Bitcoin miners eye grid flexibility role as regulators scrutinize access

Owners of datacenters and crypto mining operations are claiming that their businesses, far from being a drag on electric systems, can help integrate renewables and balance grids.

With its Renewable Bitcoin Quarq Spread Index, S&P Global Commodity Insights tracks the profitability of mining bitcoin, accounting for the costs of renewable certificates using Platts Renewable Energy Certificate (REC) and Platts Guarantee of Origin (GOs) data.

While crypto mining is in the money in key markets, according to the index, during times of low crypto prices and high electricity prices, miners have profited from opting out of consumption from the grid, sometimes earning more than from the mining activities themselves.

Some sector pioneers now point to crypto mining's ability to capture energy from renewables that otherwise would have been curtailed, improving project economics and enabling more development in low-price regions.

Part of that trend is a pivot to smaller-scale behind-the-meter installations, according to the founders of a US mining startup.

"Our view is not that you should throw up a bunch of generation assets so that you can mine bitcoin," said Andrew Webber, founder and CEO of Digital Power Optimization Inc., an energy services startup developing behind-the-meter computing solutions for renewables assets.

"When you really pencil out that math, it is very hard to make that work," Webber said. "It cannot be the only thing that you are doing with that energy asset."

Instead, Webber and business partner Alex Stoewer, COO of DPO, see co-located crypto mining behind the meter as an optimization tool that reduces curtailment or sales into a low power price environment, as well as an enabler for fresh renewables in regions where power is cheap.

DPO has also been able to fund maintenance for an old hydroelectric plant in central Wisconsin after acquiring it and adding computing capacity on-site. Built in 1908, the 6.8-MW Hatfield Hydro Project would have otherwise eventually been decommissioned, Stoewer said.

Mining 'seizes valuable resources'

Similar concepts could work in unlocking more development in regions in Africa that anticipate population growth, the startup founders say. Meanwhile, Europe "has better uses for [its] power," Stoewer said.

Indeed, the energy crisis only reinforced European lawmakers' attention on energy efficiency and potential drains on supply, and regulatory winds have been changing for bitcoin miners as a result.

One of Europe's more active mining markets is Norway, which offers affordable and clean power due to large hydroelectric and wind reserves. About 250 MW of capacity is estimated to be powering mining in the country, mostly in the northernmost price zones where electricity remains comparatively affordable.

"We see the energy situation as demanding and that crypto mining is seizing valuable power resources," Norway's state secretary, Elisabeth Sæther of the Labour Party, told S&P Global.

While grid operators are obligated to connect new power end-users to the grid -- as well as to award increased capacity to existing end-users -- on a nondiscriminatory basis, queues for grid connection have lengthened in Norway due to rising demand from various sectors, Sæther said.

To tackle that, the government laid out an action plan in the spring that proposed introducing new prioritization criteria for grid connections based on the maturity of projects that request grid connections.

The criteria include financing and plans for load usage, and the minister stressed that the filter will not discriminate against any particular sector.

However, in an upcoming revision of the Norwegian Act on Electronic Communications, the government is expected to propose new obligations for all datacenter operators, including crypto miners. The bill is set for a vote in mid-June.

The government is also revising its national Data Center Strategy, Sæther said.

Neighbor Sweden, also a hub for mining in Europe, has also indicated it was prioritizing resources for other ventures such as hydrogen-based steel or chemicals production.

Bitcoin passes baton to AI

While major crypto miners may be relegated to the back of the queue, Sweden remains a hub for flexible datacenters joined with renewables projects, Hungarian startup founder Daniel Jogg said.

His flexible datacenter startup, Enerhash Technologies, has developed projects across Europe and beyond, advising asset owners like E.ON subsidiary E.ON Hungaria or Sweden's Vattenfall on leveraging flexible datacenters for balancing volatility.

Europe has not experienced negative wholesale power prices for the past few years, but with an increase in solar installed capacity and weaker demand, negative power prices have re-emerged -- a trend datacenter developers say bolsters their business case.

When two reactors at the Forsmarks karnkraftverk nuclear plant in Sweden went down in April, Jogg said 200 MW of flexible computing was able to ramp down as a high-frequency demand-response mechanism to balance the grid.

Enerhash also works with oil and gas field owners in the Middle East who are looking for better uses for flared gas by powering data centers, as well as US oil and gas developer Allied Energy Corp.

Meanwhile, datacenter demand is set to triple in the next decade thanks to AI computing power, making datacenters a promising part of the flexibility puzzle, Jogg said.

The energy companies Jogg works with are rarely interested in mining bitcoin for profit, he said. "They are solving their problems. They are entering this business because they have the best synergies with datacenters. 95% of the time, they say, 'Do what you want with the bitcoin stuff, we need the datacenter'."

Stigmatized cryptocurrencies

Integrated behind-the meter applications do not face the long grid connection queues that standalone miners would, DPO's Webber said.

Dozens of utilities and independent power producers in the US are keen to invest in such capabilities, Webber said, but refrain from disclosing early pilots and investments because of the "stigma" attached to cryptocurrencies.

"It is an interesting proposition, but it is just such a risky market," said Jonathan Schroth, a research analyst on the datacenter infrastructure and services team for 451 Research, part of S&P Global Market Intelligence.

Part of the challenge is the price of devices used to mine bitcoin via proof-of-work technology, which cost between $13,000 and $15,000 per unit, Schroth said. A pivot away from proof-of-work mining is possible, but Schroth said it bears a risk of stranded assets.

Investors who are uncomfortable with cryptocurrencies are eyeing other segments such as AI computing, which also requires large amounts of electricity, Webber said.