Most talk about Bitcoin infrastructure over the past two years has focused on the increasing convergence of the mining sector with traditional energy producers and energy companies. At the Bitcoin 2022 conference, a panel moderated by this author discussed this trend and what continued mining growth means for power grids and energy markets. In addition to discussing how an electricity grid works and demystifying some basic information about energy infrastructure, the panelists shared their perspectives on current trends, expected benefits and even some risks of a fast-growing mining sector entering into long-term and large-scale partnerships with energy companies.
The growth of mining has the potential to impact every market that consumes energy, that is: everything. And this article summarizes some of the key takeaways from the panelists about what that future will look like. All quotes and referenced comments in this article from the Bitcoin 2022 panel are linked with timestamps during the panel discussion.
Improved power pricing mechanics
Bitcoin mining is radically changing some fundamental aspects of the energy industry, and with these changes come new obstacles to overcome. “[Mining] is basically an innovative approach to electricity consumption compared to what has happened in the last 95 years,” Harry Sudock, Vice President of Strategy at GRIID, told the audience.
In 2019, energy companies were very skeptical and incredulous about signing power purchase agreements with miners like Sudock’s GRIID, usually because of the sheer amount of power miners wanted to buy. Sudock explained that his team would hear responses from utilities to the effect, “What? We’ve only signed a deal this big once in the last 30 years.”
Today, these calls to other electricity providers are easier. But discussions between miners and electric utilities still have room for improvement in one key area: tariff structures.
“I think the language between the energy company and the bitcoin miner is adjusting to be kind of the same,” Sudock said. “I think the general price structure regime and how the energy is priced and sold – this is where the next level of translation and education is happening now.”
In short, everyone – that is, utilities – “gets” what miners are trying to do, but the mechanics for achieving Bitcoin mining goals are still evolving. “There is still a lot of energy that should be bought by miners today that isn’t there for mechanical and structural reasons. But those barriers break down over time,” Sudock said.
CleanSpark CEO Zach Bradford agreed with Sudock. “No one knows how to price that much power for such a constant load,” he said, referring to the obstacles miners face in structuring deals with energy companies.
So how do energy providers and bitcoin miners eliminate these information and price difficulties? The answer is simple: prioritize the mining-specific pricing structure to make it easier for miners to purchase power based on their unique load requirements.
“If I were the CEO of an energy company,” Sudock said, “I would set up my board to adopt a bitcoin mining rate structure to attract [miners] to your region and we will be able to innovate this process together and get there.”
Building bitcoin mining communities
As the conversations between miners and utilities become easier and clearer, all panelists agreed that the ties between these two sides of the market are growing bigger and stronger than ever. As a result, the cities and communities that rely on utilities provided by companies that work with miners will be far safer, more reliable, and more advanced than the same infrastructure in other geographic areas.
“I think we’re going to wake up in 10 years and the cities and counties and towns and cities that have bitcoin mines are going to be remembered in this incredibly positive, optimistic way. And the cities that don’t already have them will recruit bitcoin miners to have them there,” Sudock said.
For Sudock, one of the drivers of this improvement is the revenue brought to these towns not only by building and maintaining a mining facility, but also by bringing new revenue into the local economy for power generation that no one else would offer before.
Bradford agreed, adding that he expects larger community partnerships with bitcoin miners. For example, in some of the cities where CleanSpark operates mining farms, Bradford explained how they have invested directly in upgrading the power infrastructure in those areas, benefiting not only their business but every business and resident connected to that grid.
“I think you’re going to see communities dedicated to bitcoin mining,” Bradford said.
Creating a better power grid
With bitcoin miners constantly looking to buy so much electricity, the current power grid infrastructure needs to be upgraded and expanded at the same pace as miners and the bitcoin network hash rate grow. For panellists, this – building a better grid – will be one of the biggest hallmarks of mining’s positive impact on energy markets and the grid.
“What a lot of people don’t realize is how fragile our web is,” Bradford told the audience. A major reason for this is simply the age of the existing network infrastructure. But miners “can interact in ways that can improve network health,” he explained. And because miners are a unique breed of electricity customer, their load requirements create opportunities for mining companies to fund and build new electrical infrastructure.
“The aging of our power grid is an issue and someone has to pay for it. I think bitcoin miners are very well positioned because of the profits we are making and the incentives we have […] actually improving the grid across this nation,” Bradford said.
However, mining should not be viewed as an exogenous force influencing the transformation of energy infrastructure. It’s the grid. “Bitcoin mining is energy infrastructure. It is,” Paul Prager, CEO of TeraWulf, told the audience. And as electricity consumers (miners) and electricity producers (generators) become more vertically integrated in the coming years, Prager said, “You’re going to see massive improvements in the grid.”
Why? Because power transmission is regulated and the incentives for external investment in transmission improvements are very low. But “miners will invest in it because they want high-quality power so they can mine all the time,” Prager explained. And this improved infrastructure will not only serve miners. It will serve anyone who wields power.
Miners have a strong incentive to behave well in the energy market and mining energy consumption profile, more so than any other large electricity consumer, Sudock said.
In short, because they want to consume as much electricity as possible, miners are willing to invest in new infrastructure and demonstrate good consumer behavior to get the electricity they want, marking a new, net-positive user type in the energy market. And energy companies at the top of their industries are “being proactive when it comes to building relationships with miners,” Sudock said.
Conclusion
Bitcoin mining introduces a revolutionary way to price, consume, and build infrastructure for electricity. With aging grids and an exponentially increasing demand for electricity, all panelists agreed that the services and investments miners can bring to power grids around the world will deliver nothing short of a historic rebuild of power infrastructure and an improvement in power generation and transmission for all become types of electricity consumers. In short, mining is revolutionizing the energy market just as it has disrupted the currency markets.
This is a guest post by Zack Voell. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
