Chapter 7 – Bitcoin Mining

What is off-grid BTC mining?

Off-grid BTC mining refers to the practice of mining Bitcoin without relying on the traditional power grid. Instead, miners use alternative sources of energy, such as:

1. Renewable energy sources: Solar panels, wind turbines, or hydroelectric power to generate electricity.
2. Stranded or flared natural gas: Capturing and utilizing gas that would otherwise be wasted or flared at oil and gas production sites.
3. On-site power generation: Diesel generators or other types of power generation equipment to produce electricity using off grid energy.

What is an energy buyer of last resort?

The concept of an “energy buyer of last resort” refers to entities that purchase excess or surplus energy when other buyers are unable or unwilling to do so. This role is particularly significant in the context of renewable energy sources, which can produce more energy than is immediately needed due to their intermittent nature.

In the context of Bitcoin mining, it plays a dual role as both the buyer of first resort and last resort. Bitcoin mining can start purchasing excess energy almost immediately after a new energy source is established, providing a steady revenue stream for energy producers. Additionally, when energy producers generate more electricity than the demand, selling this excess to Bitcoin miners helps maintain a balanced load on the grid and ensures that every bit of produced energy is utilized.

For instance, Curtis Harris, in his LinkedIn article, discusses how Bitcoin mining can act as a buyer of first and last resort, offering steady revenue streams to energy producers and ensuring that surplus energy is not wasted. This dynamic interplay between Bitcoin mining and energy production can help address key issues of intermittency and grid congestion in the renewable energy space.

African Energy Development

African energy development involves various initiatives aimed at increasing access to clean and reliable energy across the continent. One such initiative is the Green Africa Mining Alliance (GAMA), which was established in late 2022 by five renewable energy Bitcoin miners working across Africa. GAMA serves as a platform for sharing knowledge, fostering industry collaboration, and assisting new miners in getting started on the continent. The concept of a “buyer-of-last-resort” mechanism has been explored in environmental markets to enhance the value of renewable energy projects. This mechanism can provide assurance to projects, investors, and lenders that environmental markets have real value, thereby lowering the risk and cost of capital for building conservation projects. For instance, the World Bank’s Pilot Auction Facility (PAF) offers a price guarantee to projects, which can be redeemed if the market price falls below the guaranteed minimum. This has been particularly useful in situations where market prices for carbon credits have collapsed, as seen in the case of Clean Development Mechanism Certified Emission Reductions.

In the context of African energy development, the buyer-of-last-resort concept could be applied to renewable energy projects to ensure that they have a guaranteed buyer for their energy output, especially during periods of low demand or when market prices are unfavorable. This would help stabilize revenue streams for renewable energy projects and make them more attractive to investors.

African Examples:

Several organizations are actively involved in promoting renewable energy development in Africa. For example, the Africa Finance Corporation (AFC) is committed to investing up to $250 million in various energy projects across Africa as part of its contribution to the Power Africa Initiative. AFC’s projects include the Cenpower (Kpone) project, a 340 MW thermal closed cycle power plant in Ghana, and a 30 MW geothermal power project in Kenya.

Additionally, the ARCH Emerging Markets Partners Limited (ARCH) is an advisory firm that specializes in private equity opportunities across several geographies, with a focus on energy and logistics in developing economies. Through its ARCH Africa Renewable Power Fund (ARCH ARPF), ARCH aims to create long-term value for its stakeholders while addressing the growing demand for bankable, de-risked electricity generation in Africa.

These initiatives and mechanisms highlight the potential for innovative financial strategies, such as the buyer-of-last-resort concept, to support the development of renewable energy projects in Africa, thereby contributing to the continent’s energy security and sustainability goals.

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USA Examples and developments

Texas-based company MARA Holdings purchased a 114-megawatt wind farm to power its off-grid Bitcoin mining operations.

Companies like Compass and others are exploring off-grid mining opportunities using stranded natural gas.

1. Reduced carbon footprint: Off-grid mining can significantly decrease the environmental impact of Bitcoin mining, as it relies on renewable energy sources or waste gas.
2. Lower operating costs: Miners can save on electricity costs by generating their own power or using cheap, stranded gas.
3. Increased flexibility: Off-grid mining allows miners to operate in remote locations or areas with unreliable power supply.

Challenges

1. Higher upfront costs: Setting up off-grid mining operations requires significant investments in renewable energy infrastructure or power generation equipment.
2. Complexity: Off-grid mining requires expertise in renewable energy systems, power generation, and grid management.
3. Limited scalability: Off-grid mining may not be suitable for large-scale operations due to the limitations of renewable energy sources or power generation capacity.