Coordination between utilities and crypto miners — when does it make sense?

The following is a contributed article by Steve Wright, former CEO, Bonneville Power Administration and Chelan County PUD, and Hassan Shaban, chief technology officer at WattCarbon

Crypto mining has experienced significant growth in the past decade, consumes more energy every year and is increasingly located in the United States. Given the growth in cryptocurrency production in the U.S., there is growing federal, state and local interest in the crypto-mining impacts on electricity costs and carbon emissions.

In January, Steve testified at a U.S. Congressional hearing on cryptocurrency production and its impacts on electric utility operations, a complicated relationship that is worth deeper consideration.

An option explored here is to examine whether coordination between crypto miners and utilities can be a win-win for both parties. A recent Utility Dive article laid out the nuances of treating crypto mining as a grid resource and, in a nutshell, “it’s complicated”. 

The crypto-grid dilemma

For the most part, electric utilities have the obligation to serve customers and do not choose whether or not to provide load service to specific customers. But the high energy intensity and portability of crypto-mining machines creates a unique and challenging business relationship between crypto miners and electric utilities. 

Utilities around the country have been hesitant to offer long-term cost-of-service pricing to loads that can easily relocate and that also have a high regulatory risk and commodity price volatility.  Crypto-mining machines are not aluminum plants that, once built, are not likely to move elsewhere. 

One approach that mitigates these risks and supports the partnership between crypto-mining and electric utilities is to use short term wholesale market energy pricing with upfront capital cost contributions for transmission for crypto-mining loads.

The focus on short-term wholesale energy pricing creates opportunities to find areas of collaboration between crypto-miners and utilities, particularly given the increasing adoption of variable energy resources (wind and solar) on utility systems. Load modulation that reflects the value of wholesale energy markets can be attractive to both parties.  But there are limits to how far these synergies can be pursued before it works to the detriment of one or the other. 

This relationship can be managed from the utility’s perspective using demand response — either active demand response through incentive programs or contractual mechanisms that require load curtailment, or passive demand response using price signals (e.g., time-of-use or hourly retail pricing).

When does crypto demand response make sense?

Two types of decisions are typically considered by crypto miners: planning decisions around where to site their facilities and how to structure utility contracts, and operational decisions that define hour-by-hour or minute-by-minute choices in controlling the mining machines.

We performed an analysis to identify the operational conditions that support crypto demand response. We looked at the effect of several factors on the demand response potential: cryptocurrency prices, wholesale electricity prices, building energy efficiency, and retail rate schemes (time-of-use vs. hourly pricing).

In general, the crypto demand response business case is larger for both utilities and crypto miners when more hours of the year have a higher electricity cost than miner revenue. If mining is always profitable, it makes sense to run the miners as much as possible — although crypto demand response can still be beneficial by allowing miners better control over their electricity costs.

The business case for crypto demand response is strongest during periods of

(i) low crypto prices

(ii) high electricity prices

(iii) when the miners use older machines

(iv) when the miners are housed in energy-inefficient facilities.

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