This is an opinion editorial by Jaran Mellerud, an analyst at Arcane Research focused on Bitcoin mining.
Most people dismiss bitcoin miners as just another power-hungry industry, but there’s a big difference: Bitcoin miners are uniquely flexible about when and where they consume power. Arcane Research’s new report titled “How Bitcoin Mining Can Transform the Energy Industry” found five factors that make bitcoin miners unique energy consumers, which I’ll explain here.
Bitcoin miners are price-sensitive energy consumers
A price-sensitive energy consumer has financial incentives to adjust their energy consumption based on the price of energy. Bitcoin miners refine energy into bitcoin and are only financially incentivized to do so if the energy input is priced lower than the bitcoin output.
The chart below shows the bitcoin mining breakeven energy price for 2021 and parts of 2022. This breakeven energy price is the dollar-denominated revenue per MWh of energy fed into a bitcoin mining machine (Antminer S19). Let’s assume that a bitcoin miner’s price per MWh rises above this line. In this case, the miner is financially incentivized to turn off their machines, since they would earn less by using that energy to mine bitcoins than they would pay for the energy.
Since energy is such an important component of the cost structure, miners always pay attention to their energy prices and can calculate their break-even prices with certainty. During energy shortage events, the spot price of energy will rise much more than the price of miners’ energy, incentivizing miners to reduce production and let energy flow to energy consumers less price sensitive, such as households.
Bitcoin mining is an interruptible process
Not only are bitcoin miners financially incentivized to stop consuming energy if spot energy prices rise above their equilibrium price, but they are also able to do so due to the interrupted nature of the mining process. bitcoins
A bitcoin miner can stop its production and consumption of energy at any time without losing more money than the opportunity cost of not producing bitcoins. Not only can you interrupt your consumption, but you can also granularly adjust it up or down in kilowatt increments.
The disruption of the bitcoin mining process becomes apparent when comparing a bitcoin mining facility to a conventional data center. A conventional data center performs many complex processes and must maintain uptime because of its customers. Uptime is so crucial to data centers that they rank first through fourth based on their uptime guarantees and power redundancies. Bitcoin miners and some other high performance computing processes are the only interruptible data center processes.
Because bitcoin mining is an interruptible and price-sensitive load, the process is uniquely suited as a demand response tool that can help strengthen power systems.
Bitcoin mining operations are location independent
Most energy-intensive industries produce physical products that require access to supply chains. On the other hand, Bitcoin miners produce hashes sold over the Internet. Therefore, a bitcoin mining facility can generally be built anywhere with cheap power and internet access.
The location agnosticism of bitcoin mining allows you to bring the energy consumer directly to the energy source. Bitcoin miners are the end customers of previously stranded energy resources, which is why oil producers have started using natural gas that would otherwise have to be mined for bitcoins.
The location agnosticism of bitcoin mining becomes apparent when looking at a map of Texas bitcoin mining operations. Almost all of them are in the state’s far western desert, where they feed off of the region’s stranded wind and solar.
Bitcoin mining operations can be scaled modularly
A bitcoin mining machine consumes a specific amount of electricity and it is possible to combine different amounts of these machines at different load levels. It doesn’t matter if an energy asset owner wants a 5MW, 20MW or 100MW bitcoin mining load – all load sizes are possible by changing the number of machines.
The modularity of bitcoin mining makes it possible to design a bitcoin mining load that matches the available power generation capacity. This is especially relevant when matching the bitcoin mining load with the excess production capacity of a stranded renewable energy generator to improve its economics.
A Bitcoin mining operation can be designed to be portable
We can design a bitcoin mining payload in specific ways to maximize portability. Filling specially designed shipping containers with mining machines has recently emerged as a way to optimize portability. These container solutions are designed on the plug-and-play principle and can be quickly shipped to other locations if needed.
The portability of bitcoin mining makes it easy to move a mining rig to absorb excess power and quickly move the rig to another location if the power is no longer in excess at the first location .
Bitcoin mining has a combination of properties that make it a unique and flexible energy consumer. This flexibility allows bitcoin miners to provide positive externalities to various energy systems globally, such as strengthening vulnerable power grids, improving the economics of renewable energy, mitigating natural gas distortion, and reduction of heating costs through the reuse of residual heat.
What makes bitcoin mining such an aspiring energy tool is not simply that it is a uniquely flexible consumer of energy, but that the financial incentives add up. With similar incentives, the bitcoin mining and energy industries are destined to work together to solve some of our biggest energy problems. You can read more about this in the full report from Arcane Research.
This is a guest post by Jaran Mellerud. The opinions expressed are entirely my own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.