Bitcoin mining could help energy transition, service provider expert says
Bitcoin mining can be useful in terms of energy transition, said Andrew Webber, founder and CEO of Digital Power Optimization.
In an interview with Discard, Webber, who heads the New York-based company that helps energy companies build crypto mining operations, said Bitcoin mining could be useful for using renewable energy and making it more profitable. “If you can make renewable energy more profitable to build, people will build more of it.”
The following questions and answers have been edited for clarity and length.
Timmy Shen: Can you tell me more about your company and how you work with energy companies?
Andrew Webber: We use flexible data centers, Bitcoin mining or flexible AI (artificial intelligence) computing to deploy assets and operations at energy sites where you generate power – whether wind, hydro or solar. We use some of that excess energy, or energy that would otherwise be undervalued by the market or stranded in a remote location because there isn’t enough transmission to get that power from one place to where it needs to be used.
By deploying a flexible data center on these generation assets, they can control how much power they use versus how much power they sell into the grid. It creates this really profitable withdrawal scenario for them where they can capture increased value for their energy.
So we think of this whole ecosystem not necessarily as a separate industry. We believe that the idea of Bitcoin mining of flexible data centers is one that is going to be picked up and used by the energy sector as a vertically integrated strategy – in the same way that they think about battery distribution on their sites, or green hydrogen production in the same way of using excess available energy to electrolyze water and end up with hydrogen as a new fossil-free fuel.
Shen: How do you decide when to turn off or turn on the computing power?
Webber: It’s really the partners’ decision, but we help them think it through.
The idea is that you can basically continue to run your data center based on a certain price in the network. If grid prices or the opportunity cost of selling that power exceeds what you can earn by using it for your data center, you just shut down the data center and that power can be redirected to the grid.
I’ll use an example – the 2021 winter storm in Texas. There was a huge price increase because there was not enough generation. Everyone needed to turn on their heaters. There was a huge need for more power, but there was not enough electricity. So grid prices went to around $9,000 per megawatt hour, which is absolutely insane. And all Bitcoin miners shut down during that period because they didn’t want to operate when power prices were so high. They would rather shut down the mines and sell their power to the high market so they make more money. But the grid also gets the extra power it needs to offset some of the increased prices. So as a load balancing mechanism for a given power grid, it is a very powerful tool to help meet the demands that society needs.
Shen: How profitable is Bitcoin mining and what factors will miners consider when deciding when to shut down their machines?
Webber: The profitability of Bitcoin mining is mainly determined by the spot price and the amount of competition and network difficulties. Those things move together.
These two elements are really key drivers in determining when and how a flexible data center can work in relation to grid pricing.
Shen: Is there a certain threshold of Bitcoin price that you would suggest to your customers to turn off the machines?
Webber: It depends on what the difficulty does in response to the spot price.
If Bitcoin [price] goes to a million [dollars], you might think miners are going to make a bunch of money. It’s true for a little while. But competition will come in and you’ll go back to making the same thing [amount] you make today.
If Bitcoin goes down to USD 10,000 or USD 5,000, it will force many miners out of the network because they are no longer profitable. They can’t pay their electricity bills. So when they shut down, those who survive start making more and more Bitcoin. It is a balancing effect.
It matters what the Bitcoin spot price does in the short term, but in the long term the network sort of adjusts. With the best energy locations or the lowest production costs, you will outlast all your competitors and continue to operate profitably beyond that [Bitcoin] spot price decline.
So there is no magic number, there is no level where this just becomes impossible. It’s all about understanding the relationship between this flexibility – the uptime you get versus the cost of electricity versus the profitability of operation.
Shen: Many miners struggled last year, mainly due to low Bitcoin prices and high energy costs. Now Bitcoin is rising. How has the rising Bitcoin price affected the mining industry?
Webber: There is a modest increase in profitability, but it also changes the cost of the equipment.
The cost of entry to participate in this market also changes because, again, equipment prices move as well as profitability and energy costs. There are several different variables that go into determining how much money you can make. So it hasn’t really changed that much in the grand scheme of things.
I believe that Bitcoin trending slightly upward is a better market environment than Bitcoin trending downward rapidly. There are investors coming back to the room. There’s a little more comfort with people assuming it won’t just go away tomorrow.
Movement in the Bitcoin spot price means less to those miners who do this in an institutional way. If you buy equipment slowly over time, you don’t really care that much about the fluctuations in the Bitcoin spot price because the equipment is always priced to reflect today’s reality of future expectations.
So again, long story short, it matters. It just doesn’t mean as much as you might think.
Shen: How do you convince your customers to work with you? What are the opportunities and challenges currently facing the crypto mining industry and why should the energy sector pay attention and enter Bitcoin mining?
Webber: The regulatory overlay is critical, even more so than financial returns. The ability to soak up excess power at their production sites is something that really appeals to utilities when we first explain it to them.
I think the lack of regulatory clarity has put a dampening, dampening effect on this space, especially here in the US. It’s an attractive place to do it because there’s a lot of surplus power and we’re adding more renewable power every day and there’s nowhere to go.
The regulatory component of all this is the last real piece where these large energy companies, which are also heavily regulated in their own industry. Even outside of Bitcoin regulation, there is regulation in the power sector, which is very critical to these companies’ operations, and they do not want to jeopardize their relationship with the energy regulators.
What will happen in the next five or ten years? I think more Bitcoin mining will be pushed to green assets. I think it will be done by bigger and bigger institutions in a different kind of mindset than Bitcoin-first. It’s going to be energy first. The Bitcoin data center is just a tool used by the energy sector.
Shen: You have previously said on social media that Bitcoin mining can help with energy transition. Can you explain?
Webber: I go to these energy conferences and there is an awareness among energy professionals that the energy transition from fossil fuels to green energy is extremely complicated. It’s not just a matter of building more wind or building more solar.
If you can make renewable energy more profitable to build, then people will build more of it. If you can use flexible data centers as another strategy to make renewable energy resources more profitable by helping the developers and owners deploy these data centers there, their profit margins increase, which means they can build more renewable energy resources. You serve them in a way that is more efficient and more productive by using every single electron that is created instead of just throwing it away because there is nowhere to go.
There’s a huge amount of limited energy where they literally turn off the solar farm or they turn off the wind farm because they have more power than they need and there’s nowhere to go.
Over the next decade, I believe there will be more renewable energy created and fueled by Bitcoin mining than people realize. I think it will be an important tool to really make renewable assets more viable than they otherwise would have been.
