Rise of Renewables

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The Transition to Renewables is Accelerating

Across all major regions, the power mix is shifting towards renewables. This is due to depressed electricity demand from lockdowns, lower operating costs, the continuous installation of new projects, and in many jurisdictions, priority access to the grid through regulatory support.

Renewable electricity generation will set new records in 2021, expanding more than 8 percent to 8,300 TWh – the fastest year-on-year growth since the 1970s.1 Solar and wind will account for two-thirds of this growth. In addition, the share of renewables in electricity generation is expected to hit an all-time high of 30 percent this year – China will be responsible for close to half of this increase. When combined with nuclear power, low-carbon sources of generation will easily exceed output from coal plants in 2021.2

Rise of Renewables - graph

How Bitcoin Mining can Support the Transition

If decarbonisation presents a structural challenge to Bitcoin mining, the rise of renewables is the industry’s opportunity. While it’s true the industry is energy intensive, one study found miners sourced 77.6 percent of their energy mix from renewables, versus a global average of 18.2 percent.3 A Cambridge study was less optimistic, finding 39 percent of the total energy consumption of the 280 proof-of-work miners surveyed came from renewables.4 In either case, Bitcoin mining has a higher uptake of renewables than most industries, because miners are incentivised to set up operations in areas with cheap and abundant electricity.

As a result, the industry provides cornerstone demand for ‘stranded’ renewables in remote locations, where a large amount of energy would otherwise be wasted (hydro plants, on average, produce at less than half their capacity). By lowering their reliance on subsidies and increasing profitability, miners are uniquely capable of providing these remote assets with the funding and scale they need to undercut fossil fuel competitors, helping secure a more rapid transition to net zero in the process.5

Bitcoin as a Battery

One common critique of Bitcoin mining claims that the industry recklessly ‘wastes’ energy to mine an asset that offers nothing of unique value. Nick Grossman of USV (a crypto investor who manages a climate fund) provides a convincing rejoinder, claiming that Bitcoin should be reconceived as a battery on the basis that it converts electricity into value that can be moved and exchanged.6

Bitcoin as a battery has two key properties: (i) it’s always on (meaning it’s ready to be used when required); and (ii) it will automatically seek the lowest-cost electricity available (meaning it’s only created when the price is right). Given these properties, Grossman argues the Bitcoin battery can assist the development of renewables in a variety of ways:

-Supporting connection to the grid: new renewable developments need to be connected to the grid. But this often takes years – Texas alone has over 100GW of renewables waiting in the queue. In the meantime, these assets can become operational (and economically viable) by mining Bitcoin.

-Financing renewable projects: renewable developments are expensive, and worse still, significant capex is required before the first customer comes on board. The Bitcoin battery is always ready to be first, especially now, as Bitcoin miners compete to decarbonise.

-Overcoming geography: renewable assets (mountain rivers, windy seas, etc.) are often far from human habitation, so it’s hard to justify their development. The Bitcoin battery solves the issue, operating as a ‘virtual transmission line’.

-Grid stability: grid-connected renewables have to shutter operations if they produce too much energy at the wrong time. The Bitcoin battery can absorb excess supply via direct power purchase agreements, to support the balance of supply and demand in the grid.

-Greening dirty power: the Bitcoin battery can both reduce emissions and raise the percentage of renewables in the grid by attaching turbines and mining equipment to gas flaring sites. Crusoe Energy has proven the business case.7

Leading Industry Initiatives

Bitcoin advocates are increasingly aware of the need to transition mining operations to 100 percent renewable energy. In April 2021, a consortium of non-profits and blockchain companies launched the Crypto Climate Accord, which aims to use 100 percent renewable energy to power the industry by 2025 and reach net-zero emissions by 2040.8

E-commerce provider Square, which maintains Bitcoin on its balance sheet, has launched the Bitcoin Clean Energy Investment Initiative, which aims to develop “green energy technologies within Bitcoin mining [to] accelerate its transition to clean power.” Square has provided the initiative with US$10 million in seed capital and is exploring the possibility of building a consortium of like-minded companies to amplify its impact.9

CEO Jack Dorsey sees no irony in supporting both Bitcoin and an ambitious net zero target (by 2030) for Square. He maintains that Bitcoin mining will “eventually be powered by clean power, eliminating its carbon footprint and driving the adoption of renewables globally.”10 Even Bitcoin sceptic Bill Gates concedes the point. “If it’s green electricity and it’s not crowding out other uses, eventually, you know, maybe that’s OK.”11

Megatrend summary: Rise of renewables

The share of electricity generated from renewables will hit an all-time high of 30 percent in 2021.

  • Bitcoin mining can support a rapid transition to net zero by providing cornerstone demand for ‘stranded’ renewables in remote locations, providing them with the funding and scale they need to undercut fossil fuel competitors.
  • Bitcoin can also be reconceived as a battery, which will play a critical role in supporting the rise of renewables.
  • For these arguments to be credible, miners must ultimately source electricity only from renewables. Bitcoin advocates such as Square are supporting this objective by pioneering the development of green energy technologies within the industry.

Footnotes

[1] IEA,  Global Energy Review 2021 Renewables, https://www.iea.org/reports/global-energy-review-2021/renewables 

[2] Ibid.

[3] Bendiksen, Christopher,  Beware of Lazy Research: Let’s Talk Electricity Waste & how Bitcoin Mining can Power a Renewable Energy Renaissance, Medium, 7 December 2018, <a href="https://medium.com/coinshares/beware-of-lazy-research-c828c900b7d5" https://medium.com/coinshares/beware-of-lazy-research-c828c900b7d5

4] 3rd Global Cryptoasset Benchmarking Study, University of Cambridge Judge Business School, https://medium.com/coinshares/beware-of-lazy-research-c828c900b7d5 

[5] Bendiksen, Christopher, ibid.

[6] Grossman, Nick, Bitcoin as Battery,  https://www.nickgrossman.xyz/2021/bitcoin-as-battery/ 

[7] Crusoe Energy, https://www.crusoeenergy.com/ / 

[8] Wieczner, Jen, Jack Dorsey Says Bitcoin can Make the World Greener. Could he be right?, Intelligencer, 20 May 2021,  https://nymag.com/intelligencer/2021/05/jack-dorsey-says-bitcoin-is-climate-friendly-is-he-right.html 

[9] Businesswire,  Square Inc. Announces Plans to be Net Zero Carbon for Operations by 2030 8 December 2020, https://www.businesswire.com/news/home/20201208005461/en 

[10] Ibid.

[11] Ross Sorkin, Andrew,  Bitcoin’s Climate Change Impact is Under Scrutiny, New York Times, 9 March 2021, https://www.businesswire.com/news/home/20201208005461/en 

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