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Cryptocurrency as "financial energy storage"

Chris Chen's picture
Principal C2 Consulting

Retired as SDG&E's strategy development manager where I identified and evaluated strategic business initiatives and new business models to drive revenue growth. Now working as an independent...

  • Member since 2011
  • 27 items added with 14,818 views
  • Jan 30, 2018

The increasing awareness of the large amount of energy used to mine cryptocurrencies has started discussion about the benefit of using cryptocurrency mining load as a means to address overgeneration in territories with excess renewables.  If we can make the case that using energy to mine cryptocurrencies during overgeneration events is financially superior to curtailing renewables for reliability purposes, it's possible utilities could justify putting cryptocurrency mining equipment into rate base, likely passing on the value of any cryptocurrency generated to ratepayers.

One of my co-workers floated the idea of viewing cryptocurrency mining as "financial energy storage."  I'd like to hear how others view this idea.  Is the fact cryptocurrency is a product of energy load enough to differentiate it from other uses of electricity? Does financial storage of energy have any of the benefits of physical storage?  Perhaps we could look at the business case for using the value of cryptocurrency to purchase physical storage assets.

If you have thoughts on these ideas, please share. 

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Chris Chen's picture
Chris Chen on Feb 2, 2018

Someone on LinkedIn asked how financial storage is equal to conventional energy storage.  I don't believe they are equal, but I looked at round trip efficiency so we could at least compare that between financial and physical storage.

RT efficiency

“Charging” or mining cryptocurrency: This is based on the number of KWh to produce a single coin. For example, it took 250KWh for Bitcoin as of Dec 2017 and for Monero roughly 16KWh/coin as of March 2017.  These are estimates only since these numbers are dynamic, unpredictable and rising as fewer coins are available to be mined. Pricing of KWh will vary depending on the electricity provider. It may be constant or time-based.

“Discharging” or purchasing energy from relevant markets: Amount of energy that can be purchased varies with the value of the cryptocurrency (dynamic) and price of energy (dynamic). 

If we make the unrealistic assumption that cryptocurrency values are static and electricity prices are static, then the efficiency is determined by the value of the bitcoin divided by the electricity cost (KWh*price) which gives us the “coin multiplier” which will be positive when the cost of mining a coin is less than the value of the coin and negative if the cost of mining a coin is more than the value of the coin.  For example if it takes 250KWh to mine a Bitcoin, electricity costs $.10/KWh and a Bitcoin is worth $100, then the multiplier would be four.  The efficiency would be plus 400% multiplied by the buy/sell differential for electricity (the selling price of electricity divided by the purchase price).

K=KWh to mine a coin

Y=Cost per KWh

C=Value of a coin

C/(K*Y) = Coin multiplier

P=Purchase price per KWh

S=Sales price per KWh

S/P = Buy/Sell differential

R/T efficiency is 1 ((C/(K*Y))*(S/P))

Chris Chen's picture
Chris Chen on Feb 2, 2018

I've also done a little thinking about the question I posed in the original post, "Is the fact cryptocurrency is a product of energy load enough to differentiate it from other uses of electricity?"  I suppose you could think of any product which uses energy in its production and could be monetized to purchase energy as a "store" of energy. The difference with cryptocurrency is it involves far less transaction inefficiencies.  Always nice to answer my own questions :-)

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