This image shows an Amazonian wind farm in Texas.

Amazon

HOUSTON – Houston-based tech company Lancium said on Tuesday it had raised $ 150 million to build bitcoin mines across Texas that will run on renewable energy.

In the coming year, the company plans to launch more than 2,000 megawatts of capacity at its multiple sites, which Lancium calls “Clean Campuses”. To put this in context, downtown Dallas uses 200 megawatts of electricity.

The funding round was led by clean energy company Hanwha Solutions, along with other power companies, Lancium said.

“I think the fact that all energy companies are investing suggests that we have a common vision of the role that bitcoin mining should play in the network,” said Michael McNamara, CEO of Lancium.

Bitcoin mining has two purposes: to create new coins and to keep a log of all existing digital token transactions. To do this, miners around the world contribute their computing power to the verification of all bitcoin transactions.

It takes a lot of energy to register these exchanges, but these energy buyers are also offering something that Texas desperately needs right now: a flexible customer, ready to buy when supply is plentiful and close when supply is plentiful. it is not. This flexibility is a big help when it comes to stabilizing a grid that quickly integrates inherently unstable energy sources like wind and solar.

When there is particularly wind or sun, the network is supplied with energy and does not always have enough takers. But when the weather is cloudy and there is no wind, sometimes demand exceeds supply. Either way, this skews the supply and demand curve towards extreme prices, neither of which is good for the network as a whole. Bitcoin mining helps even out these price fluctuations.

Texas also has a lot to offer minors.

The state has some of the cheapest sources of energy on the planet – a major incentive for miners who compete in a low-margin industry, where their only variable cost is usually energy. The state is also home to crypto-progressive and business-friendly politicians, not to mention a lot of land.

“Bitcoin is made for the network,” said bitcoin mining engineer Brandon Arvanaghi, who now runs Meow, a company that enables corporate treasury participation in crypto markets.

“It’s a match made in heaven,” continued Arvanaghi.

Improve the economy of renewable energies

West Texas is a renewable energy hotspot in the United States.

“You get that perfect overlap with both the quality of the sun and the speed of the wind in West Texas,” said Shaun Connell, executive vice president of energy at Lancium.

Large swathes of West Texas exist along the “American Wind Belt,” which encompasses the regions with the highest wind speeds in the country. The state also has the cheapest large-scale solar power in the country, at 2.8 cents per kilowatt hour.

The share of wind and solar in the Texas grid is also growing at a rapid rate, from 9% in 2011 to 26% of the grid, and Connell expects that growth rate to accelerate over the course of the year. the next few years.

“This year alone, we are adding 14 gigawatts of solar and wind power,” said Connell. “What took 20 years to produce 35 gigawatts of wind and solar power … we’re about to double that in the next five years, and it’s really happening in West Texas.”

In theory, all of this renewable energy piled up on the grid is a good thing, as it replaces less environmentally friendly energy sources like coal and natural gas.

Solar panels are seen in this drone photo at the Impact Solar Installation in Deport, Texas on July 15, 2021.

Drone base | Reuters

But it also presents certain logistical complications.

“The network of the future is a problem,” McNamara told CNBC. The Lancium chief said there is a geographic mismatch between where most wind and solar power is captured and where customers live.

“You can’t build a 1,000 megawatt solar power plant in New York, Tokyo or Frankfurt,” McNamara said.

There is also the question of ensuring that renewable energy sources are able to meet the minimum level of demand on an electricity grid. In industrial parlance, it’s called base load, and it’s something that many renewables lack.

“Solar and wind power do not generate electricity as a base load,” said Castle Island Ventures founding partner Nic Carter.

“Solar power works 10 hours a day and with the wind – it can be windy or there can be none. In practice, this means you have to be prepared for all renewables to go offline. at any time, “Carter continued.

To prepare for an exit from zero, there are several options, according to Carter. You can compensate for the shortfall with an energy source like natural gas, but that involves spinning the turbines up or down in the short term to compensate for the volatility of renewables.

A new option recently made possible by Lancium-patented technology is to turn bitcoin mines into a sort of on-demand dial that can be gradually increased or decreased in as little as five seconds.

Bitcoin is made for the grid. It’s a match made in heaven.

Brandon arvanaghi

Bitcoin mining engineer

“Instead of changing the supply variable to match supply to demand, you can change demand,” Carter explained.

The company is building mines where wind and solar are plentiful and the transmission system is limited, which means electricity wants to flow along the line, but the lines are full.

These clean campuses, as the company calls them, will also host high-speed computing and other power-hungry applications, helping to solve this congestion problem.

As McNamara describes it, the Lancium sites act like one big powerhouse but upside down. Mines will absorb abundant renewable energy at times when supply exceeds demand, thereby monetizing these assets when there are no other buyers. And on the other hand, mines will gradually reduce their energy consumption, as demand on the grid increases.

“In times of scarcity, our data centers will fail and these lines will be able to carry renewable energy to Houston, Dallas and Austin where they need it,” McNamara said.

Adding bitcoin miners to the energy buyer’s portfolio helps improve the basic economics of renewable energy production, which has been fraught with volatility. Connell told CNBC that in 2020 10-20% of hours in West Texas had negative energy prices, which happens when supply exceeds demand.

Supplying demand for these semi-locked assets also makes renewables in Texas economically viable when they might not otherwise be, Carter told CNBC.

The constraint is that West Texas has about 34 gigawatts of power, five gigawatts of demand, and only 12 gigawatts of transmission.

You can almost think of bitcoin miners as temporary buyers who keep these energy assets operational until the network is able to completely absorb them once new transmission channels are built to unlock these blocked energy sources. .

McNamara says the net effect of this is to remove coal and gas faster, while quickly adding wind and solar at the same time, essentially making bitcoin mining “a fundamentally low-carbon technology.”

Chad Harris, who runs America’s largest bitcoin mine, had an apt way to describe the dynamics. He told a crowd of bitcoin miners and oil and gas executives in Houston on Monday night that bitcoin miners were “the most efficient battery in the market.”

What is there for minors

Lancium does not selflessly choose to make the network strong by sometimes turning off some or all of its bitcoin miners to free up electricity for those in need.

Instead, there are a lot of financial benefits in its deal with the nonprofit organization that operates the Texas network. The Electric Reliability Council of Texas, or ERCOT, has a relatively straightforward and mutually beneficial relationship with bitcoin miners, in which ERCOT pays the miners for power down.

“Imagine how much you would have to pay Amazon to say, ‘Hey, there is too much demand for electricity. Please shut down your data center,’” Arvanaghi said.

“But he can do it very easily with bitcoin, because all you have to do is pay the miners a little more than they would have done to mine bitcoin at that time,” Arvanaghi continued.

Even bitcoin miners who have not entered into a deal with ERCOT sometimes voluntarily turn off during times of peak consumption when prices soar. By 2021, if miners had voluntarily reduced their uptime expectation from 100% to 95%, they would have reduced their price per megawatt hour from $ 178 to $ 25, according to Lancium data.

This reduction in energy at a strategic time is particularly vital for the Texas grid, which exists as its own small island.

Unlike the rest of the continental United States which belongs to the Eastern or Western Interconnect (the names of the two interconnected power grids connecting the states), 90% of Texas operates on ERCOT, a deregulated and independent network of energy providers that does not ‘is not related to any other network in the United States

While this competitive market often drives the price of electricity down as providers compete on costs to capture customers, it also means that there is less of a safety net built into the grid. This poses challenges in the face of calamitous events, such as a blackout or a natural disaster, such as the deadly winter storm in early 2021 that devastated much of the state.

Adding a “controllable load resource” like bitcoin miners to the grid acts as a kind of life insurance policy. It’s almost like a hedge against disaster.

What is also unique about Lancium’s agreement with ERCOT is that they can precisely match the specifications of the power deficit or surplus, thanks to its “SmartResponse” software, which allows its bitcoin mines and data centers to adjust the server’s power consumption according to the needs of the power grid.

This allows Lancium to power down individual miners, in order to switch to exact network specifications.

And that’s not the skin of the backs of bitcoin miners like Lancium. Bitcoin has no uptime requirement, and the equipment is not worn out by turning off and back on regularly. It’s pretty much a victory, victory.

“That’s the beauty of bitcoin – it’s something no other industry can really do,” Arvanaghi told CNBC. “It’s very synergistic.”