Does renewable energy bend the cost curve for mining farms?

Guest Post from Gary Aksamit

I’m not a crypto currency mining expert, in this case that might be an asset as I see things from the outside looking in. Over the past couple years, I’ve received several inquiries to see if I can develop and build renewable power generation for delivery to mining farms. It’s no secret renewable energy from wind and solar has now become the cheapest source of power generation, but that’s misleading if you don’t know how that power gets to the consumers’ electricity meters. There’s a gate keeper in between those cheap renewable assets and the meter at your mining farm and it’s the distribution utilities. Many of the distribution utilities are what is called “fully integrated” meaning not only do they manage the lines and wires to your electricity meter, they also own power plants–often expensive fossil fuel plants with substantial debt attached to them. They also know that renewable energy is cheaper; however, they aren’t as excited about that fact as you might think since cheaper power is a threat to their baseload generation debt service and that threat is compounded at off-peak times.

The utilities are trying to serve two masters, one is the service to the consumer and two is to the owner of their debt. So while you can enter into a long term off-take agreement with a wind farm at $15MW; you still have the issue of managing that intermittent power. The utility does this for you as the consumer by providing power to you when the wind isn’t blowing or sun isn’t shinning–it is both a commodity and a service. It’s a complex business model and it’s a monopoly business model. While you can find a more sophisticated nonutility off-take agreement with “firming” or 24×7 ability to level off the intermittent nature of renewable energy you are paying a premium for that service.

With all the obstacles facing you to get access to that cheap renewable power, you likely are thinking, “Why not build the renewable power on-site and only take what power you need from the power grid when you need it?”

Well, going back to the earlier premise of the lines and wires carriers also being in the thermal power plant business; they will charge you a hefty monthly fee or demand charge regardless of your usage because they built the lines and wires to fit your facility demand and they have to recover that investment and service the debt on the power plants whether you are buying the power or not. That’s called “stranded asset debt service”.

There is a better solution, but it’s risky. If you’re paying a premium to the utility to carry the operational risk of 24×7 seamless delivery of power, then why wouldn’t you choose to carry that risk yourself? Why not build an off the grid, fully integrated, autonomous power generation portfolio on your site? I mean, you’re a gambler that’s why you’re in the crypto business. You’ve spent $Millions on facility design and construction, you spent more $ buying the state of the art mining bots. Instead of paying the utility a monthly premium, why don’t you put that premium into your own fully integrated on-site power generation? People in my industry, the power generation industry, work with engineers every day to calculate “shape of load” meaning when and how much you will use in any given hour on a 8760 hour yearly basis. Of course there are anomalies because the weather isn’t static and your demand for power can and does change, but designing power generation can be done to P-95+ levels and you can manage your usage to fill in most of the rest of the unknown.

Solutions are in your hands but they require thinking outside the box or bot in this case. If your cost per MW is $15-$30 depending on power source, it frees up cash flow. Is it possible to over size your bots to consume more power at peak generation hours? If your cost of power is cheap, does that give you flexibility to build mining farms in better locations? Does cheaper power give you the ability to build mining farms in warmer climates or in locations right on top of primary fiber optic cables? Does free cash flow allow you to buy more real estate near a mining farm to build your own power generation? Most important is the fact if you own, manage and control your power generation, you have 10+ years of cost control on the electricity component in your pro-forma.

One of the cheapest sources of renewable electricity is from geothermal; it’s a 24×7 power source. But it’s obvious much of the active geothermal is under the Pacific Ocean’s “ring of fire” or even on islands in the Caribbean which are warm climates. Pairing up geothermal, solar and battery storage makes cooling cost quite competitive; if not dirt cheap. Controlling the power generation if its dirt cheap gives you options you never had or considered. Building your own fully integrated power source could provide your pro-forma a leg up on the hash rate arms race.

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