Bitcoin has a feel-good energy story

The price of Bitcoin set a new all-time high this week, crossing the $69,000 mark on Tuesday before falling back to around $67,500 by Thursday afternoon. This almost certainly means that Bitcoin’s energy consumption is also increasing – although any chance of to get an exact idea of ​​how much, even just in the US, could be delayed for months. Last week, the US Energy Information Administration agreed to stop collecting data on crypto mining operations after a federal court in Texas halted the project until the EIA goes through a more comprehensive approval process.

That Bitcoin eats up a lot of power is indisputable. Bitcoin mining involves solving increasingly complex math problems, which at this point require large amounts of computing power; using outside data, the EIA estimated that crypto accounts for about 2% of the country’s total electricity consumption. Both the industry’s electricity consumption and how it participates in electricity markets have been subject to criticism from Democratic lawmakers, who have pushed for more information gathering. If the price of Bitcoin continues to climb, that skepticism could rise.

“There is a very direct correlation between the value of what is mined by the miners and how much is spent on electricity,” Alex De Vries, a cryptocurrency and energy researcher, told me.

A wide-ranging New York Times investigation last year found that large-scale mining operations “put huge strain on the power grid,” and that “their operations can create costs — including higher electricity bills and enormous carbon pollution — for everyone around them.” According to the University of Cambridge Judge Business School, Bitcoin’s energy consumption has risen by about 50% in the past year, from an annual rate of about 110 terawatt-hours per year to just over 163 TWh, comparable to the electricity production of Ukraine or Pakistan. (This is, of course, an estimate, based on a model derived from the performance of mining hardware and the assumption that miners only work with hardware that allows them to mine Bitcoin profitably.)

With all the attention on consumption and emissions, Bitcoin miners have been keen to portray themselves as, if not quite the good, at least not the bad.

“The industry as a whole has a good story to tell on the energy piece,” Tom Mapes, president of a newly formed industry group called the Digital Energy Council, told me. He also told me to “be realistic about it. We do use a lot of power – not to say that the use of power is bad in every facet.”

The feel-good Bitcoin energy story goes something like this: Crypto miners are always ready to use energy at the right price — and also to shut things down at the right price. “We have the ability as a bulk power user of our size to flex load like no other,” Mapes said. “Data centers cannot flex load like this. We can be built in as a tool to work within the constraints of these grids.”

If a mining facility is co-located with an energy source, it can be there to purchase power production that might otherwise be curtailed because there isn’t enough transmission capacity to get it to other customers. It can also be a buyer of first resort for a newly developed generator or it can keep an old one in business, as Bitcoin mining has with some fossil fuel generators.

“You tend to see Bitcoin miners wherever there’s stranded energy and excess power,” said Margot Paez, a fellow at the Bitcoin Policy Institute. There are some examples of crypto-mining alongside renewable energy, but that doesn’t always mean the power they use is entirely renewable. There is also a crypto mining operation set up at a nuclear power plant in Pennsylvania, adjacent to what will be an Amazon Web Services data center.

However, the main way crypto operations interact with the grid is not by backing any particular resource, but rather by being flexible about when they operate. Shutting down when demand is high can be quite profitable – sometimes even more so than crypto mining itself.

Riot Networks, a mining company with extensive operations in Texas and a plaintiff in the EIA records collection lawsuit, has become a flashpoint for crypto’s interaction with the electricity markets, precisely because it eagerly shares data with investors and the public about its participation in programs to maintain. grid stability. In August, when demand reached record highs and Texas consumers were asked to conserve energy, Riot reported $8.6 million in revenue from the sale of Bitcoins it mined and $31.6 million either from the sale of power it generated he bought at a predetermined price, back to the grid at the higher market price or from incentive payments because they are willing to switch off during demand surges.

The company’s CEO said that last August was “a landmark month for Riot to showcase the benefits of our unique power strategy.” (Of the 34 major Bitcoin mining operations in the New York Times investigation, Riot was the largest and attributed the most fossil fuel use.)

But that was then and this is now. The revenues that Riot derives from Bitcoin mining are probably significantly greater than they were five or six months ago, since the price of Bitcoin has almost doubled. The company told investors that it costs about $7,500 to mine a single Bitcoin, which could mean it and other crypto miners operating strategically in the electricity market would be less willing to sell power back to the grid or shut down during demand surges.

If you’re thinking this all sounds a lot like the question-response conversation, well, I was too. Demand response is something climate people like to talk about. They want consumers to be paid for using less power when demand rises, and they think it’s really neat that you can charge an electric car overnight when demand is low and want you to be able to feed that power into the grid sell back when demand becomes high.

Placing energy consumers near renewables and other non-carbon-generating energy sources that can absorb excess power when renewable production is “too high” for the grid is something you hear a lot about with, for example, hydrogen production or energy storage. Why let that energy go to waste when we can incentivize people to store it instead?

But an electrolyser or a battery isn’t just a smart way to figure out how to handle the peaks and valleys of variable renewables like wind and solar, it’s potentially a key component of a decarbonized energy system. It not only consumes non-carbon energy, it can also store and transfer carbon-free energy.

Crypto, on the other hand, takes energy, renewable or not, and turns it into money. It is a greedy and flexible consumer of electricity, and there are market designs where non-carbon generators will be happy to work with such a consumer. But from the perspective of the energy system, a consumer is all it will ever be.