The Future Of Energy Markets According To Bitcoin Miners

Bitcoin 2022 offered us a glimpse into bitcoin miners’ crystal ball, as they discussed how the industry will impact the energy grid.

Most of the conversations about Bitcoin infrastructure for the past two years have focused on the mining sector’s increasing convergence with traditional energy generators and power companies. At the Bitcoin 2022 conference, a panel hosted by this author discussed this trend and what mining’s continued growth means for electric grids and energy markets. Beyond discussing how a grid works and demystifying some basic information about energy infrastructure, the panelists shared their perspectives on current trends, expected benefits and even some risks from a rapidly-growing mining sector forging long-term and large-scale partnerships with energy companies.

Mining growth has the potential to affect every market that uses energy, which is to say: everything. And this article summarizes some of the key insights shared by the panelists on what that future will look like. All the quotations and referenced comments in this article from the Bitcoin 2022 panel are hyperlinked with timestamps during the panel discussion.

Improved Power Pricing Mechanics

Bitcoin mining is radically changing some fundamental aspects of the power industry, and with these changes come new obstacles to overcome. “[Mining] is fundamentally an innovative approach to consuming power relative to what has happened for the last 95 years,” Harry Sudock, vice-president of strategy at GRIID, told the audience.

In 2019, energy companies were highly skeptical and in disbelief about signing power purchase agreements with mining companies like Sudock’s GRIID usually because of the sheer amount of power miners wanted to purchase. Sudock explained that his team would hear responses from power companies to the effect of: “What? We’ve only signed a deal that big once in the last 30 years.”

Today, those phone calls with other power providers are easier. But discussions between miners and power providers can still improve in one key area: rate structures.

“I think that the language between the energy company and the bitcoin miner is adjusting to be kind of the same,” Sudock said. “I think the overall rate structure regime and how does the energy get priced and sold – that’s where the next level of translation and education is happening now.”

In short, everybody — meaning power companies — “gets” what miners are trying to do, but the mechanics of achieving bitcoin mining’s goals are still developing. “There’s still a lot of energy that should be bought by miners today that isn’t yet because of mechanical and structural reasons. But those barriers will be broken down over time,” Sudock said.

Zach Bradford, CEO of CleanSpark, agreed with Sudock. “Nobody knows how to price in that much power for that consistent of a load,” he said, referring to obstacles miners face when structuring deals with power companies.

So how do power companies and bitcoin miners remove these informational and pricing difficulties? The answer is simple: prioritize mining-specific price structure to make it easier for miners to buy power based on their unique load demands.

“If I were the CEO of a power company,” Sudock said, “I would be pitching my board to put in place a bitcoin mining rate structure to attract [miners] to your region, and we will be able to innovate on that process together and get there.”

Building Bitcoin Mining Communities

As conversations between miners and power providers become easier and clearer, all the panelists agreed that the relationships between these two sides of the market will become larger and stronger than ever. As a result, the cities and towns that rely on utilities provided by companies that work with miners will be far more secure, reliable, and advanced than the same infrastructure in other geographic areas.

“I think we’re going to wake up in 10 years, and the towns and counties and cities and communities that have bitcoin mines are going to be thought of in this incredible positive, optimistic way. And the towns that don’t have them yet, are going to be recruiting bitcoin mines to have them there,” Sudock said.

For Sudock, one of the drivers for this improvement is revenue brought to these cities not just from constructing and maintaining a mining facility, but from injecting new revenue into the local economy for power generation that previously no one else would offer.

Bradford agreed, adding he expects to see greater community partnerships involving bitcoin miners. In some of the cities where CleanSpark operates mining farms, for example, Bradford explained how they have directly invested in upgrading electricity infrastructure in those areas, which benefits not only their business but also each business and resident connected to that grid.

“I think you’re going to see communities that embrace bitcoin mining thriving,” Bradford said.

Creating A Better Electric Grid

Because bitcoin miners want to buy so much power all the time, the electric grid’s current infrastructure needs to be updated and expanded at the same pace miners and the Bitcoin network’s hashrate are growing. For the panelists, this — building a better grid — will be one of the biggest hallmarks of mining’s positive effects on energy markets and the grid.

“What a lot of people don’t realize is how fragile our grid is,” Bradford told the audience. A key reason for this is simply the age of existing grid infrastructure. But miners “can interact in a way that can improve grid health,” he explained. And because miners are a unique type of power customer, their load demands create opportunities for mining companies to fund and build new electric infrastructure.

“The age of our grid is a problem, and somebody has to pay for it. I think bitcoin miners are very well positioned because of the profits we make and the incentives we have to […] actually improve the grid across this whole nation,” Bradford said.

Mining shouldn’t be thought of as an exogenous force affecting change on energy infrastructure though. It is the grid. “Bitcoin mining is energy infrastructure. That’s what it is,” Paul Prager, CEO of TeraWulf, told the audience. And as power consumers (miners) and power producers (generators) become more vertically integrated over the coming years, Prager said, “You’ll see massive improvements in the grid.”

Why? Because energy transmission is regulated, and incentives are very low for outside investment in transmission improvements. But “miners will invest in it because they want quality electricity so they can mine all the time,” Prager explained. And this improved infrastructure will not only serve miners. It will serve everyone that uses power.

Miners are heavily incentivized to provide good behavior into the energy market and the mining energy consumption profile, more so than any other large-scale power consumer, Sudock said.

In short, because they want to consume as much power as possible, miners are willing to invest in new infrastructure and demonstrate good consumer behavior to get the power they want, which marks a new, net-positive type of user in the energy market. And power companies at their industry’s leading edge are “being proactive about having relationships with miners,” Sudock said.

Conclusion

Bitcoin mining introduces a revolutionary way to price, consume, and build infrastructure for electricity. With aging grids and exponentially increasing demand for electricity, all the panelists agreed that the services and investments that miners can offer to power grids around the world will cause nothing short of a historic reconstruction of electricity infrastructure and an improvement in electricity generation and transmission for all types of power consumers. In short, mining is revolutionizing the energy market as much as it has disrupted currency markets.

This is a guest post by Zack Voell. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

Read More

Most of the conversations about Bitcoin infrastructure for the past two years have focused on the mining sector’s increasing convergence with traditional energy generators and power companies. At the Bitcoin 2022 conference, a panel hosted by this author discussed this trend and what mining’s continued growth means for electric grids and energy markets. Beyond discussing how a grid works and demystifying some basic information about energy infrastructure, the panelists shared their perspectives on current trends, expected benefits and even some risks from a rapidly-growing mining sector forging long-term and large-scale partnerships with energy companies.

Mining growth has the potential to affect every market that uses energy, which is to say: everything. And this article summarizes some of the key insights shared by the panelists on what that future will look like. All the quotations and referenced comments in this article from the Bitcoin 2022 panel are hyperlinked with timestamps during the panel discussion.

Improved Power Pricing Mechanics

Bitcoin mining is radically changing some fundamental aspects of the power industry, and with these changes come new obstacles to overcome. “[Mining] is fundamentally an innovative approach to consuming power relative to what has happened for the last 95 years,” Harry Sudock, vice-president of strategy at GRIID, told the audience.

In 2019, energy companies were highly skeptical and in disbelief about signing power purchase agreements with mining companies like Sudock’s GRIID usually because of the sheer amount of power miners wanted to purchase. Sudock explained that his team would hear responses from power companies to the effect of: “What? We’ve only signed a deal that big once in the last 30 years.”

Today, those phone calls with other power providers are easier. But discussions between miners and power providers can still improve in one key area: rate structures.

“I think that the language between the energy company and the bitcoin miner is adjusting to be kind of the same,” Sudock said. “I think the overall rate structure regime and how does the energy get priced and sold – that’s where the next level of translation and education is happening now.”

In short, everybody — meaning power companies — “gets” what miners are trying to do, but the mechanics of achieving bitcoin mining’s goals are still developing. “There’s still a lot of energy that should be bought by miners today that isn’t yet because of mechanical and structural reasons. But those barriers will be broken down over time,” Sudock said.

Zach Bradford, CEO of CleanSpark, agreed with Sudock. “Nobody knows how to price in that much power for that consistent of a load,” he said, referring to obstacles miners face when structuring deals with power companies.

So how do power companies and bitcoin miners remove these informational and pricing difficulties? The answer is simple: prioritize mining-specific price structure to make it easier for miners to buy power based on their unique load demands.

“If I were the CEO of a power company,” Sudock said, “I would be pitching my board to put in place a bitcoin mining rate structure to attract [miners] to your region, and we will be able to innovate on that process together and get there.”

Building Bitcoin Mining Communities

As conversations between miners and power providers become easier and clearer, all the panelists agreed that the relationships between these two sides of the market will become larger and stronger than ever. As a result, the cities and towns that rely on utilities provided by companies that work with miners will be far more secure, reliable, and advanced than the same infrastructure in other geographic areas.

“I think we’re going to wake up in 10 years, and the towns and counties and cities and communities that have bitcoin mines are going to be thought of in this incredible positive, optimistic way. And the towns that don’t have them yet, are going to be recruiting bitcoin mines to have them there,” Sudock said.

For Sudock, one of the drivers for this improvement is revenue brought to these cities not just from constructing and maintaining a mining facility, but from injecting new revenue into the local economy for power generation that previously no one else would offer.

Bradford agreed, adding he expects to see greater community partnerships involving bitcoin miners. In some of the cities where CleanSpark operates mining farms, for example, Bradford explained how they have directly invested in upgrading electricity infrastructure in those areas, which benefits not only their business but also each business and resident connected to that grid.

“I think you’re going to see communities that embrace bitcoin mining thriving,” Bradford said.

Creating A Better Electric Grid

Because bitcoin miners want to buy so much power all the time, the electric grid’s current infrastructure needs to be updated and expanded at the same pace miners and the Bitcoin network’s hashrate are growing. For the panelists, this — building a better grid — will be one of the biggest hallmarks of mining’s positive effects on energy markets and the grid.

“What a lot of people don’t realize is how fragile our grid is,” Bradford told the audience. A key reason for this is simply the age of existing grid infrastructure. But miners “can interact in a way that can improve grid health,” he explained. And because miners are a unique type of power customer, their load demands create opportunities for mining companies to fund and build new electric infrastructure.

“The age of our grid is a problem, and somebody has to pay for it. I think bitcoin miners are very well positioned because of the profits we make and the incentives we have to […] actually improve the grid across this whole nation,” Bradford said.

Mining shouldn’t be thought of as an exogenous force affecting change on energy infrastructure though. It is the grid. “Bitcoin mining is energy infrastructure. That’s what it is,” Paul Prager, CEO of TeraWulf, told the audience. And as power consumers (miners) and power producers (generators) become more vertically integrated over the coming years, Prager said, “You’ll see massive improvements in the grid.”

Why? Because energy transmission is regulated, and incentives are very low for outside investment in transmission improvements. But “miners will invest in it because they want quality electricity so they can mine all the time,” Prager explained. And this improved infrastructure will not only serve miners. It will serve everyone that uses power.

Miners are heavily incentivized to provide good behavior into the energy market and the mining energy consumption profile, more so than any other large-scale power consumer, Sudock said.

In short, because they want to consume as much power as possible, miners are willing to invest in new infrastructure and demonstrate good consumer behavior to get the power they want, which marks a new, net-positive type of user in the energy market. And power companies at their industry’s leading edge are “being proactive about having relationships with miners,” Sudock said.

Conclusion

Bitcoin mining introduces a revolutionary way to price, consume, and build infrastructure for electricity. With aging grids and exponentially increasing demand for electricity, all the panelists agreed that the services and investments that miners can offer to power grids around the world will cause nothing short of a historic reconstruction of electricity infrastructure and an improvement in electricity generation and transmission for all types of power consumers. In short, mining is revolutionizing the energy market as much as it has disrupted currency markets.

This is a guest post by Zack Voell. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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