What is the impact of Bitcoin, which is "disgusting and against human civilization", on the energy structure of the earth? This deserves in-depth study and comprehensive thinking. The Bitcoin Clean Energy Initiative, an initiative of payment company Square, published a short research paper this year that offers a perspective worthy of attention: Bitcoin mining, if combined with renewable energy production and storage, is particularly suitable for accelerating energy transition. To complement this research work, ARK Invest, a well-known investment company, has also contributed an open source model that demonstrates how Bitcoin mining can further enhance these renewable energy production + storage systems, providing a higher energy share in the grid baseload, thereby helping to usher in abundant clean energy for all mankind in the future. It is better to think about this issue from a longer-term perspective. Some key findings of the study Bitcoin mining, as a complementary technology for clean energy production and storage, represents an opportunity to accelerate the global energy transition to renewable energy. Solar and wind power are now the cheapest energy sources in the world, but their deployment is limited by their intermittent nature and grid congestion. Bitcoin miners, as a flexible grid load option, could help solve much of the intermittency and grid congestion issues, thereby enabling the grid to deploy more renewable energy. The Bitcoin network would drive the deployment of more solar and wind power, and these generation technologies could further drive down their respective cost curves, bringing them closer to zero marginal cost energy production.
Through this report, we hope to explain how the Bitcoin network, as a unique energy buyer, can play a role in enabling society to fully deploy more solar and wind power generation capacity? Deploying this power generation capacity and storing this energy is intended to promote the transition to a cleaner and more resilient power grid. We believe that the owners of today's energy assets may become indispensable Bitcoin miners in the future. Bitcoin miners are unique energy buyers Bitcoin miners are unique energy buyers because they provide highly flexible and easily modulated interruptible load (interruptible load is the end use of electricity, such as Bitcoin mining, which can be easily turned on or off), are paid in a cryptocurrency with global liquidity, and are completely independent of geographical location, requiring only an internet connection. These combined qualities make for an extraordinary asset, the most consistent buyer of energy that can turn demand on and off at any time, anywhere in the world. "Special Report: Energy Backed Money"
https://research.satoshienergy.com/special-report-energy-backed-money/ Renewable energy is currently the cheapest energy source Over the past decade, the levelized cost of energy (LCOE, which is the total lifecycle cost of building and operating a power plant divided by the amount of energy it produces, expressed in cents per kilowatt-hour) for solar and wind has fallen by 90% and 71%, respectively. The unsubsidized cost of solar and wind is now 3-4 cents per kilowatt-hour and 2-5 cents per kilowatt-hour, respectively. Some individual projects are even cheaper. "Levelized Cost of Energy and Levelized Cost of Storage – 2020"
https://www.lazard.com/perspective/lcoe2020?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosgenerate&stream=top For reference, the average levelized cost of energy for fossil fuels like coal or natural gas is about 5-7 cents per kilowatt-hour. This means that solar and wind are already cheaper than coal and natural gas. Solar and wind have also just reached cost parity with geothermal and hydroelectric power, which are about 3-5 cents per kilowatt-hour - this cost is cheap, but it is geographically limited. 《US Energy Information Administration》
https://www.eia.gov/outlooks/aeo/pdf/electricity_generation.pdf It is true that there will always be some locations where electricity generation, such as hydroelectric or geothermal, will be extremely cheap, but overall, solar and wind are now the lowest-cost and most scalable electricity generation options. More importantly, we believe that they will only continue to become more affordable over time. We believe this is especially true for solar (semiconductor technology), where the price of solar power will continue to fall by 20-40% for every doubling of total installed capacity. "Solar's Future is Insanely Cheap (2020)"
https://rameznaam.com/2020/05/14/solars-future-is-insanely-cheap-2020/ LCOE of different power generation methods, price per kilowatt-hour Temporary supply-demand mismatch and grid congestion However, both solar and wind power suffer from a major drawback compared to more expensive baseload power like natural gas or nuclear power: intermittency. (Intermittency means that energy production is not constant. For example, a solar farm only generates electricity when the sun is shining.) This leads to what is known in the energy industry as the “duck curve.” "The Solar-Bitcoin Convergence"
https://versionone.vc/the-solar-bitcoin-convergence/ NREL Duck Curve, Net Load (MWh) Essentially, the sun shines brightly during the day, but not at night. The wind is more unpredictable, but tends to blow harder at night. As a result, energy supply is either plentiful or nonexistent. However, demand peaks in the late afternoon or early evening when people return home and turn on appliances, when neither solar nor wind can adequately supply. The end result is that both sources of electricity supply more than society needs for a few hours a day on average, and fall far short of demand when demand spikes. The same challenges arise with the change of seasons: more sunshine in the summer and stronger winds in the winter. These shortcomings are further amplified by grid congestion—when a grid’s transmission lines reach maximum capacity to carry electricity at a given moment—which happens frequently, similar to highway congestion, because solar and wind projects are often built in rural areas with plenty of sunshine and wind but insufficient nearby loads and transmission capacity (i.e., end users of electricity). "Transmission congestion & constraints: Market impediment or opportunity?"
https://www.nrg.com/insights/energy-education/transmission-congestion---constraints.html#:~:text=Grid%20congestion%20occurs%20due% 20to,limits%20designed%20to%20ensure%20reliability.&text=The%20business%20instead%20must%20buy,side%20of%20the%20grid%20constraint. As a result of these difficulties, there are now more than 200 GW of deferred solar and wind capacity sitting in three U.S. grid queues—solar and wind projects that have been fully developed and financed, but that the grid cannot accommodate. "New data tool from Berkeley Lab tracks proposed projects in interconnection queues"
https://emp.lbl.gov/news/new-data-tool-berkeley-lab-tracks-proposed Adding grid transmission capacity and energy storage will be critical to addressing these issues, especially as the cost curve for lithium-ion batteries continues to decline. For now, however, utility-scale batteries are still too expensive to be widely deployed. Even as their costs fall by another 80%, there are physical limits on their lifespan and how long they can store energy without dissipating it (dissipation is the process of losing some of the stored energy as heat, also known as “heat loss”). However, they have the potential to become the most critical technology for storing cheap midday solar energy to meet peak evening demand. Bitcoin mining is an ideal complement to electricity production + storage On the other hand, Bitcoin miners are an ideal complementary technology to renewable energy and storage. The overall value proposition of electricity generation combined with storage and miners is superior to building generation and storage separately. As mentioned above, there will always be physical limits on how much electricity can be economically stored without dissipating it. By combining miners with renewable energy production + storage, we believe that: Improve returns for project investors and developers, and move more solar and wind projects into profitability. Even if lengthy grid interconnection studies are not completed, solar and wind projects could be built because bitcoin miners could use that energy before selling it to the grid. Providing the grid with readily available “excess” energy to respond to increasingly common black swan events, such as extremely hot or cold weather with a surge in demand (such as the widespread blackouts in Texas in early 2021).
Note that this “surplus” energy will become very useful as society’s electricity needs continue to increase with the spread of electric vehicles and the electrification of all devices. In a sense, miners’ infinite appetite allows them to eat the “belly” of the duck curve above. Given these benefits, we think it would be logical for developers of public-service enterprise storage to join forces with Bitcoin miners to enhance their current battery offerings. We believe that if Bitcoin mining becomes the most consistent buyer of energy, there will be two major impacts. First, the amount of solar and wind power supplied during periods of low grid demand will increase dramatically. As mentioned above, there are currently more than 200 GW of deferred solar and wind capacity queued up on the grid in just three US electricity markets. For reference, this is roughly twice the current installed solar and wind capacity. As society begins to deploy more solar and wind power, we believe this should drive their levelized cost of energy further down the cost curve, making solar and wind power even more affordable in the future. If the levelized cost of energy falls, it could unlock profitable new use cases for solar power, such as desalinating water, removing carbon dioxide from the environment or producing green hydrogen. Some experts in the field expect the marginal cost of producing new electricity to actually approach zero. The second major potential impact could be a large-scale transformation and green transition of the Bitcoin mining industry. It is estimated that there is only 10-20 GW of global Bitcoin mining capacity today (https://cbeci.org/). As mentioned above, there are 200 GW of solar and wind projects delayed in the US grid alone (the grid queue refers to projects waiting to be approved to provide power to the transmission grid). Just 20% of this would bring 40 GW of new mining power to miners, dwarfing the current global Bitcoin mining market. Note that many of these new mining capacity projects will likely be “behind the meter” (behind the meter means electricity is consumed directly where it is produced, without grid transmission). Using electricity, as much as possible, they will use solar and wind power that would otherwise be wasted. Of course, they may still use grid power during other profitable periods, so they won’t be completely green from day one. But if solar and wind become cheaper and take up an increasing share of baseload electricity, ultimately the trend will continue to shift rapidly toward hashrate dominated by renewables. We believe that deploying such large, geographically diverse new computing power will also have the second-order consequence of enhancing the security of the Bitcoin network, potentially further solidifying Bitcoin’s status as sound money for all. Without Bitcoin mining, solar energy, as an intermittent energy source, can only provide 40% of the grid's electricity, and power companies face the need to invest heavily in major investments, and then the price of electricity will rise. If the Bitcoin mining industry is integrated into the solar energy system, energy suppliers - whether utilities or independent entities - will be able to arbitrage between electricity prices and Bitcoin prices, and may be able to sell "surplus" solar energy and meet almost all of the power demand in the grid without reducing profitability. Bitcoin mining can incentivize investment in solar energy systems, increasing the share of electricity produced in the grid while keeping the cost of electricity the same. The above graph illustrates the impact that Bitcoin mining could have on the adoption of solar energy systems. Assuming the cost of electricity remains constant, the graph shows the percentage of electricity that can be supplied to the grid from solar energy. The y-axis is the power generated by solar energy and the x-axis is the battery capacity. The size of each circle is proportional to the size of the Bitcoin mining operation. At each point, solar systems provide a different proportion of grid demand. As Bitcoin mining scales up, solar systems increase, providing a higher share of energy to the grid. Increasing Bitcoin mining capacity allows energy suppliers to "overbuild" solar without wasting energy. For example, in the lower left corner of the chart, without Bitcoin mining, renewable energy can only meet 40% of grid demand. In the upper right corner of the chart, solar, batteries, and Bitcoin mining can meet 99% of grid demand. Our model demonstrates that integrating Bitcoin mining into a solar system can transform an intermittent power resource into a power station with baseload capacity. It suggests that adding Bitcoin mining to the toolbox of power developers should increase the overall addressable market for both renewable and intermittent energy sources. Other things being equal, through Bitcoin mining, renewable energy could provide a large proportion of electricity supply to any location at low cost. As a secondary effect, the cost declines associated with the scale-up of renewable energy sources are likely to accelerate, making them more economically competitive. There are still some important questions to consider about how to achieve the above vision. We see at least three meaningful business opportunities: Energy Management Software and Services Energy management companies focused on storage and mining can build software to decide in real time the best use of newly generated electricity: whether to use it, store it, or mine it. They can also provide key asset management tools and analytics to monitor project performance. Energy/Miner Market A hosting market may emerge to connect project developers, miners, and financiers. A key challenge is to address the current credit threshold requirements for existing miners. ASIC mining machine production New chip foundries could be built to meet the expected surge in demand. Samsung and TSMC’s recently announced plans for new North American factories have taken a lead in this area. The future will also see continued improvements in hardware and firmware to increase the durability of mining equipment optimized for use with interruptible energy sources. Bitcoin and energy markets are consolidating, and we believe today’s energy asset owners may become Bitcoin miners tomorrow. Utility executives, sustainable infrastructure investment funds, and grid-scale storage developers are well-positioned to accelerate this future by aligning their strategic roadmaps to deploy large-scale investments into the emerging synergies between Bitcoin mining and clean energy production. |
