Bitcoin Mining to Reduce the Renewable Curtailment: A Case Study of CAISO

Abstract

High energy intensity is an enduring problem for the cryptocurrencies, especially for those based on Proof-of-Work like Bitcoin. Energy demand not only comprises the largest share of the operation cost of Bitcoin mining, but also poses a considerable hindrance to the climate agenda. The present paper explores how renewable energy generation can be availed to address these challenges. The need to curtail excess production of renewable energy to maintain the balance between supply and demand and thereby avoid negative electricity prices opens possibilities for deploying renewables to meet bitcoin energy demand. Situating the Bitcoin mining machines at the generation side of solar and wind is an attractive solution to mitigate both the curtailment problem and the energy intensity problem. Here we present a case study on the California Independent System Operator (CAISO), analyzing the profitability of such a solution. Using 2018 historical data, our simulation reveals that the CAISO system will earn 5.6~48.1 million dollars net profit by selling Bitcoin without holding it. These mining machines will also absorb 50.8%~79.9% of the curtailed energy. The probability making a profit in terms of volatile bitcoin price and mining difficulty is positively correlated with the capacity factor of the mining machines. However, there is a tradeoff between the curtailment usage rate and the capacity factor of the machines. To consume more curtailed energy, the system will need to deploy more mining machines and become more sensitive to the volatility of the bitcoin price and hash rate.