Much has been made of bitcoins energy demands, and you will find no shortage of ESG-funded hit pieces looking at bitcoin’s energy production from a myopic lens. A lot of the criticism of bitcoin’s energy use is that it simply uses energy and provides nothing for that energy costs, and it could have gone towards other industries.
These critics conveniently forget that bitcoin miners are competing with all market actors to source energy and pay the fair market rat from the energy producers. If other industries require the energy, they would bid bitcoin miners out of the market and encourage them to source cheaper energy sources.
But that’s not what’s going to get clicks and get retweets; it has to be a headline with a salacious twist on the energy use and the cost of the energy use. According to the Cambridge Center for Alternative Finance (CCAF), Bitcoin currently consumes around 110 Terawatt Hours per year — 0.55% of global electricity production, or roughly equivalent to the annual energy draw of small countries like Malaysia or Sweden.
Metrics like this fuel debate on the merits of bitcoins’ energy usage and demand, but very few debates are looking at how bitcoins’ demand for energy and reward system for energy increases the supply of energy and encourages more energy production.
You only have to look at how the trend of mini-grids and bitcoin miners pairing up is helping bring online energy that has never been exploited and has remained stranded for years.
What are mini-grids?
A mini-grid is a small-scale electricity generator and possibly energy storage system interconnected to a distribution network that supplies electricity to a small, localised group of customers and operates independently and often in isolation from the national transmission grid.
Mini-grids can range in size with a grid using one or multiple energy generation sources or having several interlinked operations ranging from a few kilowatts up to 10 megawatts. Depending on the energy generation capacity, some mini-grids are labelled as “micro-grids” or “nano-grids”.
Mini-grids can be owned by companies based in a particular region, or foreign developers and can be privately owned or managed or have some community or private sector involvement.
Who would use a mini-grid?
Depending on the location and energy source, mini-grids can serve a host of different customers, all with their own unique energy demands. These include private households, commercial businesses such as shops, ice makers and mobile phone chargers, agricultural loads such as irrigation pumping and cold storage, productive loads such as grind mills and wood or metal working shops, and semi-industrials such as telecom towers, processing plants or flower farms.
Mini-grids can be developed or operated by state utilities, private companies, communities, non-governmental organisations, or a mix of different players, such as public-private partnerships.
The generation and distribution of assets may be developed and managed by different players, both public and private.
How are mini-grids powered?
The mini-grids can run on hydrocarbons like diesel, flared gas or LNG (Liquified Natural Gas) or unreliable sources like (solar PV, hydro, wind, and biomass as renewable-diesel hybrids.
While most mini-grids are single-use systems focusing on exploiting certain trapped energy or underutilised sources, they are far more malleable and can be adapted with time and as the demand for energy increases.
Effective mini-grids are those that generate a significant portion of their power from a mixed energy source so that they can maintain production regardless of weather changes, which would impact renewables.
Why the need for mini-grids?
Green mini-grids offer advantages over connections to the main grid since you are no longer competing with the national demand for electricity and the market costs involved. You are also not tied to the reliability of the centralised energy producers, who often cannot supply the entire country with energy, a reality for all African countries.
Mini-grids allow for the decentralisation of energy production and enhanced reliability of supply, better quality power, better environmental performance, and lower cost in a remote location since there is a lower fixed cost and no energy transport loss in onboarding these areas via a mini-grid.
Mini-grids can help improve rural livelihoods, increase economic activities, create jobs, and add value to local products and services.
They improve quality of life at the household level and can support the growth of local businesses, including primary industries such as agriculture, fishing and timber, light manufacturing such as wood and metal workshops and commercial and retail businesses.
Mini-grids can also improve existing community services, including schools, small health centres, and religious buildings and make them a lot more self-sustaining.
In addition, mini-grids allow local communities to onboard areas close by and thus move their surplus to other areas or attract industry that requires energy but cannot source it from the national grid or from their current base of operations.
Examples of mini-grids.
Mini-grids are by no means a concept, and there are several projects rolled out across the continent of Africa. If you would like to find out more about one of these projects, follow what they are doing or get in contact with the companies pushing mini-grids, then projects by Gridless and INENSUS should be of interest to you.
Gridless hydro in Kenya.
Gridless designs, builds, and operates bitcoin mining sites alongside small-scale renewable energy producers in rural Africa where excess energy is not utilised or where energy sources require a buyer to bootstrap the energy production.
Gridless has contracted five project pilots in rural Kenya with HydroBox, an African hydroelectric energy company, three of which are currently operational. Gridless models on positioning small-scale hydro production in rural areas that are close to free-flowing water sources and turn that water source into energy, and then some of that energy gets pointed towards bitcoin mining.
The company recently received a round of investment from bitcoin VC Stillmark Ventures and plans to expand to other geographies in East Africa, such as Malawi, in the near future.
INENSUS is currently piloting its KeyMaker Model in Uganda.
INENSUS is currently piloting its KeyMaker Model in Uganda through its joint venture company Volt-Terra Farm and Energy Solutions Limited. The project aims to demonstrate the successful integration of electricity generation from a mini-grid sunning on solar and then integrating that energy into the local community, which can be used to assist the processing and development of local value chains like vanilla and bird’s eye chilli (BEC).
This pilot is located in Nsambya village, Kayunga district in Uganda and will benefit 174 households, local businesses, primary schools, church and mosque through the supply of underutilised energy that was otherwise unavailable to this community.
While managing supply and demand between solar production and the community needs INENSUS saw an opportunity to couple bitcoin mining as a demand regulator to the system since it only needed adding new ASIC machines and an internet connection.
After this successful proof of concept demonstration, the parties are now moving towards commercialising their development into the mini-grid market. Based on the pilot’s analysis and long-term bitcoin market data, revenues from bitcoin mining for mini-grid companies range from 0.08 to 0.25 USD/kWh of excess electricity fed into the miners over five years.
The limitations of mini-grids.
While mini-grids bring a viable alternative to large centralised grids, they are not without their issues and limitations.
- Utilities can be inefficient.
- When short-term political agendas drive projects, projects are vulnerable if conditions change.
- In markets with few regulations governing mini-grids, profit-driven utilities have little incentive to electrify poor communities.
- If utilities don’t engage communities and promote a sense of local ownership, projects can fail.
- Mini-grids generally aren’t a utility’s core business, so the project might not receive the attention it needs.
- The utility’s corporate structure might not work for smaller projects.
- The cost of meeting regulations can strain limited budgets.
- Mini-grids can be subject to vandalism or theft.
- If the local industry cannot generate an income, it cannot pay for the utilities, meaning mini-grids take longer to start to recoup costs.
- Mini-grids that are single energy focused are subject to volatility in energy supply.
The benefit of adding bitcoin to mini-grids.
Bitcoin doesn’t care how energy is produced as long as the energy is available and cheap; it can be switched on, switched off and scaled up or down depending on the capacity of the grid and competing demand, making it a great control system to pair with the bootstrapping of energy production.
Bitcoin miners also reward you with a form of currency that is uncensorable and can be sold on international markets for a premium, while payments for energy from consumers can be made cheaply via the Lightning Network, and programmatic billing makes it far more efficient.
Pairing bitcoin mining with mini-grids has several benefits, namely:
Demand response.
Balancing energy demand and supply isn’t an easy operation, and the tango between the two requires active management. Mini-grids, particularly those built on unreliable energy sources like solar and wind, require more active management since certain sunny days and windy days could generate a vast amount of supply that your current demand doesn’t need.
When energy is generated, only a portion of it can be stored in batteries, so anything that cannot be used immediately or stored is therefore lost, but with bitcoin, you can point that excess energy to miners who will be all too happy to gobble up that energy and pay you for it.
When periods of oversupply fade, the miners can be switched off so that paying customers in the local community can still have access to energy at all times.
Maximising ROI and utility.
As mentioned, the energy that isn’t used or stored is lost, and as energy is created by the mini-grid and redistributed to its various customers, there will always be a supply that isn’t used, and that is a supply of energy that can be pointed at bitcoin miners until another buyer comes along to take it off the grids hands.
Bitcoin miners provide a buyer of last resort who will always be willing to come in and purchase cheap and unused energy.
Income to expand mini-grid expansion.
As the mini-grid generates an income by providing energy to a local community that pays for the energy along with the income from bitcoin mining, those funds can be used to reinvest in the expansion of that grid. This could be in the form of more solar panels, wind turbines, battery capacity or upgrading inverter capacity.
Income to expand distribution.
The income could be used to expand capacity, such as adding more solar capacity, more battery capacity, and more bitcoin miners and then expand the connections to more community members or even extend to neighbouring communities and towns.
The larger capacity can also make it viable for other industry production to migrate towards the mini-grid and become a customer of the energy the mini-grid can supply.
Augmenting mini-grid mix.
While mini-grids can double down and expand capacity by tapping into more solar, wind energy or hydro energy, they could also use funds to hedge against the volatility of supply, such as reduced capacity when days are not windy or sunny or in times of drought when the water supply isn’t flowing as aggressively and consistently.
Instead, capital could be used to augment the mini-grid by adding diesel generators or LNG terminals that can be used to store energy for on-demand purposes. If customers require a certain amount of energy, the LNG or diesel can be turned on to smooth out demand and ensure the mini-grid remains reliable, and customers can continue to consume energy and produce economic value.
Do your own research.
If you want to learn more about mini-grids using bitcoin, use this article as a jumping-off point and don’t trust what we say as the final say. Take the time to research other sources, and you can start by checking out the resources below.
- gridlesscompute.com
- Green Bitcoin Mining: A game changer for mini-grids in Africa?
- Introduction to mini-grids
- Bitcoin Energy Consumption Index
Are you investing in the bitcoin ecosystem?
Do you invest in bitcoin mining? Are you considering bitcoin mining? Have you been mining for some time? Let us know in the comments down below.
