Cryptocurrency mining is inherently energy-intensive. Miners compete to solve complex computational puzzles, and the more computing power they have, the better their chances of earning rewards in the form of new crypto tokens. But all that number-crunching requires an enormous amount of electricity.
To cut costs, large crypto mining firms set up data centers in areas with stranded power, leading to some of the cheapest rates in the world. For example, miners in West Texas can pay less than 3 cents per kilowatt-hour, far less than in energy-rich countries like the UAE, Saudi Arabia, and Qatar.
Before setting up shop, cryptocurrency miners typically arrange Power Purchase Agreements (PPAs) with energy providers to lock in long-term agreements (usually 10-25 years) to receive power at a fixed price. These PPAs allow energy providers to earn revenue from power that would otherwise go unused, while cryptocurrency miners can reduce risk by locking in long-term costs. It's a win-win situation.
To keep politicians and local communities happy, cryptocurrency mining companies often have demand-response agreements in place. These agreements require miners to power down their energy-guzzling rigs when the power grid is straining under peak demand. In exchange, miners get reimbursed for the profits they lose by turning off their machines, which can result in significant earnings. For example, last August, when a scorching heat wave hit Texas, cryptocurrency mining firm Riot Platforms earned a staggering $31.7 million by slashing their power usage for a few days.
For power companies, this flexibility is a godsend. Instead of dealing with blackouts or firing up expensive, inefficient "peaker" plants during times of high usage, they can call upon their mining partners to temporarily cut consumption. This arrangement has worked beautifully over the past few years. As crypto prices have skyrocketed, miners have returned handsome profits to their investors.
However, a recent change has required miners to pivot their strategy. Last month, the Bitcoin network underwent a significant event called the “halving.” Every four years, Bitcoin experiences this programmatic change. There's a fixed number of 21 million Bitcoin that will ever be produced, and currently, about 19.7 million of those have already been mined.
Prior to the halving, about 947 Bitcoins were produced each day. However, beginning in late April, that number was halved to just 473 Bitcoins per day. Consequently, Bitcoin miners, who help process transactions, now earn just half of what they previously did, prompting them to seek new avenues for profitability.
If you are a mining company and need help with your energy needs, we can help.