for demand response:

  • Sensitivity to electricity price incentives

Energy costs can account for more than 80% of bitcoin mines’ operating expenses, so they tend to be more sensitive to electricity prices than other industrial customers. If the price of electricity suddenly rises during the afternoon peak, for example, this can incentivize bitcoin mines to temporarily shut down operations.

  • 24/7 operations

Power system operators need flexible resources to be available 24/7, not just industrial loads running during business hours, as recent events in Texas illustrate. Because bitcoin mines run 24 hours a day, they can be used at any time of the day to lessen the load, such as during a sudden cold snap or overnight spike.

  • time-insensitive calculation

Increasing or decreasing computational power to align with renewable generation for traditional data centers is already being explored: for example, google is changing when to complete its non-time-sensitive calculations to align with renewable generation . bitcoin mining calculations are similar to non-time sensitive calculations due to the probabilistic nature of mining new coins; Whether a mining algorithm runs in the middle of the day or the middle of the night, it is effectively fungible, providing flexibility.

As an example, layer1 used their data centers for demand response events in the summer of 2020 and reported a 700% profit compared to mining new bitcoins. demand response providers like mp2 and voltus are finding new customers, while several bitcoin mining companies are putting forward a savings thesis including layer1, lancium and seetee (a division of aker).

See also: Founders Of Cryptocurrency Exchange Plead Guilty To Bank Secrecy Act Violations | USAO-SDNY | Department of Justice

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