Technology related data centers consume double the amount of terawatt hours of electricity per year as Bitcoin’s PoW, although this is just 1% and 0.5% respectively of the world’s total energy supply. And as previously discussed, improved efficiencies have kept data center energy use relatively flat over the last decade despite exponential user demand. We hope bitcoin mines follow suit.
But bitcoin mines classified as data centers are often dependent on national power grids. What happens when energy competition heats up?
Additionally, many miners in China are drawn to stranded hydro energy because the grid is not yet nationalized. Whilst half continue to mine bitcoins with fossil fuels. Will the grid and decarbonization policies create greener miners or turn them away?
Digitalization and Renewables
As it stands big tech leads the way in corporate procurement of renewables. They execute billion-dollar grid infrastructure and hyper-scale data center projects. In turn governments incentivize them with subsidized electricity and tax rates in order to secure digitalization needs, economic growth, and job creation.
Bitcoin mining farms follow suit and often colocate or establish in the same areas. But this has not always come easily. When grids are pressured proof-of-workers feel the pinch. Here are some tales from selected Nordic and North American regions over the years.
Norway’s Miner Ambiguity
News outlets report an influx of bitcoin miners to Scandinavia in 2018. But by year’s end Norwegian regulators declared that cryptomining was not an industry, created no jobs, and released huge amounts of GHG. Electricity and tax subsidies abruptly ended for data center miners and kWh prices increased by more than 30 times.
This was detrimental for both Japanese GMO and DMM who abandoned their mines with considerable losses. Canadian HIVE who had agreed to invest millions of dollars into green energy infrastructure also jumped ship. Few survived and bitcoin miners were chased to neighboring countries like Sweden and Iceland.
Now it seems the tides have changed. Bitfury, a 2018 survivor, announced late last year that they partnered with a blockchain equity firm and will upgrade infrastructure at their hydro powered data center in Mo i Rana. Additionally, miners were again reported to be on the move to Norway in 2020, namely Chinese repelled by instability in Yunnan and crack downs on OTC trading. Also, in an ironic twist of fate, the Norwegian sovereign wealth fund now own several bitcoins through their 1.5% stake in super-size-hodler Microstrategy. Hindsight is 20/20?
Iceland Mines the Gap
Due to abundant hydro and geothermal energy sources Iceland serves as a good location for green bitcoin mining. The country has set the example for mutually-profitable cooperation between national governments and cryptominers. Large miners Genesis and HIVE operate a number of data centers here, companies Moonlite and MinerGarden are expanding. In the foreseeable future Iceland should remain an orange-coin ally.
Nevertheless environmentalists persecute Iceland’s bitcoin mining sector as it uses more electricity than their 140,000 households. They seem to fail to understand that the amount of total data center energy represents only 6% of the country’s industrial consumption which is centered around aluminum production. Aluminum production uses vast amounts of energy and clean water, contributing to more than a third of Iceland’s total CO2 emissions.
Sweden’s Energy Squeeze
Like Norway, Sweden has an excess supply of renewables most of the year. Companies like Facebook, Amazon, as well as independent bitcoin mines are lured in by financial incentives to plug into the national grid.
Bitcoin mining companies also partake in energy efficiency R&D. HIVE Blockchain announced last fall that they are partnering with the EU to research data center construction with minimal environmental impact. Genesis are experimenting with Luleå University to provide heat generated by bitcoin mining machines to family homes and greenhouses.
However miners here experienced sudden electricity tariff rises in 2016, 2018, and 2021, coinciding with drought and extreme cold. As a result bitcoin miners who were not as deep-pocketed as their big tech compadres suffered. KnCMiner, for example, declared bankruptcy in 2016 due to an inability to cover operational costs. In 2018, two international mines also closed shop and vanished leaving $1.5 million in unpaid electric bills.
Systemic Set-backs
Why do power prices shoot up in Sweden? The problem is systemic and political.
Like many countries Sweden has gone from large- to small-scale power producers to meet environmental policy goals. This results in vulnerabilities due to weather patterns. Periods of extreme cold or heat cause wind, solar, and hydroelectricity production to diminish. This happens at the same time as consumers demand more for heating and cooling. To recoup dirty energy is occasionally imported from EU neighbors.
Plus, Swedes are said to require an additional 55 TWh per year of green energy to compensate for growing demands after the closure of a second core of a nuclear power plant this winter. Critics are sceptic because this rate equals one-third of yearly production, countered by the status quo who claim that energy supply meets demand.
Sweden also rely on biomass for a large portion of their grid mix but EU regulators want all GHG emitters eliminated. Reclassification of this energy source could put a spanner in the works… are carbon tax increases looming? Watch this space.
Canada Critics
Canadian bitcoin mines primarily use hydroelectricity but east coast miners face criticism due to energy competition and uniformed policy makers. In early 2018 Hydro-Quebec (HQ) campaigned to cryptocurrency miners to establish in the area. They were worried that smart houses and rising power costs would create an energy death spiral. Miners who are steady consumers would secure the grid.
Quebec is the El Dorado of this new gold rush
– paraphrased from Francis Pouliot of the Satoshi Portal, 2018
Yet state-owned HQ later complained about the intensive electricity consumption of cryptocurrency mining. Six months after their recruitment campaign, in June of 2018, HQ and the Province restricted the amount of available power to miners, threatened rate increases, and halted new projects. After a time things settled down. Then in the midst of this second great bull run HQ again proposed rate and condition changes targeted specifically at mining farms.
However Bitfarms, who run five data centers across Quebec, reveal that they are not concerned about potential tariff increases. They hope to continue working alongside regulators and utilities companies to expand capacities and open a sixth hydro-powered mine. (P.S. Bitfarms also have an agreement with a large South American energy producer in their back pocket 😏)
Americans Go Off-Grid
North Americans are poised to capture a portion of China’s hashrate in coming years thanks to substantial private investment and financing. By the end of the year the continent should be mining over 10% of the Bitcoin network. Proof-of-Work mining is predominately underpinned by clean sources. Data centers are dotted across the country.
Although several bitcoin mines in the south experienced an energy crisis the winter. Wind, gas, coal, and nuclear power went offline in Texas due to record low temperatures. This caused widespread blackouts and tariff spikes.
One step ahead American companies like Greenridge Generation are creating their own energy sources. In 2017 they spent millions to convert a derelict coal power plant to natural gas and optional biomass. They simultaneously mine bitcoins and provide electricity to surrounding households. But when they sought to expand they were hit with lengthy legal battles by residents and the Sierra Club – luckily challenges were dismissed this year.
Moreover, bitcoins are mined cheaply off-grid by companies like GAM, Crusoe, Canadian Upstream, among others. These self-reliant miners capitalize on trapped or wasted gas. At drilling or fracking sites bitcoins are mined whilst mitigating the amount of CO2 release through methane combustion. Operations are mobile and simply designed. Unfettered solutions like this will increase if grid competition heats up, yet this type of mining is tied to oil price and fossil fuel policy.
Data Center Sum Up
If domestic supply meets growing energy needs and local policies are favorable data center classification remains a good solution for low-cost, clean bitcoin mining. However ‘blockchain’ technologies represent just a small portion of global data center capacity. Most bitcoins are mined elsewhere…
A Greener China
The biggest geographical region mining bitcoin is China who dominate 65% of the hashrate. But to put things into perspective the industry consumes just 1% of the country’s total power. Over a third of the bitcoins mined here come from clean energy sources and the country plans to be emission-free by 2060.
Since 2017 China has sporadically tightened regulations on cryptocurrencies, exchanges, and OTC traders. But in 2019 their economic planning agency officially removed cryptomining from activities listed for elimination.
Chinese Data Centers
Chinese data centers consume 70 TWh and are set to grow by 2% through 2025 thanks to AI, 5G, and cryptomining. Although opponents from Green Peace falsely report data centers consume 276 TWh per year due to faulty modeling.
The hydropower industry is developing faster than grid transmission lines can be laid so demand is lower than supply. Thus the majority of Chinese data centers are located near dams in southwestern provinces where surplus hydro is found.
However the government’s push for miners to establish in the south was so great that some mining farms sat empty last year. Further, the amount of miners in Yunnan dropped by fifty percent in 2020 due to animosity toward them and low profitability brought on by the reward halving and bear market.
Regulators responded by rectifying direct power supply models. This makes it tougher for smaller independent mines to get the cheapest power rates, and results in larger companies with stronger government connections fairing better.
For example 500.com, a state-run lottery site, purchased BTC.com pool and Bitdeer cloud mining earlier this year. They and their subsidiary have exclusive contracts with energy companies for discounted power rates for some of their hydro-powered data centers.
Lastly, between the months of May and October around 20% of China’s miners move from western to southern regions to capture bottom barrel hydroelectricity prices. This is called the wet season. But torrential rain can cause repeated power outages, farm flooding, or even landslides. Delicate hardware is also strained by transport and electricty fluctuations. With the current machine scarcity and rising price tags this migratory trend could slow. Miners may seek more stable hosting environments year-round.
Coal Miners
Utilization and transmission of renewable energy across Chinese provinces is problematic leaving rural areas to create their own energy sources. Depending on the season, thirty to fifty percent of bitcoins are mined using cheap coal in western regions of Xinjiang and Inner Mongolia. The largest sources of this fuel exist here and relaxed regional policies have allowed China’s overall coal consumption to grow in recent years.
For instance, Inner Mongolia drastically increased coal power plant production in 2020. The move improves local GDP and industrial job growth. Alas pressure from Beijing has led to denial of new projects. And the region has an even bigger uphill task to meet future clean energy targets.
On the contrary coal supplies in southern provinces were disrupted this winter. During a cold spell bitcoin miners experienced outages due to rationing. Electricity tariffs rose. The situation was the culmination of frosty relations with Australian coal importers alongside national policies aimed at limiting domestic coal extraction. Overall national energy supplies were also low because Russia was withholding natural gas.
Imported Russian gas alongside the 2016 ‘coal-to-gas policy’ has assisted coal plant conversions to grow at an average rate of 12% per annum. Natural gas may compete with other renewable energies in the short-term as policies continue limiting fossil fuels. But in the long-term natural gas curtailment and potential price rises may act as a final lever tipping China into 100% domestically-produced renewables.
To conclude, decarbonization policies combined with energy competition should steer bitcoin miners away from coal to more stable and cleaner alternatives like hydro and gas. Further, corporate mines with strong government ties are expected to secure the best energy deals leaving some miners in the dust.
Update March 1, 2021: Inner Mongolia demands that all cryptocurrency mining projects be cleared by the end of April 2021 due to prior commitments to their 2020 carbon emission targets.
Limits to Growth
The profit-seeking incentives of Bitcoin’s PoW drives miners to perpetually seek cheaper and more sustainable electricity. Though, increases in coin adoption do not equate exponential energy growth of Bitcon’s mining industry.
This series discussed some limitations to network expansion. These include:
- ASIC microchip bottlenecks due to limited foundry space
- machine manufacturing and delivery delays due to Covid and chip scarcity
- increased mining machine prices in bull runs
- diminished profitability and bankruptcies in bear markets
- energy competition
- decarbonization policies
- regional mining regulations
Greener Miners
R&D and investment into greener bitcoin mining is already happening and will continue to grow in coming years. Here are some ways bitcoin miners contribute to a cleaner planet:
- Machines, data centers, and cooling systems are continually made more efficient
- Waste energy is utilized by miners which helps to secure hydroelectric and wind expansion projects
- Derelict energy infrastructure is refurbished by mining companies
- Heat from miners is being repurposed
- CO2 release is reduced at oil drilling sites through mining
But some miners still seek out dirtier fuel sources. Therefore bitcoin mining can only be 100% clean if global decarbonization policies are realized.
Final Thoughts
A new trend of corporates are investing into bitcoin mining in both the east and west. Big players are securing their own energy sources to provide power to large data centers. Nonetheless as digital technologies expand, populations grow, and clean energy policies take hold, electricity grids may feel the pinch. Miners who are not in with local government and utility companies may become threatened.
Which poses the obvious question: Will energy companies themselves be the next to move into bitcoin mining?
Guess we shouldn’t count them out…
Thanks for joining us we hope you enjoyed this series! Drop us a line on Twitter or Instagram about your thoughts on bitcoin mining and energy use. And in case you missed them, the preceding articles in this series are:
