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Can Crypto Miners Make the World Greener?

WikiBit 2022-03-27 13:32

Abstract:As it decarbonizes, the mining industry might help push energy producers to build more renewable power sources.

  Around 15,000 cryptocurrency mining rigs are humming away at HIVE Blockchain’s 30 megawatt (MW) data center in Boden, Sweden. But not all the time. Sometimes, the facility powers down to help the local grid.

  The data center, drawing cheap energy from local hydropower producers, acts as one of the largest, if not the largest, active energy reserves the Swedish grid can call upon whenever there are major disturbances to the local power supply. The facility can shut down its machines almost instantaneously, so that energy can quickly be diverted to public use.

  “In five seconds, we have to power down half of what we have allowed into the system,” said Johanna Thornblad, HIVE Blockchain’s Sweden country president. “And within 30 seconds, the entire power supply that is being requested has to be participating in the FCR-D system” – the Frequency Containment Reserve for Disturbances that keeps the lights on in the region.

  When managed like that, the energy demand of HIVE’s mine is an asset to the local electricity grid; the miners are a stable source of cash flow when public energy consumption is low, but can power off during peak hours.

  The mutually beneficial relationship between the HIVE facility and the local grid shows another side to the well-worn story of crypto mining’s environmental consequences.

  A popular narrative among politicians, media and the industry’s most vocal critics is that mining is cooking the Earth. Miners have indeed been known to bring fossil fuel plants back from the twilight zone – thanks to their insatiable and indiscriminate thirst for cheap power. Bitcoin is therefore said to be gobbling up the world’s precious energy and consequently responsible for a large amount of carbon emissions.

  “You cannot waste energy sustainably,” Pete Howson, a senior lecturer in the geography and environmental sciences department at the U.K.’s Northumbria University, told CoinDesk, aptly summarizing the critics’ view.

  Globally, bitcoin mining alone consumes 136 terawatt-hours (TWh) per year, estimates the Cambridge University Center for Alternative Finance. That’s about the same amount of electricity as Argentina, the United Arab Emirates, or Sweden. But that’s only about half of what data centers run for other purposes consume, which the International Energy Agency (IEA) puts at 200-250TWh.

  U.S. and European lawmakers have been making arguments such as the ones mentioned above when scrutinizing the environmental impact of bitcoin mining. Last week, proof-of-work mining, used by the Bitcoin network, narrowly escaped its demise in the European Union: Lawmakers voted down a proposal that would have banned proof-of-work mining but made allowances for protocols such as Ethereum that were transitioning to other verification methods that consume less electricity, like proof-of-stake.

  But concurrently with these criticisms, the bitcoin mining industry has shifted dramatically toward renewables.

  Estimates of how much bitcoin mining is powered by renewables range from 40% to 75%, The New York Times reported in September 2021. A report by crypto asset management firm CoinShares found that as of December 2021, renewables contributed under 30% of the total energy consumed by the bitcoin network, with nuclear power responsible for 11% of the total and natural gas contributing another 24%.

  Although carbon emissions from mining have been growing overall, along with the industry, they have decreased relative to megawatt hours of electricity used and terahashes of computing power produced, CoinShares found.

  More than cleaning up its own act in the process of decarbonization, the crypto industry might help energy producers build more renewable energy that the rest of society can use.

The benefits of renewables for crypto miners

  For many miners, using renewable sourced electricity makes a lot of economic sense. Overall, renewable energy is cheaper than fossil fuels, so it can preserve miners’ profit margins.

  “Generally speaking, electricity from renewables is as competitive if not cheaper than fossil fuel-based electricity,” said Jesse Morris, CEO of Energy Web, a U.S. company that is helping a consortium of miners build transparency around their energy sources, known as the Crypto Climate Accord.

  Not only are fossil fuels more expensive, but they are vulnerable to external price shocks, such as the war in Ukraine.

  An interesting dynamic emerging from the conflict is that, with fossil fuel prices through the roof, renewable energy is even more attractive, said Mellerud. “We will likely see more miners moving towards renewables due to this shock.”

  Howson, who studies the social and environmental impact of bitcoin mining, is skeptical of such arguments. The fact that renewable energy is not produced 24/7, 365 days a year, makes it less attractive to miners, he said. “Every minute the sun’s not shining or wind’s not blowing, or it’s dry season so no hydro, they’re losing money,” he said.

  Miners have another incentive to move toward cleaner energy sources: They can “lower their cost of capital since they have a better chance of attracting institutional investors that operate under ESG-mandates,” said Jaran Mellerud, researcher at Oslo-based Arcane Research. “Environmental, social and governance” is a set of criteria for making investments that looks at social goals in addition to financial returns.

  Companies, especially those traded on public markets, are under pressure to decarbonize, said John Belizaire, CEO of Soluna. As miners went public, their energy consumption became public information, and “and as you might imagine, no company, especially in the public markets, is immune to ESG pressures. We're all in the role at this point in the back of a Tesla moving in the right direction,” Belizaire said.

  “Still, some miners will resort to buying carbon offsets as an easy solution, as some of them already do today,” Mellerud said. These are transferable credits for reducing emissions, which companies can sell on the market.

  If a miner intending to be green joins the industry, fossil fuel-powered miners, such as players using coal in Kazakhstan, or gas-powered ones in Texas, are incentivized to increase their energy consumption to keep up, Howson said.

  A growing way of using renewable energy to power mining is through what can be called behind-the-meter solutions. That’s when an electricity producer connects a couple, or a couple thousand, mining rigs close to the energy asset, so the power goes directly to the miners, instead of going through the grid (and its meters).

No man’s energy

  A fair amount of the world’s renewable energy is stranded or curtailed, meaning it is located far from demand and there is no good way to transmit it to regions with high usage. As a result, producers might turn off or limit their energy production. California clocked 1.5 TWh of curtailed energy from wind and solar in 2021, according to the state’s grid operator.

  In addition, a lot of energy dissipates when it is transmitted over long distances, so it makes economic sense to consume it where it is produced, said PoW Energy co-founder Alejandro de la Torre, whose company crypto builds mines around Europe.

  For example, in northern Norway, electricity prices are about 10 times less than the southern part of the country because there is abundant hydroelectric power but barely any industry or population to consume it.

  “The energy production [in the north] and the potential for more production is so much higher than the local demand for that energy and the capacity to export it to other areas,” Kjetil Pettersen, CEO of Oslo-based miner Kryptovault, told CoinDesk.

  However, countries around the world are working to develop better transmission lines such that energy can be consumed or exported. Germany will spend $55 billion on such projects by the end of 2030, estimates the Federal Ministry of Economic Affairs and Climate Action.

  Thanks to the abundant hydroelectric energy, northern Norway, which is not directly connected to the rest of Europe, has been impervious to a sharp uptick in energy prices in the south of the country, and doesn’t expect any increases soon, said Oleg Blinkov, head of data center development and operations at Bitfury, one of Europe’s e largest miners.

  Kryptovault is considering establishing facilities there to soak up the excess energy. The same is true for northern Sweden, where cheap, abundant energy has attracted everything from Facebook data centers to crypto mining operations to the region.

  Bitcoin mining can act as a demand-side response to the problem of curtailed or stranded energy. “The grid is having a real challenge integrating large amounts of power,” Belizaire said. Three things are needed to fix this problem; transmission capacity, flexible loads, and energy storage, he said.

  The IEA estimates that another 500 gigawatts (GW) of demand responses need to be brought online by 2030 to achieve net zero carbon emissions globally by 2050. That’s a tenfold increase compared to the capacity of demand-side responses brought online in 2020. Demand responses try to balance the grid by increasing or reducing energy consumption to match the supply.

  The next decade will be messy, Morris said. Power grids will become increasingly complicated as they integrate a growing array of energy sources. “It's gonna get worse before it gets better,” he said, adding that crypto mining should be a necessary part of the solutions available to energy suppliers.

  Howson countered that overall, mining is encouraging fossil fuel energy production more than it is promoting renewable energy. “For every farmer plugging a few ASICs into their biodigester, there’s an entire fossil fuel power plant reopening to satisfy bitcoin’s energy demands,” he said.

  Trade groups who tout the former type of miner are simply engaging in ”a massive greenwashing drive,” he said.

  Ultimately, the industry “is delaying grid transitions to renewables,” by making oil and gas industries more profitable, Howson said.

  Increasing the proportion of wind and solar energy in the grid will increase the need for energy reserves that can be tapped on demand, like HIVE’s Boden mine that can power on and off, Mellerud said.

  “These energy sources are variable and not controllable, as they only generate power when the weather allows it,” he said. In other words, the supply of energy becomes less flexible the more wind and solar is integrated in the grid, such that the demand side has to make up for the difference.

  Another interesting model is that manufacturing facilities, such as clothing factories, can use any excess energy that they didn’t spend during the manufacturing process to power in-house bitcoin mines, de la Torre said. This is happening, for example, in Spain, he said.

  Boden's HIVE facility draws energy from two local hydropower producers including Vattenfall, one of Sweden's largest state-owned power companies. (Sandali Handagama)

The energy flexibility of crypto miners

  For Eric Thedéen, the Swedish financial regulator who called for a ban on proof-of-work mining in the European Union, miners using electricity that would otherwise be available for other industries.

  “This energy is urgently required for the development of fossil-free steel, large-scale battery manufacturing and the electrification of our transport sector,” he wrote in November.

  Indra Overland, head of the energy program at the Norwegian Institute of International Affairs, agrees with Thedéen’s standpoint, adding that even if miners used energy in places where there is an abundance of it, they would still be competing against other industries also looking to take advantage of cheap renewables.

  “The energy transition requires a reorganization of many sectors,” Overland said in an email to CoinDesk in February. This process is already ongoing and will accelerate in the coming years. Many energy-intensive industries will move to locations where there is abundant clean energy. Clogging up those locations with cryptocurrency mining will slow down this process.”

  The “unique nature of the miners’ energy consumption profile” is so good for soaking up curtailed energy, that it is hard for other industries to compete, said SAI Tech CEO Arthur Lee, whose firm develops technology to make mines more efficient and green. “Clean energy stations are mostly built in remote places, which attract energy consumers who have mobility and huge power demand – miners fit into this profile perfectly.”

  These unique characteristics are advantages for energy producers looking to balance their grid loads, said Andrew Webber, founder and CEO of Digital Power Optimization, which helps energy producers balance their loads and maximize profits using a host of solutions.

  It doesn’t require high latency internet connections, which might not be available at remote edges of the world where renewable power plants are, and also doesn’t need to be running at all times, unlike other types of consumer data centers, he said.

  “If Amazon or Google plop down and build a data center, and buy power from a power producer, first of all, they want that power 24/7,” he said. “They never want to shut off because Instagram photos, web applications, and the CIA's data is there on their servers, and they need that data to be up 24/7. They can't have glitches; they can't have downtime.”

  Automating the process through which mines turn on and off is key to balancing the grid because it allows adjustments without delays caused by human error, maximizing the benefit to consumers, said Gregg Dixon, CEO of Voltus, a firm that digitally aggregates power suppliers and consumers into one virtual system to more efficiently balance loads.

  According to Henrik Juhlin, head of power management at Vattenfall, one of Sweden’s largest state-owned power companies and a major energy supplier to the HIVE facility in Boden, flexible electricity use is an effective way to support stable frequency in the power grid. Juhlin added that HIVE’s Bikupa data center is one of Sweden’s largest contributors to FCR.

  The Swedish national grid operator can call on the HIVE data center in Boden to power down a portion of its mining operations at least once a month to balance the local grid. In the facility, energy use is divided into thousands of small units or machines that can be powered off one by one, or all at once, according to Marin Baksa, site manager at the HIVE Blockchain data center in Boden.

  By comparison, a steel factory, which has to maintain certain temperatures and an assembly line, might have a harder time powering off quickly, Baksa added. Quick responses, like the ones automated crypto mines can bring, are valued higher than slower ones, Dixon said.

  Bitcoin miners are willing to curtail their activity for about 100 hours/year, which is when the value of curtailing exceeds the value of mining, i.e. when it’s more profitable to give power to the grid than use it for mining, Dixon said. These can be days when there is really high demand; for example, due to a heatwave.

  The miners “can use excess renewable energy locally, to speed up the rate of return on investment, and attract more (clean power) investors,” Lee wrote in an email.

  Left, the electricity transformer that feeds power straight to the mining container on the right, at a small mining facility in South Spain. (Eliza Gkritsi)

The problem with batteries

  Storing electricity instead of using it for mining comes with several caveats, not least of which is that battery technology has been infamously static for the past few years.

  In south Spain, energy producers are “not getting very much out of selling electricity to the grid,” said Vincent Burke, CEO of Solar in Spain, which develops small-scale photovoltaic installations.

  Burke said that for every three units of electricity he sends the grid, he receives one credit. “So the value of that kilowatt becomes a third of what it is if you use it,” he said, adding that storing extra electricity in a battery is usually expensive because lithium, which is a key material in batteries, is pricey.

  “If you don't use the energy that is produced, then you need to store it somewhere,” Baksa told CoinDesk. But “when you create batteries, after the period of expiration of the battery you create a lot of waste. So, not sure that anyone is going in that direction,” HIVE’s Baksa said.

  The pros and cons for crypto mining and batteries are different, Webber said.

  For energy producers, batteries capture the difference in value between the low and high price. “You charge them up when the price of power is low, and then you discharge your batteries when the price of power is high, so what you capture is the spread between those two prices,” he explained.

  By contrast, with crypto mining, “what you want is more or less consistent low power. Ideally, you have really low power all day long and all night long,” Webber said. So where someone places a battery might be the same place for a crypto mine, but maybe not, he said.

  Belizaire said mines are, in a sense, better than batteries because they add load instantaneously that can be directly converted into a different asset. “A battery absorbs the electrons and then has to re-output the electrons to the same point where it's connected. It can only do that during certain periods, and sometimes those periods for its business model don't conflict with what the grid needs,” he said.

  Howson scoffs at such comparisons. The idea that bitcoin will function like a battery in that miners can act as a buyer of last resort, converting and storing the electricity as “financial energy” is “absolute bollocks,” he said.

The great crypto mining merger

  The incentives between energy producers and miners are so aligned, that soon it might be difficult to draw a line between the two.

  More energy firms are entering mining, while miners are accumulating their own energy supply. Voltus has created models to determine exactly how much flexibility is worth to crypto miners: in Texas, $37.53 per megawatt hour, whereas in New England, it’s $6.69. per MWh.

  Energy companies that stay out of bitcoin mining will leave money on the table, “because mining most of the time is much more profitable than selling the energy to the grid,” Mellerud said.

  Based on his research, during mining’s super-profitable 2021, energy producers could have earned more than 10 times the cash flow by mining bitcoin than selling their energy to the grid, he said.

  Daro Ruiz, who installs photovoltaics with Solar in Spain, said that although energy prices have increased to $0.14 per kWh for consumers due to the conflict in Ukraine, producers are still paying around $0.05-$0.06 per kWh.

  DPO’s Webber said that in five to 10 years, all big crypto miners will have to generate their own power generation capacity to maintain cost competitive operations. “If they don't, the people that own the power gen can do this,” he said.

  Belizaire agreed broadly, but stopped short of saying that miners that don’t supply their own power would eventually be priced out. “As the industry scales, and this approach and model starts to take off, it's likely that vertical integration of renewables and this industry will be an important strategic advantage,” Belizaire said.

Working on it

  The materials used to build mines are also contributing to the industry’s carbon footprint.

  Several miners, which are auditing their carbon footprint, are looking comprehensively at their operations, even as they focus on energy consumption, Morris said. And some are finding ways to save energy in their data center designs, software systems and contracting and financial structuring.

  Morris added that most of the criticism of bitcoin’s carbon footprint is a veiled way of saying “I don't believe in bitcoin.” Decarbonizing the network might not actually satisfy these critics, he said.

  Asked whether a fully renewable energy-powered bitcoin mining network would be acceptable in terms of its carbon footprint, Northumbria University’s Howson, a critic of the industry, said that “proof-of-work is proof of waste,” and that “if all the world’s Bitcoiners got together and agreed to cooperate to make bitcoin ‘green,’ it would negate the point of proof-of-work.”

  Sweden’s Theéden started his letter calling for a ban on proof-of-work mining saying; “The social benefit of crypto assets is questionable.” For the regulator, the energy going to mining could be better used elsewhere.

  Theéden cited research by Digiconomist, a project by Dutch researcher Alex de Vries, who has been a strong advocate against bitcoin mining.

  Among other topics, de Vries has quantified the carbon footprint of bitcoin transactions by comparing the energy intensity and carbon emissions of a bitcoin and a Visa transaction k He found that bitcoin’s carbon footprint per transaction is equivalent to 2,700,562 Visa transactions.

  The bitcoin community has objected to the comparison and questioned de Vries’s background. Researchers at Cambridge University’s Center for Alternative Finance say that the energy cost per transaction metric is “a purely theoretical measure that has little practical relevance without additional context.” Critics also point out that the researcher works for the Netherlands central bank, which they consider a conflict of interest.

  Bitcoin supporters like many of the miners quoted in this article disagree. Mellerud thinks that the debate overall focuses too much on the costs of bitcoin, and that the network has other benefits.

  “Yes, bitcoin consumes a lot of energy,” but “this is the price we pay for having a global, permissionless, and censorship-resistant monetary system,” he said.

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