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Bitcoin Mining - Revolutionary effects on the mini-grid sector

Jesse Pielke's picture
Head of Operations Africa GreenTec Asset GmbH

My educational background is in industrial engineering, with a focus on the power sector. Using my education I further specialised in renewable energy and rural electrification. During my career...

  • Member since 2022
  • 6 items added with 753 views
  • Apr 20, 2022

Bitcoin Mining is revolutionising the economic feasibility of electricity generation.

This will affect many areas of modern energy economics. Specifically where stranded energy sources or wasted energy sources could not be connected to existing infrastructure before and are therefore ignored. Bitcoin Mining, through its design, unlocks a heap of abundant energy for consumption.

The mining of Bitcoin can and should have a profound effect on mini-grids, powered by renewable energies as well. 

This post will only go into the basics of how Bitcoin mining works and what it is. There is plenty of resources and I would like to focus this on the chances for mini-grids instead. Important to note is that an understanding of Bitcoin is not necessary to understand the potentials that come with it. Bitcoin has a market value. It has a market value because there are people in the world, who pay a price for it. That is the only condition needed to make the below-described ideas viable in the future. 

Bitcoin Mining described the process of turning electricity into heat by feeding electricity into an “ASIC Miner”. ASIC stands for “Application Specific Integrated Circuit” and is a fancy term for a computer, which handles one specific task extremely well and efficiently, as opposed to your phone or laptop, which are general processing units and can carry out multiple different types of computations. 

These “Miners” are guessing cryptographic hashes. If they guess correctly (as deemed by the network) they are rewarded in Bitcoin. Currently, at a market value of around 41,000 USD, a total of around 250,000 USD is paid out by the network every ten minutes. Individual, smaller mining operations usually combine their hashrate in a pool to increase their chances to find a “valid guess”. Rewards are then shared, according to the processing power allocated to the pool. Each “guess” is a finished process. Modern mining machines guess around 100^12 times per second. These machines can be turned on and off, even increase and decrease their individual power and are quite similar to computers in that way. Bitcoin mining is time- as well as location independent and does not have a maximum energy capacity. All that is needed is a connection to the internet. The amount of power that can be drawn is only limited by the amount and power drawn of single machines. The underlined features have never been accessible in any other consumer of power before. 

This is as far as I will go here. If you have further questions on Bitcoin mining or Bitcoin in general, I am more than happy to answer all your questions.

During my career, I have largely been responsible for the operation of a range of mini-grids in Mali. Through containerised PV plants (~40 kWp), which we combined with Lithium-Ion storage and grids, we are supplying communities of up to 400 customers with renewable electricity. Customers in turn pay for the service and profits are used to repay investors. The idea here is to develop infrastructure independently from government subsidies. 

As I am sure you are all aware electricity can only be generated if there is a load. Our units generate up to 70,000 kWh per year where they are located. We usually include energy storage units of around 50 kWh. I will apply very basic (!) calculations, to make my point. If we assume that our batteries are charged to max capacity every day and nearly discharged during the mornings and evenings we can store around 18,000 kWh per year in those battery modules. That leaves us with 52,000 kWh that the grid needs to offtake. If there is not enough load, we essentially harvest a loss, since the energy evaporates and no electrons are flowing. This is pretty critical for us as a business where margins and the ability to pay of our customers are low. We strive for the maximum realised kWh/kWp we can achieve with our design.

So, how does Bitcoin mining play into this? Imagine having a customer for your electricity that is always ready to take some of your power. No matter the time of day, no matter the amount. When batteries are fully charged, the sun is shining intensely in the middle of the day and demand in the grid is low, this customer happily buys your electricity. Imagine a customer that is always awake and ready to utilise your electricity when no one else wants to. Early in the morning, when the sun rises and regular customers are just starting their day. Imagine a customer that steps in during those early days of a project, when grid infrastructure is yet to be built or a customer that is located right at the generation assets doorstep incase parts of the grid fail. 

Basically, that is what Bitcoin Mining can offer. There are many different models when it comes to Bitcoin mining machines. Later, more efficient (J/TH) models need 3,25 kW and produce 100 TH/s and thus have an efficiency of 32,5 J/TH, while other, older models, which are much lower in CAPEX sport efficiencies of around 98 J/TH. Four Antminer S9 Units, for example, resemble a combined load of around 5,3 kW, which can be yours for 1,200 USD CAPEX (excl. installation cost, wiring, etc.). They would always be available for any load excess load that cannot be sold more profitably elsewhere. A rather simple, smart mechanism, turning miners on, when an excess load is detected by inverters is needed. These machines are quite noisy when they operate, due to fan noise. In hot climates, I would suggest immersing the miners in mineral oil to cool them more efficiently. 

These four miners, which I just briefly described have a combined hashrate of ca. 54 TH/s. If they run all day they will generate 10 USD (at current market conditions on the 20th of April 2022) per day of profit, since the energy cost is zero. Here is a calculator to make your own estimations.

This dynamic has the potential to completely revolutionise the way economic feasibility is determined for energy projects. This is happening on a large scale in the ERCOT Grid, where demand response is the name of the game. Companies use flared gas, which is otherwise burned at oil production sites, for example, to mine Bitcoin. Exxon has announced that they are exploring this field recently. The Virunga National Park is another great example of this dynamic, where a 15 MW hydropower plant is connected to a bitcoin mining facility, generating near instant cash flow without any existing grid infrastructure. KWh by kWh miners are being pushed out of that local market, as more and more consumers are connected to a small, local grid and are able to consume the electricity, generated by the dam for a higher price than the miner is willing to pay.

Before Bitcoin Mining there was no feasible way to monetise excess electricity. This has changed in recent years and I would love more operators in the energy space to explore this innovative idea to further expand their income streams. 

Matt Chester's picture
Matt Chester on Apr 20, 2022

I know one of the common counterarguments to this sentiment is that the Bitcoin mining is still using up clean energy resources that could otherwise be put to more 'productive' use (even if they had to be stored in a battery, in hydrogen, or in some other method to make timing align). What's your go to response to the idea of ranking the 'worthiness' of different types of energy consumption? 

Jesse Pielke's picture
Jesse Pielke on Apr 20, 2022

Thanks for the comment!

This is often a point when it comes to discussions around Bitcoin mining. My go-to response to this point of view is that there are two basic scenarios. 

In the first scenario, Bitcoin mining is directly connected to a grid, draws power from a large power plant and/or consumes grid electricity. These are normally large mining facilities that draw multiple MWs of power. In that case, I can understand the fear that mining might consume electricity that could otherwise be used. However, it is important to understand that Bitcoin mining is only profitable to a certain extent. At around 0.07 USD/kWh large mining operations tend to be outcompeted by miners, which mine for fewer costs. In the end, the free market decides where energy is sold too. If hydrogen producers pay more per kWh because they can, they will receive the MWh instead of the miner. Bitcoin mining is a location independent technology. So it will move freely where electricity is cheapest. Therefore the market decides on the "worthiness" of each use case. Large mining operations can offset instability in the energy grid and offer the potential for developers to connect much more renewable energy capacity to the grid since there is always a "customer of last resort". In my opinion hydrogen, battery storage and mining will offer three different alternatives to grid operators. Depending on what makes sense. 

In the second case, where grid infrastructure is not available, hydrogen and large scale battery installations do not make sense. Hydrogen and battery storage are worth exactly nothing if there is no infrastructure to distribute the energy. In mini-grid hydrogen makes no sense. Battery technology of course is applied to supply electricity to the grid and sell the kWh later for more profit. However, there will always be, in any mini-grid operation, times at which the kWh cannot be stored. This is where Bitcoin mining offers attractive opportunities to "sell" this kWh, which otherwise would not have been generated.


To round this off: Bitcoin mining will never demand electricity, which consumers or industry could consume, since the prices they pay are a lot higher, than what a Bitcoin miner can afford.

Matt Chester's picture
Matt Chester on Apr 20, 2022

Thanks for the follow up and insights, Jesse!

Julian Jackson's picture
Julian Jackson on Apr 22, 2022

I don't think utilities in general have realised the potential of cryptocurrency mining (doesn't have to be bitcoin, there may be better financial rewards from other "alt-coins") as another income stream. I've written two articles here about innovative projects. Both are developing rapidly and expanding: 

Can Bitcoin do its bit for Renewable Energy?

Enhancing Utility Business with Data Analytics, Blockchain, and Artificial Intelligence

(Distro microgrid in the Port of Rotterdam)

Roger Arnold's picture
Roger Arnold on Apr 28, 2022

Hmmm, what to say about this? I usually try to keep any sort of ideological issues out of the positions I express. I prefer to deal with energy issues on a purely pragmatic basis. There's usually no conflict. But here there is.

On a purely pragmatic basis, I have to agree with Jesse that bitcoin mining is well suited for advancing intermittent renewables. The cost of bitcoin mining is primarily in the cost of energy. Capital cost of computer equipment is low, so it's not particularly important to utilize it at a high duty cycle. It's feasible to run the mining computations only when wind and solar are producing more power than otherwise needed. The surplus production can be sold cheap for bitcoin mining.

The ability of bitcoin mining to soak up any amount of surplus production sets a positive floor on the price of electricity from intermittent renewables. It prevents the wholesale auction price from falling all the way to zero whenever production capacity exceeds regular demand. That makes new wind and solar projects more attractive to investors, and facilitates the kind of overbuilding that's essential for achieving high penetration levels for variable renewables. And yet ...

And yet, it really rubs me the wrong way to endorse a system that increases energy consumption for purposes that are totally artificial and non-productive. It's waste! It's immoral!

As I see it, deliberate waste is akin to sacrificing babies on the alter of Moloch to get Moloch to solve our energy problems. It might somehow work, but if it did, it would still be wrong!

It's not as if we could reduce the amount of energy wasted by building more efficient computers or inventing more efficient mining algorithms. The bitcoin is awarded to the first party to discover a suitable hash key for the set of transactions the mining activity is trying to validate. The system, by design, is self-normalizing. Build a better mining computer, and for a while you'll be able to discover keys faster than your fellow miners and collect more bitcoin rewards. But that causes the ante to rise. The key discovery problem kicks up until your better mining machine takes just as long and consumes just as much energy as the old machines. It's clever but perverse!

And, it increasingly seems, it's all for nought. Yes, the blockchain system on which bitcoin is built provides a secure distributed ledger capability that guarantees anonymity for the parties to the ledgered transactions. The system itself is probably uncrackable. But national security agencies have found ways to defeat it, not by breaking the system, but by monitoring all portals to it. They can tell who is making transacting and the amounts of the transactions. In many cases, I believe, they can seize accounts or block owners from access to their bitcoin stash. So what's the point of all that make-work energy consumption?

Jesse Pielke's picture
Jesse Pielke on Apr 30, 2022

Dear Roger,

thank you for your comprehensive comment and for taking the time to read my article. Partly I agree with you and in other parts, I disagree with you strongly. Allow me to answer the points you have brought up.

In the first part of your comment, you agree with me on the basic properties and options Bitcoin mining brings with it to decentralised energy systems. We agree it can have a net benefit to mini-grid economics. I wrote in my piece that one does not have to value Bitcoin itself to value the properties, which enable it to act as this positive influence on mini-grids. There are people in the world, who do value BTC, the asset, and therefore give it a market value > 0. That is the important part.

You then go into detail on Bitcoin itself. I am not sure, but assume, that this forum is the wrong place to debate Bitcoin itself. A debate I will happily have if you are interested. Maybe this can be arranged via direct messages. 

Nevertheless, I want to go into detail on some of the remarks you have made. I think it is important. You describe Bitcoin as "artificial" and "non-productive" - What does that mean? Bitcoin is a digital asset. To many, it is very much real. Over 100 Million people store their energy and time in this asset to preserve their purchasing power. 

Bitcoin mining you describe as "perverse". I do not understand why. The competition for the larger computing power share in the network is a constantly developing process, which ensures Bitcoins decentralisation and security. It consumes about 0.16% of the generated energy worldwide or as much as festive lighting consumes in a year. That is far from perverse, if it opens up the possibility, for the first time ever, to have a decentralised network and asset, which offers unilateral access to a global financial system. That is extremely powerful. Bitcoin does not just have benefits in the broader energy sector, but also for many other aspects of life and business. Bitcoin Mining is a global industry, which ensures a hard cap of 21.000.000 Bitcoin. Bitcoin is the hardest asset humankind has ever known. No other asset has its stock-to-flow ratio. Not even gold, which was used as money for a long time. When the price of gold rises, more gold gets mined. The price developments are completely irrelevant to the amount of Bitcoin in circulation. Bitcoin Mining ensures this. That is revolutionary. 

Your last point is factually incorrect. Nobody can be stopped from accessing their Bitcoin if the keys are properly stored. Sure, if you hold your purchases on an exchange, that access can be blocked. That does not represent the ethos of Bitcoin, however. If you store the access to your holdings properly no force in the world can take it from you. Literally. The transparency of Bitcoin is a very much needed feature, not a bug. It allows everyone to individually, with low technical and monetary requirements, verify that there is indeed only the proper amount of Bitcoin in circulation. It ensures that no trust is needed to verify the hard cap of 21 Million Bitcoin.

Please let me know if you have further questions or other critical points. I am always happy to debate and to challenge my views on the topic! Thanks again for taking the time.

Roger Arnold's picture
Roger Arnold on May 2, 2022

Thanks, Jesse, for that reply. I'll concede this much: you do a good job of presenting the case for bitcoin, and clearly know what you're talking about. I don't *think* you've changed how I feel about it, but I'm chewing on the issues. I don't have any rebuttal for your comparison of bitcoin to gold.

I may take you up on your offer to continue this discussion offline. The issues we'd be discussing are too technical for this forum. But one non-technical question: what fraction of users do you think don't hold their purchases on an exchange? What fraction of users have the sophistication and discipline to store their keys securely such that they can't be stolen and can't be lost?

Jesse Pielke's picture
Jesse Pielke on May 4, 2022

Fair enough! 

This is very refreshing. My past experience when discussing this topic was not always this fruitful. 

To be able to guess how many people actually hold their own keys and self-custody their assets is pretty much impossible. It would require having access to exchange databases. I have been in the space for quite a while and have developed somewhat of a "feeling" for it. I would estimate, that way too many entities do not store their keys themselves and thus open themselves up to the potential seizure. This is changing. Because Bitcoin allows for self-custody with the lowest barrier, more and more holders of Bitcoin do choose to self-custody their property. The mantra of "not your keys, not your coins" is becoming more prevalent.

As you eluded to, that opens the rightful owners up to the liability you have mentioned. However, I see the risk being much higher in countries where property rights are not very common. In part, this is owed to the fact that holding your own keys is still a very "clunky" experience. For tech-savvy parts of the community, it works fine. It has gotten a lot smoother over the years, too. However, for broad adoption, there still are many improvements to be made.

The risk of the assets being lost I classify as low. The bigger issue is stolen or "hacked" assets. This happens when exchanges do not have proper security measures in place. Going with established names, who have perfected the custody of Bitcoin is important. There are large institutional entities, that are not interested in self-custody and want to leave it to experts in the field. Those experts usually also offer customer grade protection. The reason why assets are stolen is often that the exchange providers themselves commit fraud and claim their exchange was "hacked" or that customers do not have proper security measures for their accounts (2FA, strong passwords) in place.

Jesse Pielke's picture
Jesse Pielke on May 4, 2022

Always happy to continue this offline. I will DM you my personal mail. Maybe I can help you chew through some issues! for some reason I cannot send you a DM on "energy central" so I sent you a message on LinkedIn.

Andreas Lehner's picture
Andreas Lehner on May 24, 2022

Hi Jesse,

thanks for this article - one of the many angles that show that Bitcoin mining could accelerate the renewable transition.

Where in the mini-grid / off-grid segment do you currently see the biggest gap to get more Bitcoin miners on the ground? Have you thought of running this at Africa Greentec?

I see the issue of heat and maintenance in many African contexts, but also a great use case as a decentralised off-taker for mini-grids. How about connectivity - as miners needs constant internet? Could probably be sold to locals as well to off-set the costs for a bit. Happy to have a chat about this if you are up for it.

Jesse Pielke's picture
Jesse Pielke on May 25, 2022

Hello Andreas!

my pleasure! I am glad you found it interesting. 

I think the biggest gaps are Know-How, as Mining is still a very new industry. The availability of miners is not a big issue. Using the latest rigs cannot be recommended and the 2nd hand market for older models, that are suitable for this type of application is quite large and active. 

Yes, heat and maintenance are definitely issues. They can be remedied with know-how transfer and liquid cooling. Air cooling is not recommended in SSA for example I'd say. Miners do need a constant connection. This can be solved via Satellite Internet for example. There are solutions, it just is a matter of location which one needs to be sourced. 

Of course, happy to have a discourse on this. We are already chatting on LinkedIn, let's keep it going there :)

Jesse Pielke's picture
Thank Jesse for the Post!
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