Bitcoin mining, a counterintuitive solution to the green transition?

Since the approval by the SEC of spot bitcoin ETFs in January 2024, Bitcoin (BTC) and cryptocurrencies are back in the spotlight.

As BTC gains momentum with retail investors, a familiar question is back on the table: the sustainability of the system. For critics bitcoin mining, which lies at the heart of the validation of the decentralized system, requires an immense and unsustainable amount of energy.

For many, this energy use is largely a waste of resources. But, for some, this use of energy could be harnessed as a positive tool for the green transition.

A few weeks ago, I had the chance to discuss this very topic with Alexandre Stachtchenko who defends the counterintuitive idea that BTC mining can be a helpful solution to the deployment of renewables and harness wasted resources like methane. This blog post is largely inspired by his research — which I’d recommend reading if you’re interested in learning more about the subject (and speak French).

His position, shared by many others, has been hotly debated and often seen as controversial given the energy requirements of cryptocurrency mining. In 2017, the World Economic Forum published a controversial article titled “In 2020, Bitcoin will consume more energy than the entire world today”.

Since its publication, the article has been critiqued and shown to be partially inaccurate. In fact, in 2023 Bitcoin’s energy consumption is within an order of magnitude of around 0.01% to 0.1% of global energy consumption, which a lot less than other industries (see Exhibit 1 for comparison).

In addition, the World Economic Forum published a video in April 2023 highlighting the success of “a start-up which catches wasted methane to power data centres”. This start-up is called Crusoe Energy, and the “data centres” in question are Bitcoin miners.

This opens an interesting discussion around the potential of cryptocurrency mining as a tool to reduce emissions, stabilise the electricity grid, and encourage further deployment of renewables. As we examine this exciting proposition, we will also consider the limitations of the deployment of the mining infrastructure.

BTC mining as a stabiliser of grid infrastructure

In some parts of the United States the use of BTC mining has become a genuine tool for grid balancing. The Texan network operator (ERCOT) has been amongst the first to test these projects.

Now many energy actors around the world are testing similar projects. Aker, the Norwegian industrial investment company, recently announced that they were opening a new mining business, calling it a “grid balancing battery” “essential to the energy transition required to achieve our Paris Agreement objectives. “ The Japanese energy leader, Tepco, also launched the same strategy for recovering surplus electricity.

But, how is an energy-hungry process can be helpful to the stability of the grid?

Well, the main challenge of grid infrastructure is ensuring the stability and consistency of energy supply. There needs to be a continuous balance in production and consumption. In other words, the energy generated must be equal to the energy consumed. Any instability in the system can cause damage to the grid or even trigger blackouts. The less extreme outcome, but still problematic, is a loss of efficiency in transmission and/or negative prices.

This challenge of grid stability is amplified with the deployment of renewables like solar or wind. By nature, these energy sources provide intermittent supply, and often are a source of instability within the system. Therefore, the transition to greener energy sources presents us with the increasingly complex challenge of balancing electricity production and demand.

Currently, batteries are the main tool to balance out network congestion and instability. Unfortunately, batteries have a limit in capacity and cannot “instantly” return all its energy to the network.

So the grid operators turn to “demand response”. To better match the demand for power with supply, utility operators signal to consumers the need to change the power consumption. This is communicated to customers via explicit requests or changes in price.

In downtime, and in times of energy surplus, providers reduce prices to stimulate demand. Surpluses of energy are actually quite frequent. In the United States, some regions have negative prices more than 25% of the time, and the average frequency at which these events occur actually increases with the deployment of renewables.

As we all want to switch our lights on and charge our electric devices at the same time, peak demand is more familiar to us. It is at these critical times that utilities need to find consumers willing to reduce their consumption. However, finding a large customer in a position to turn off their industrial equipment (immediately) for an indefinite period of time is very difficult.

For example, a steel factory can reduce its electricity consumption by up to 96%, but for no more than two hours, and a cement plant can reduce consumption by up to 70%, but not for more than three hours.

This is where BTC mining can serve an interesting role in balancing the supply and demand mismatch. Bitcoin mining facilities can be turned on and off at short notice, achieving up to 97% clearing instantly for an unlimited period of time. As there is no industrial device or supply chain that could suffer following the cessation of mining, they are in a unique position to act in demand response programs.

It is also important to note that miners can set up anywhere, including co-locating around renewable energy sources, which are often built and established in remote locations. Mining facilities offer a flexible load that can work in harmony with supply and demand patterns.

The view is that mining can complement energy storage via battery technology to offer flexibility to network operators. Acting as a second outlet for when wholesale prices on the main network are insufficient, or if battery storage is full.

The beauty of the model is that when miners shut down their machines, like any participant in an incentive-based erasure program, they are paid by the network operator for the service they provide. Thus, the miner has a virtuous business model (either you mine and you are profitable, or you don’t mine and are compensated).

This original solution needs to be considered in a world where evermore pressure is put on our system. It was not so long ago that the Pennsylvania operator PJM Interconnection sent letters to 65 million Americans to cut Christmas lights on December 24 and 25 in 2022.

BTC mining, the best way to value methane waste

Another original use for BTC mining may be the one that could have an actual direct effect on reducing greenhouse gas emissions. This is to use mining as a way to capture energy from wasted methane.

Methane is a great greenhouse gas (GHG) for us to focus on eliminating, because it poses a much more dangerous ‘warming’ effect than CO2 (80 times more dangerous). Each molecule of methane released into the atmosphere is equivalent over a period of 20 years to 80 molecules of CO2. According to the United Nations Environment Program (UNEP), methane accounts for 30% of global warming and “reducing methane is the most powerful lever we have to reduce climate change over the next 25 years, complementing the efforts needed to reduce carbon dioxide.”

According to another UNEP report, more than half of all global emissions come from human activities in three sectors: fossil fuels (35%), processing waste (20%) and agriculture (40%). There should be a way to harness the energy of these wasted emissions. Today, all we do is burn those gases.

“Gas flaring” is the current practice by which gas is burned to prevent it from being released into the atmosphere. This combustion transforms methane into CO2, which is a net gain for the atmosphere, but it is still releasing GHG and most importantly is one of our most prominent forms of wasted energy. The most recent data indicates that around 150 billion cubic meters (bcm) of natural gas were flared globally in 2019, as much as Japan and Korea imported in 2023.

The main alternative to flaring has been Carbon Capture and Sequestration (CCS), which consists of burying the gas emitted underground and using it in new drilling processes. This method has been widely criticised for being an unsustainable solution and offering a free pass for heavy GHG emitters.

It is in this context that BTC mining can again play a positive role. Companies like Crusoe Energy who specialize in building modular data centres powered by natural gas are partnering with oil and gas companies, like Exxon, to convert flared gas into electricity use for BTC mining. This provides the benefit for both parties, reducing emissions on the one hand and creating a new source of revenue to monetise what would have been otherwise wasted energy on the other.

A 2021 study found that capturing the potential energy of flared methane in the US and Canada alone would be sufficient to power the entire BTC network. And according to some projections, BTC mining has the potential to meet half of the UNEP methane emissions reduction targets by 2045.

Another significant contributor to GHG are landfills, due to the large amount of methane they release as part of the decomposition process. These emissions are a serious issue. A recent study showed that 70% of landfills in the U.S. vent their methane gas directly into the atmosphere. Globally, landfills are responsible for an incredible amount of all greenhouse emissions. The US EPA evaluates that landfills account for 14.3% of fugitive methane emissions produced in the US.

Today, several mining companies are co locating next to landfills to capture the power of this vented methane. For example, Vespen Energy, which is a methane mitigation startup uses municipal landfills as a source of energy for its mining operations.

Mining BTC only serves a purpose if crypto plays a lasting role in our economy

From the potential for BTC mining to aid flexible demand load, to its ability to co-locate next to renewable energy sources, or use under utilised energy supply and reduce methane emissions, miners could become useful allies in the green transition.

Having said that, the current state of play is less than idyllic. Recent events have shown that the BTC mining industry can trigger serious problems if mining operations expand too quickly. Recent deployments in Texas have shown that the Bitcoin network’s enormous demand for electricity is spiking faster than the grid can reasonably keep up with and may be causing some problems. According to many, the amount of electrical load crypto miners are expected to add to the Texas grid over just the next four years represents nearly a third of the grid’s current maximum capacity.

This exponential growth of the mining industry in Texas poses a detrimental threat to consumers. “Large amounts of new demand are never helpful for your electricity bill,” says ​​Eric Hittinger, an associate professor at Rochester Institute of Technology.

As much as the actual energy use of BTC can be debated, the orderly increase in mining capacity needs to be considered. The case for BTC mining as a support for the green transition is a valid one. But the expansion of mining activity would have to happen under very specific circumstances for crypto miners to induce enough renewable energy growth to have a positive impact on the environment.

The other crucial question is how many miners do we need? This blogpost has not set out to debate the value of BTC as a store of value, or for that matter, any other use cases for blockchain technology. However, it is essential to keep in mind that these considerations over positive usage of mining are only relevant to the extent that the mining is in itself useful at all.

What is certain is that the use cases mentioned above need to be taken seriously. Stranded excess energy around the world should be put to use. We can argue that there are many other things we could do with this methane. But, the reality is that unless you want to co-locate next to an oil field or landfill, this energy needs transport at $2 million per mile for pylons and $5 million per mile for gas pipelines.

Maybe beyond BTC mining, those data centres could be serving additional hybrid use and share their capabilities to AI or other high-performance computing. An interesting space to keep an eye on!