Revolutionizing Power Stations’ Load Balancing with Bitcoin Mining

Article by Sixte C.

The problem

A grid is a network of infrastructures that connects electricity power houses and consumers. If supply doesn’t match demand, the frequency of the grid will change. Since power stations are designed to function on a particular frequency with a low margin of tolerance, it is essential that frequency remains stable. For instance, if electricity load outweighs demand for electricity, frequency will rise which may force power plants to disconnect from the grid. Conversely, frequency will decrease during peaks of electricity consumption that the grid cannot satisfy which can disrupt grid performance.

Keeping the right balance between electricity consumption and production is the grid manager’s highest priority and most complex task. So, what to do when electricity production is superior to demand or when consumption is too high and the grid requires additional power? Electricity cannot wait on wires for someone to use it. Electricity is consumed as it is being produced. Generally, if production exceeds demand, the grid can either (1) store electricity or (2) dispatch it to external grids.

(1) Storing electricity is a core function of a grid generation process. Shortage of electricity supply requires batteries to back up the grid deficiencies. Most popular solutions are uninterruptible power supplies (UPS) or backup generators. However, they are expensive and inefficient at scale.

(2) Giving away electricity for a discount or for free is also sometimes necessary. In March 2017, California produced more solar power it could consume or store. They eventually paid Arizona to take their electricity excess off their hands. In addition, the process of exporting electricity to a remote location is expensive and can result in waste.

Imbalance problems and their suboptimal solutions that currently exist are aggravated by the growing popularity of renewable energy. Renewables might be cheaper, have a lower impact on the environment and have the support of public opinion, however the output variance is much larger. The stability of renewable energy production is directly impacted by weather conditions that tend to be inconsistent throughout the day/year.

Solar energy is a prime example of a renewable energy failing to match demand throughout the day.

Supply of solar energy during the day against overall demand in electricity

Production of solar energy peaks at mid-day when demand for electricity is low. In the morning and late afternoon when electricity supply is most needed, solar energy is much less productive due to the position of the sun. The ‘duck curve’ pictures the growing impact of solar panel adoption on conventional sources of energies like coal or nuclear. As solar energy becomes more popular, electricity demand from traditional sources of energy bottoms more and more in the middle of the day.

Source: California Independent System Operator (CAISO), 2013

This graph illustrates California’s growing imbalance in electricity demand. Over the years, the state invests more and more in solar energy. Therefore, the gap between mid-day and end-of-the-day electricity demand in conventional energies is widening. During mid-day hours power plants face over-generation risks that could damage the grid. Then when the sun is setting, from 6pm to 9pm, the grid needs to ramp up production by an additional 10,000 MW. The obvious solution would be to transfer solar energy from daytime to night-time using storage solutions. But again, batteries are expensive and unsustainable at scale. That’s where Bitcoin comes in.

The solution

How can Bitcoin mining reduce imbalance between supply and demand of electricity? The process of bitcoin mining has 3 features that makes it an efficient grid load balancer. First, bitcoin mining provides a stable and continuous demand for energy. Second, mining operation can be switched on and off at any time. Third, Bitcoin mining process is location agnostic, meaning it can run anywhere as long as there is electricity and an internet connection.

Load balancing a grid using bitcoin mining can be done in two different ways:

The first option would be to monetise excess energy that would have been wasted or inefficiently allocated to battery storage. Capital raised by mining BTC can then be used to fund more efficient battery solutions such as hydrogen storage. Bitcoin mining is also an efficient load balancer when the grid is undersupplied. Mining rigs can be switched off almost instantly, and energy usage reallocated to more vital sectors like the city network or industrial customers. All in all, Bitcoin mining could be used by electrical grids to make their network economically more efficient.

In Texas, the transition is already taking place. The Electric Reliability Council (ERCOT) operates, manages, and regulates the Texan grid. Energy prices are not locked in by the state but rather the result of supply and demand. The major advantage of the Texan grid lies in the robustness of Demand Response Programs. Demand Response (DR) gathers all ERCOT’s products and services that facilitate participants’ energy usage adaptation to market signals. All customers that can vary their energy usage in real time are rewarded with an energy credit under the Controllable Load Resource (CLR) program. DR and CLR services make the Texan grid a privileged environment for miners to deploy their rigs. It is a win-win situation since the grid and miners respectively benefit from optimized load balancing and cheaper prices.

The second option would be to tokenise renewable energy with Bitcoin. Grids could mine bitcoin during overgeneration periods. So when demand surpasses supply, the grid can use the coins mined to buy extra energy from nearby partners to rebalance their network. Its BTC reserve could also be used to pay for carbon footprint offsets and produce electricity locally from conventional source of energies without any negative impact on the environment. Bitcoin mining shall be performed by the grids themselves since their incentives are different from businesses running mining operations. A grid’s objective is to provide electricity to consumers while minimising waste of energy and capital, whereas a mining company sol objective is return. Bitcoin mining can help intensify renewables growth by increasing their rentability and efficiency. Green energies will become more profitable and widespread across countries. Eventually, a whole new energy network will be born, and Bitcoin will replace the petrodollar.

Other opportunities in the energy sector for BTC mining

Keeping a cool head, on the short term, Bitcoin mining can be an effective way to capitalise on power station inefficiencies. According to the Energy Information Administration (EIA), only 34% of the primary energy entering power plants is successfully converted to electricity ready to use by consumers. 54% of the 66% waste is due to inefficiencies in converting primary resources to useable electricity. For example, in the flaring process, oil drilling requires natural gas to be burned off. Not only it does it harm the environment, but it is also a significant waste of energy that could be exploited.

This is where Bitcoin mining intervenes. Bitcoin is unconstrained by location obligation, meaning it can be implemented in all geographical areas, even in remote flare gas power houses. In April, Abu Dhabi and Oman authorities took part in a $350 million funding round in a US BTC mining start-up using wasted flare gas as source of energy. Their business is a win-win process as it reduces power plants carbon footprint and powers the company’s mining rigs.

Bitcoin’s energy intensive feature is not a burden but an opportunity. Bitcoin mining might revolutionise grids’ load balancing solutions in future, but it has already started its ground-breaking journey into the energy sector by optimising electricity production through inefficiencies exploitation.

DISCLAIMER

This material is strictly confidential and is intended for use solely by professional investors (as defined in the Cayman Islands Monetary Authority from time to time). It should not be reproduced, redistributed, passed on to any other person or published, in whole or in part, for any purpose without the written consent of JKL Digital Capital Limited (‘JKL’) and must be returned on request to JKL. Although information contained in this material has been compiled from sources believed to be reliable, JKL does not represent or warrant the accuracy, completeness or reliability of the information contained in this material.

The contents of this material have not been reviewed by any regulatory authorities. You are advised to exercise caution in relation to the contents of this material. If you have any doubt about any of the contents of this material, you should obtain independent professional advice. Neither JKL nor any of its affiliates, nor any of its or their respective directors, officers, employees, and representatives will accept any responsibility or liability whatsoever for any direct, indirect, or consequential loss arising from the use of or the reliance upon any information contained in this material. This material does not constitute an offer or an invitation to subscribe for or purchase any financial product. It is not intended to provide the basis of any credit or other evaluation and should not be considered as a recommendation to purchase any financial product.

JKL, its affiliates and/or any or its or their respective officers, directors, employees, and representatives may from time to time have a material interest in the product(s) described in this material or in any investment related to the product(s), for their proprietary accounts and/or for accounts under their management, and/or for clients, which may result in a positive or negative influence on the value of the product(s).

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
JKL Group

JKL Group

Quantitative fund focused exclusively on trading digital assets and blockchain technology. Find out more on www.jkl.capital