How Electric Utilities Can Benefit from Bitcoin Mining's Energy Consumption
- May 27, 2021 2:32 pm GMT
Bitcoin mining is back in the news after Elon Musk, the irrepressible chief executive officer at Tesla, highlighted numbers for its energy use in a tweet. Musk’s tweet set off a cascade of news articles, op-eds, and study citations last week. At the heart of the debate is whether Bitcoin mining’s prodigious energy use is powered by renewable energy or not.
The cryptocurrency’s proponents, all of who have vested business interests in it, claim that it is. But recent studies state otherwise.
The most comprehensive research regarding the matter was published last year by the Cambridge Center for Alternative Finance. The study estimates that Bitcoin mining uses 110 terawatt hours of energy use per year, equal to the electricity consumption of small countries like Sweden. Renewable energy was responsible for 39% of the total energy consumption and a mix of fossil fuels and other sources, such as hydroelectric energy, accounted for the rest.
A March 2020 study by energy journal Joule stated that Bitcoin accounted for about 80% of market cap of “proof of work” coins and two-thirds of its energy consumption. (For those who don’t know, proof of work is a consensus method used by systems mining cryptocurrencies to arrive at an agreement regarding a transaction that occurred in its network). The study stated that there is considerable environmental damage done due to Bitcoin’s “energy hungry” power consumption.
Investment firm Coinshares produced research in 2019 that claims that 70% of Bitcoin mining uses some form of renewable energy. Payments company Square and ETF provider ARK Investments also released a whitepaper earlier this year arguing that cryptocurrency mining could spur renewable energy integration into the grid. (The paper also makes a bizarre claim that Bitcoin miners “provide payout in a globally liquid cryptocurrency and are completely location-agnostic”. The volatility of crypto markets is due to their illiquidity and large bitcoin miners tend to co-locate themselves near power stations or build alternative sources, so as to not disturb normal grid operations).
Bitcoin’s Energy Consumption is Good News for Utilities
As cruel as it may sound, Bitcoin’s energy consumption is good news for utilities dealing with a double whammy of flat demand and stranded fossil fuel assets. Bitcoin mining could boost revenues and provide a cover for stranded assets in the grid.
First, the case for revenue from cryptocurrency mining. There are no estimates or officially reported figures about the revenue figures from cryptocurrency mining. But 110 terawatt hours represents a credible, if not substantial, source of revenue for electric utilities. (For context, the entire manufacturing industry used approximately 5,698 terawatt hours of energy in 2018 according to EIA estimates).
It is important to remember here that this figure represents energy consumption costs only for Bitcoin and not for other coins, like Litecoin, that also use the PoW consensus mechanism. Therefore, the total number will increase when you add energy production costs for other coins. It will further swell during times of price increases as miners crank up their systems to maximize profits and boost the bottom line for electric utilities, especially those which are small or community-focused.
Stranded fossil fuel assets could also find new life in the Bitcoin mining universe. The economics of Bitcoin mining are such that the cheapest possible source of energy brings in the maximum source of profits. At the moment, the cheapest source of energy is natural gas, which is based on fossil fuel. But the Biden administration’s push towards renewable energy sources means that several such sources are being abandoned. Not surprisingly, they are being repurposed for Bitcoin mining use.
Finally, China, which has begun cracking down on Bitcoin mining outfits, could provide the impetus for an exodus of Bitcoin mining farms to other regions. The United States could be a major beneficiary.
Some claim that Bitcoin mining could spur growth of renewable energy plus storage. But that may be a fantasy that accords prime status to a nascent industry. Still, the activity could provide another incentive for utilities to invest in renewable energy.
According to the Cambridge study, the median percentage of renewables used in Bitcoin mining in Europe and North America is relatively high at about 70% and 60% of the total energy used respectively. In the Asia-Pacific region, they accounted for just about 25% of energy used for Bitcoin mining.
Of course, there are several nuances of the issue that still need to be worked out. For example, should bitcoin miners be subject to separate rates and rules, similar to the ones for industrial consumers? Do miners require zoning restrictions? Should they be required to power down their operations during times of high electricity demand? Can we use nuclear energy to power Bitcoin mining? Should miners pay for network upgrades to accommodate their demand? How can Bitcoin mining be designed in DER systems?
The answers to these and several other questions will pave the way forward for Bitcoin mining. Those answers could also refurbish the image of an industry corrupted with scandals and scams. And, perhaps, once those carbon-intensive production processes are scaled back, one might even be able to find some use for cryptocurrencies!
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