Power grids are so ubiquitous and reliable in developed economies that few people stop to think about the small miracle of plugging an appliance into the wall plug and having instant access to electricity. Yet behind that wall plug sits a highly complex system of infrastructure - literally all the wires that ultimately connect the appliance to the generating power stations that supply the electrons.

All that infrastructure must be maintained, administered and operated by someone. As a result, modern power grids are very highly regulated, bureaucratic, complex multi-organizational systems, with literally thousands of pages of regulatory requirements spelling out the technical, financial and operational rules of each specific grid.

Often those rules explicitly or implicitly favor centralized generation over intermittent distributed energy resources at the grid edge. For a potential generator in a given location, the only way to monetize electricity at scale is to sell it into the local grid, making grids geographical monopolies operating captive markets. Don’t like the grid rules or power prices here? Tough luck.

While various attempts have been made to deregulate and break up grids, they naturally continue to operate as powerful regional monopolies that decide who can access energy markets and how those markets operate. For a generator, the grid is the only route to market for electricity and wields almost absolute power over the terms and economics of the deal. This is hardly an attractive industry for would-be generators and not an environment that fosters innovation. Fully captive to grids and without any other potential buyers for their electricity, companies building renewable projects have had to become experts in regulatory arbitrage and lobbying, and projects are not built on the basis of resource quality, but rather where grid capacity and favourable regulations overlap.

But what if there existed a new potential buyer for electricity, entirely independent from the grid?

Bitcoin is a market for electricity

Much discussion about Bitcoin and energy misses the point entirely and focuses on the amount of energy Bitcoin mining consumes. Yet we don’t think of incumbent markets as ‘consumers’ of the goods being traded in exchange for money. 

With bitcoin increasingly functioning as a highly liquid, global monetary good (now among the top 10 global currencies by most measures), it is more apt to think of Bitcoin mining as a new global market for electricity which is very different to the grid-based markets we are accustomed to.

How does this market work?

Generators can choose to ‘connect’ to the Bitcoin power market by using their electricity to operate ASIC mining rigs which in aggregate secure the global and decentralized Bitcoin network. In return, the network pays them for their work in bitcoins (the currency), which generators can choose to hold or convert instantly into any other currency of their choosing. Approximately every two weeks the market recalibrates its economics such that only efficient, competitive miners stay in the black. The rules of the Bitcoin power market are few, simple and transparent. Crucially, the market is 100% open access to all who wish to participate. This market is uniquely location-agnostic; generators can be situated anywhere, with compact, modular mining rigs and a satellite internet connection being the only requirements for market participation. Furthermore, the Bitcoin power market does not require any generation forecasts or forward commitments, nor does it impose any caps, operational constraints or restrictions on generators. Generators are free to join or leave the market at any time with as much capacity as they wish.

Every generator in the world suddenly has a choice. No longer are they captive to their grid. Instead, they can decide whether they should sell their electricity on the Bitcoin power market.

They enjoy newfound (and invaluable) optionality mitigating market access and price risks. It is important to note that global accessibility to the Bitcoin power market results in extreme competition and rewards innovation - margins are thin, and prices paid by the Bitcoin power market can be lower than those offered by grids where competition is restricted by geography and regulations. Renewables, already the lowest cost option in many locations, should thrive and the competitive pressure should drive costs further down in renewable supply chains.  In one fell swoop, the mere existence of the Bitcoin power market introduces universal competition to every grid, while empowering generators with optionality and an implied floor price for all of their current and future capacity.

Let this sink in: Every renewable resource in the world, regardless of location, quality of resource, jurisdiction, political obstacles, grid regulations and grid capacity (or even the presence of a grid) now has a willing buyer for its power. Connecting to a grid is now optional, no longer a necessity for a project to proceed. The global Bitcoin power market welcomes all who wish to participate.

The implications of this ‘zero to one’ shift should not be understated.

First, renewable projects are no longer dependent on a single regulated monopoly for access to their revenues. This allows projects without cost-effective, technically feasible or timely grid connections to proceed, removing the grid as a bottleneck in renewable deployment. Every shovel-ready project waiting for a grid connection can be built immediately by opting to join the Bitcoin power market. Years-long grid interconnection queues can be bypassed. Even projects granted a grid connection can de-risk their reliance on a single revenue stream, or build out larger capacities based on resource availability rather than grid capacity, making better use of our renewable resources. At long last, scalable technologies like solar PV can achieve their true potential for growth unhindered.

Second, we can develop the most productive renewable resources in the world, which are usually left idle due to not being located near population centers with ample grid capacity (even if grid capacity exists in remote locations, transmission losses to distant cities are usually too high). The windiest islands, sunniest deserts and remotest communities can finally make use of their high-quality natural energy resources. Renewable development will be vastly simplified: does the project pencil on the Bitcoin power market? If so, build it now. Once built, generators can decide whether to also connect to the grid, or to put that power to use in other ways (e.g., powering local economic development). Combined with energy storage, microgrids can finally be developed at scale, using the Bitcoin power network as a backbone to de-risk the localized economics of projects. Once this is well understood by energy companies, it is hard to fathom how many gigawatts of new renewables and energy storage will be unlocked in the coming decades. Renewable supply chains will scale, accelerating learning curves and further driving down costs, which make more projects feasible in a virtuous loop.

Lastly, for the hundreds of gigawatts of existing and future renewables connected to the grid, the Bitcoin power market represents a unique opportunity for optionality, arbitrage and revenue optimization. Grid-tied renewables with co-located energy storage and bitcoin mining will enjoy newfound degrees of operational and economic freedom, ultimately lowering risk and increasing profitability. Existing renewable sites can be expanded beyond their maximum grid capacity (often at low cost due to existing infrastructure) with the new excess power selling in the Bitcoin power market. Curtailment will be a historical oddity since there will always be a willing buyer for any power that isn’t needed on the grid - utilities will even build grid-scale bitcoin mining loads to help stabilize their grids and generate revenue from wasted energy. Furthermore, since this new power market imposes no requirements on generators to make forward commitments, any grid-tied mining equipment becomes an invaluable (and profitable) flexible load that can be shut down immediately when the grid demands more power. Grids will welcome Bitcoin mining loads as valuable baseload consumers who can also provide instant flexibility, improving resiliency and preventing disasters like the recent Texas blackouts.

As a 15-year veteran of the clean energy industry, the confluence of Bitcoin and energy floods me with optimism.

Bitcoin mining introduces a new market for electricity that decouples energy generation from grid constraints and regulations, unlocking the true potential of renewables globally and giving us a viable pathway to scaling carbon-free generation to achieve meaningful decarbonization.

In the coming decades the Bitcoin power market will unlock and incentivize an explosion in renewable capacity, operating with more commercial certainty, increased operational flexibility and less risk. Scaling renewable supply chains will drive costs further downwards. Yes, entrepreneurs and engineers will be needed to solve technical and business challenges to realise the full potential of the opportunity (the low capacity factor of renewables is often referenced as a key barrier, but this heuristic for project feasibility is today largely irrelevant when you factor in energy storage, revenue stacking and intelligent sizing and optimization).

Bitcoin, with its omnipresent and open access market for electricity, misunderstood as a climate threat, is, in reality, a massive inflection point in our ability to deploy renewable energy and mitigate climate change.