Bitcoin Miner Is Scoring 700% Profits Selling Energy to Grid

(Bloomberg) -- On a sweltering summer afternoon in West Texas, a cryptocurrency miner backed by billionaire Peter Thiel powered down its data-processing centers for about 30 minutes. During that short window, the company made money not from Bitcoin, but from selling electricity.

On hot days without wind, the company, Layer1, can sell its contracted power supplies back into the grid for a profit. Recently, when power prices in Texas topped $200 a megawatt-hour, Layer1 reaped returns of more than 700%, according to its founder and chief executive officer, Alexander Liegl. At night, as power prices drop to zero or lower due to the oversupply of wind energy, it can throttle up operations as much as the circuit boards can handle.

When that happens, “we’re getting paid to produce Bitcoins,” Liegl said.

The strategy is part of a trend that's revolutionizing how big electricity users interact with the grid. Instead of just passively consuming, tech giants and others are adjusting their operations hour by hour to access the cheapest, and in some cases cleanest, power. The move isn’t just profitable — it’s key to using more renewable energy. Currently, grids rely on natural gas and other fossil fuels to ramp up when demand peaks. When big users adjust consumption, wind and solar can handle more of the load.

"Flexible loads and devices are the key to getting beyond 50% renewables,” said Brian Janous, general manager of energy and sustainability at Microsoft, which is working to ramp data centers up and down depending how much wind and solar are on the grid at a given moment. “It’s a necessity. To get to 70%, 80% or 100% penetration you need to orchestrate everything attached to the grid.”

Barriers remain. They include utility monopolies that restrict how consumers get their energy in order to protect their own revenues. And in the states that have opened utilities to competition—mostly the Northeast, California and Texas—the customer usage and grid data that could help develop new markets is tightly regulated.

But batteries, smart meters and artificial intelligence software that help companies respond to market price signals in real time are all helping to accelerate the trend toward renewables. Self-contained microgrids—once a costly way to keep the lights on during blackouts for college campuses and hospitals—can now make money by supplying utility grids with power when they need it most.

Regulators have taken notice and are cautiously changing the way they value these services to the grid.

Google, which buys power directly from wind and solar farms near its operations, is now looking at ways it can time its usage to absorb excess supplies and release energy when output stalls, said Michael Terrell, head of energy market strategy at Google.

“Demand is a very important part of the equation,” Terrell said. “We’ve moved tasks to different times of day. Our plan is to shift loads between locations and times. We’re now adapting machines to be ready for that. We’re still in the early stages.”
 

Bitcoin mining isn’t a naturally green endeavor. It requires vast amounts of electricity, often from fossil fuels. 

Layer1 has mitigated that, to some extent, by setting up shop on a power grid that has more wind energy than anywhere else in the U.S. The company is essentially able to act as a power plant – ramping up and down according to the grid’s needs. That means energy-intensive businesses like it could theoretically eliminate the need for back-up gas generation in some areas. Placing data centers near wind farms would further enable them to supplement, or take advantage of, that energy source.

Layer1 in August became one of the first companies to be qualified as what the Electric Reliability Council of Texas calls a “controllable load resource,” meaning they are paid to cut their use when needed.

Texas hasn’t had wild price spikes this year like it did last summer. But under one grid program, Layer1's flexibility is still saving it money. The company, which has a long-term contract in place to buy power, estimates it will save as much as $6.7 million on its annual power bill by cutting production for a half-hour during each of the hottest days in June, July, August and September, Liegl said.

By this spring, he expects to install 50 cryptocurrency mining containers on his 30-acre campus west of Midland, Texas, that will consume as much as 100 megawatts of electricity. At that rate, he says they can produce about 27 Bitcoins a day, worth about $310,000 at recent prices. When he’s not making money off that, at least there’s an electricity market to trade.

“The more capacity, the bigger the size, the more money,” Liegl said. 

©2020 Bloomberg L.P.