Energy transition and Bitcoin mining: an efficient way to stabilise the grid?

Electricity can currently only be stored poorly and inefficiently in the transmission grid. To ensure secure and stable grid operation, the amount of electricity fed into the grid must correspond exactly to the amount of electricity withdrawn at all times. The energy transition in Germany and Europe poses major challenges for the electricity grid, as renewable energies are dependent on the weather and lead to fluctuations in feed-in. The regulation of wind and solar energy in particular is more difficult than with conventional energy sources. In this blog post, I explore in a thought experiment whether Bitcoin mining can contribute to stabilising the grid as a flexible load by using times of energy surplus and shutting down quickly when needed.

Challenges to grid stability due to the energy transition

The energy transition in Germany and Europe aims to significantly increase the share of renewable energies in the electricity mix. In recent years, this has led to a significant expansion of wind and solar energy, among other things. However, these energy sources are dependent on the weather and are subject to strong fluctuations. When there is strong wind or intense solar radiation, there can be an overproduction of electricity when demand is low, while less electricity is produced on calm or cloudy days. In order to ensure a reliable supply of renewable energy even on days with low yields, a large number of wind and solar power plants must be installed. This exacerbates the problem of overproduction, especially when the systems reach their rated output due to favourable weather conditions.

On the electricity exchanges, inflexible power plants such as lignite or hard coal-fired power plants, the overproduction of renewable energies and the lack of sufficient storage capacities lead to negative electricity prices. These prices signal the need to reduce electricity production or increase electricity consumption. In 2023, the number of negative prices on the day-ahead market was significantly higher than in previous years at 301 hours, setting a new record after 2020 with 298 hours.

If the market cannot compensate for the imbalance between electricity supply and demand, there is an over- or under-feeding of the grid frequency, which must always be 50 hertz +/- five per cent. This poses major challenges for the electricity grid. The grid operators must ensure that at all times exactly as much electricity is fed into the grid as is consumed. Otherwise there is a risk of instability, which in the worst case could lead to power outages. In the event of an oversupply, wind and solar power plants in particular are therefore curtailed. This means that plants are specifically switched off in order to keep supply and demand in the electricity grid in balance. The curtailment of renewable energies may currently be an efficient solution, but in times of climate change it is difficult to communicate and is a good solution in the short term at best.

A current initiative by the Federal Network Agency, ‘Utilisation instead of curtailment 2.0’, aims to reduce the curtailment of renewable energy plants due to grid bottlenecks. To this end, flexibly controllable consumers such as battery storage systems, electrolysers for the production of green hydrogen or large heat pumps in particular should cover the additional demand and effectively utilise the otherwise curtailed electricity.

This is precisely where our thought experiment comes in, as another flexible consumer can be achieved through Bitcoin mining.

Intermediate impulse - A few definitions...

What is a blockchain and what is Bitcoin?

Blockchain is a digital technology that stores data in a decentralised, unchangeable and transparent manner. Each piece of information is summarised in so-called blocks and secured using cryptographic methods. Bitcoin is a digital currency based on blockchain technology. It makes it possible to transfer value directly from person to person without the need for a central institution such as a bank.

What is Bitcoin mining?

Bitcoin mining is the process of creating new bitcoins and confirming transactions in the Bitcoin network. This is done using the proof-of-work consensus algorithm and requires enormous computing power and high energy consumption. Mining hardware consists of special computers, so-called Application-Specific Integrated Circuits (ASICs for short), which solve complex mathematical problems. The miners receive bitcoins as a reward for providing the computing power. The profitability of Bitcoin mining depends heavily on the energy costs in relation to the sales price achieved. Basically, the cheaper the energy for mining, the more profitable a Bitcoin miner can be.

Bitcoin mining as a flexible load

One interesting aspect of Bitcoin mining is the flexibility of electricity consumption. Mining facilities can be ramped up and down quickly, making them a potentially useful flexible load for the power grid. In times of overproduction, miners could utilise the surplus electricity that would otherwise have to be curtailed. When there is a shortage of electricity, they could reduce their activities and thus help to stabilise the grid. In addition, the payout (the so-called mining reward) is made in a globally liquid currency (the $Bitcoin) and the mining itself can be carried out completely independently of location.

Energy-intensive Bitcoin mining is therefore particularly suitable for providing answers to the challenges of grid stability in the energy transition:

• Balancing out fluctuations in energy availability and mitigating grid bottlenecks.
• Increasing the flexibility and predictability of renewable energy generation.
• Increasing the economic efficiency of renewable energy generation plants.
• Increasing the share of renewable energies in the electricity mix.
• Introduction of an artificial price floor in the electricity market.

Who should do the mining?

Bitcoin mining could therefore theoretically offer an economically efficient solution to the problem of oversupply. A key question is who should operate Bitcoin mining to stabilise the grid - electricity producers or grid operators?

Producers as operators

Renewable energy producers could operate mining facilities to economically utilise surplus energy that would otherwise have to be curtailed. This could increase their income and improve their profitability. Especially when electricity prices are low or even negative, Bitcoin mining would open up a new economic perspective. Independent electricity producers or suppliers could also react flexibly to market conditions and ramp up or down mining depending on the availability and price of electricity.

Grid operators as operators

Grid operators could operate mining facilities in order to react quickly to fluctuations in the electricity grid and ensure grid stability. They have the technical expertise and the necessary infrastructure to efficiently integrate mining plants into the grid and optimise their operation. This could be particularly useful for providing balancing energy and increasing grid security.

Hybrid models and cooperations

Co-operations between producers and grid operators could combine the advantages of both approaches. Producers could supply the surplus energy, while the grid operators take over the operational management and grid integration. Joint investments in the generation infrastructure could share costs and improve economic efficiency. The involvement of specialised service providers who operate the generation plants on behalf of producers or grid operators could also be a sensible solution.

Examples from other countries

In some countries, Bitcoin mining is already being used successfully to stabilise the grid and utilise surplus renewable energy. These best practices can serve as a model for possible implementation in Germany.

• USA (Texas): In Texas, bitcoin miners use surplus wind energy and participate in load management programmes. When demand is high or electricity production is low, they reduce their activities to reduce the load on the grid.
• Canada (Quebec): Quebec's abundant hydroelectricity often generates surpluses that are utilised by bitcoin miners. This flexible load helps to keep the grid stable and improve the profitability of hydropower plants.
• Iceland: With a stable and cost-effective energy supply from geothermal and hydropower, Iceland is an attractive location for Bitcoin mining. Miners utilise surplus energy and contribute to the efficiency of energy production.
• Norway: Norway produces large amounts of hydropower and uses Bitcoin mining to stabilise the grid and increase the profitability of hydropower plants.

These examples show that Bitcoin mining can react flexibly and quickly to fluctuations in the electricity grid and thus contribute to grid stability. This experience could serve as a model for Germany to optimise the integration of renewable energies and stabilise the electricity grid.

Does Bitcoin mining make more sense than using energy storage systems?

In order to ensure a high level of reliability of the electricity grids, it is crucial to optimise the coordination of systems and grids. To date, storage technologies have played a key role in grid stability, as they store excess energy from peak times and feed it back into the grid when required. The question arises as to what extent the use of Bitcoin miners offers advantages over energy storage systems. Theoretically, the following can be deduced:

• Bitcoin mining can draw unlimited energy from the grid, whereas even the largest energy storage system only has limited capacity.
• Energy that has been converted into digital currency through Bitcoin mining can no longer be fed back into the grid. Energy stored in storage facilities, on the other hand, can be fed almost completely back into the grid when required.
• Bitcoin miners can scale their operations relatively easily and indefinitely by adding more computing power. Depending on the type of energy storage (e.g. pumped storage power plant), scaling is often not easily possible and is usually limited.
• The energy-intensive computing operations of Bitcoin mining generate waste heat that can be captured and used to reduce heating energy requirements. This positive side effect does not apply to energy storage systems.

Challenges for the use of Bitcoin mining to stabilise the grid

Regulation

The regulatory landscape in Germany and Europe must be carefully scrutinised to ensure that the operation of Bitcoin mining facilities is compatible with legal requirements and grid security standards.

Volatility of the Bitcoin price

The economic profitability of mining depends heavily on the Bitcoin price, which is very volatile. Strong price fluctuations can make long-term planning and investments in the mining infrastructure more difficult.

Ideological differences

One of the biggest hurdles to mining Bitcoin is probably not so much the technology as the prejudices surrounding the cryptocurrency. Despite the potential benefits for the climate and the potential contribution of blockchain technology to the energy transition, the technology is often dismissed as harmful to the climate and there are even calls for it to be banned.

Energy transition and Bitcoin mining - a promising approach to grid stability?

Regardless of whether Bitcoin mining or another technology is used, one thing is certain: with the increasing integration of renewable energies, the electricity grid will be exposed to strong fluctuations that need to be balanced out. Bitcoin mining could offer an interesting solution here to cushion grid bottlenecks and solve them economically and efficiently.

A cooperative approach between energy producers, grid operators and specialised service providers could be the most effective strategy. A comprehensive analysis of local market conditions, regulatory frameworks and technical requirements is crucial in order to optimally exploit the potential of Bitcoin mining for grid stabilisation in Germany and Europe. While bitcoin mining offers the advantage of almost unlimited scalability and usable waste heat compared to conventional energy storage systems, it faces challenges such as regulatory requirements, price volatility and ideological reservations.

Whether Bitcoin mining can actually make an efficient contribution to grid stability requires further research and well thought-out pilot projects. Overall, the thought experiment shows that Bitcoin mining has the potential to contribute to grid stability and optimise the energy transition if the existing hurdles can be overcome.

Would you like to find out more about exciting topics from the world of adesso? Then take a look at our previous blog posts.