Enhancing Profitability of Wind and Solar Through Bitcoin Mining

The “duck curve” – a challenge specific to the renewable energy landscape – has found an unexpected solution in Bitcoin mining. This curve reflects the conflict between peak demand periods and peak renewable energy production times, a discrepancy that grows as we increasingly embrace renewable energy sources, complicating grid management.

Bitcoin fixes this.

This story is part of CoinDesk's 2023 Mining Week, sponsored by Foundry. Adolfo Contreras is a Senior Business Development Advisor at Blockstream. He has 20 years experience in satellite communications, weather intelligence for energy and transportation markets and Bitcoin.

Bitcoin mining revenue promotes profitable renewable infrastructure, aiding project financing and scaling the energy grid for a sustainable future. This is crucial for electrifying transportation and phasing out fossil fuels. Given the massive power storage and load balancing required, Bitcoin is a useful tool, especially considering the current economic and geopolitical climate.

Bitcoin miners, with their flexible operations, are uniquely well-equipped to navigate these energy supply fluctuations. By strategically aligning their activities with periods of high renewable energy production and low demand, they can optimize their energy usage and potentially alleviate the pressure on the grid.

This article will explore how Bitcoin miners are helping to manage the duck curve, and the strategies they are employing to balance demand and optimize energy consumption.

In many countries, the amount of renewable capacity (though typically heavily under-utilized with the majority of power generation capacity unused or “wasted”) has increased dramatically over the last decade, exemplified by Europe.

But this is hardly making a dent in the world's fossil fuel consumption. Despite the many trillions of investment in the last couple of decades, fossil fuel consumption is still more than 82% of the world’s energy consumption.

In 2022 alone, there was an increase in renewable capacity of 266GW, which, assuming a (very low) average cost of $500k per MW, represents an investment of more than $130 billion in 2022 alone. For reference, a country like Spain with nearly 50 million people has never peaked in electricity consumption above 45GW.

The crux of the argument is this:

1. The electrification of supply is outpacing demand, with retail electricity demand not significantly growing due to economic stagnation and increased device efficiency.

2. Electric vehicle adoption isn't meeting expectations and EV charging habits, often at night, do not align with peak solar supply during daylight hours.

3. Significant displacement of fossil power use moving to electrical demand would require industries to adapt their manufacturing processes to electricity, a costly endeavor many are unwilling to undertake due to competitiveness issues.

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Therefore, we need an economically viable, electricity-intensive activity that is predictable, flexible, and doesn't require extensive transportation – and that's where Bitcoin mining comes in.

Below is a glimpse of the gigantic amounts of unused or wasted electricity due to insufficient demand vs generation capacity in California alone:

Additionally, we can’t ignore an additional bottleneck, which is the fact that wind and solar farms have significantly lower power density. That is, they need way more land surface to generate the same amount of electricity.

For these reasons, the distribution network for power will need a significant upgrade to scale and transmission expanded to connect generation plant locations to population areas where industrial and retail demand is.

Until these investments are made, we may encounter situations where additional installed capacity does not translate to additional renewable used generation in the electricity mix – unused capacity, definitionally not being in the mix.

The consequence of all these problems is that at particular times of the day (when the sun shines the most) the price in electricity wholesale markets crashes due to what’s called the duck curve:

The duck curve represents the demand remaining after subtracting variable renewable generation in the middle of the day when solar generation tends to be highest.

The problem of the duck curve is that photovoltaic installations planned to make money on the wholesale electricity market will not be making it in this scenario. Many installations will have to seek PPAs – power purchase agreements – which are bilateral agreements between electricity producers and offtakers, i.e. large electricity consumers.

Those who manage to sign them may save their projects at the expense of significantly lower profitability while those that do not, may be facing bankruptcy and outright abandonment of the installations.

Of course electricity storage in batteries or PSH – Pumped Storage Hydro - pumping water backup into hydro-elecric dams could help reduce the problem, but the cost of installing the amount needed would be astronomical and it is still to be seen if these systems can work at scale.

Mining hardware can be directly connected to wind and solar generation plants, consuming the excess energy produced during peak sunlight hours when solar installations generate an excess of electricity and absorb the wasted energy from the wholesale market.

By doing so, these plants help to balance the supply and demand in the electricity market, preventing the drastic price drops that occur when there is an oversupply of energy.

This is particularly beneficial for solar installations that struggle to sell their energy during these peak hours due to the low market prices.

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Let's consider an example.

Suppose there's a solar farm in California that's producing a surplus of energy during the day.

Instead of selling this energy on the wholesale market at a low price, the farm could direct this excess energy to a Bitcoin mining operation, which would consume this surplus energy.

This would effectively remove the excess energy from the wholesale market, helping to stabilize electricity prices and making the solar farm's operation more profitable.

This means they can be located directly at or near the site of renewable energy installations, reducing the need for extensive energy transmission networks. They can also adjust their energy consumption based on the availability of renewable energy, consuming more when there is a surplus and less when there is a shortage.

For instance, a Bitcoin mining operation in Texas, where wind power is abundant, can ramp up its energy consumption during the night when wind power generation is at its peak and the demand from other consumers is low.

This helps to balance the energy supply and demand, preventing potential waste of the excess wind power.

In conclusion, the “Duck Curve” phenomenon presents a unique challenge in the renewable energy sector, but it also opens up an opportunity for innovative solutions. By absorbing the excess energy during periods of high renewable generation and low demand, Bitcoin mining can help balance the energy market, stabilize electricity prices, and enhance the profitability of renewable energy installations.