Bitcoin vs the Grid
There is no shortage of opinions about the future of the grid. While there are many ways in which the grid might evolve, one rule will never change:
Electricity supply must match electricity demand, in real-time, always.
If it doesn’t, grid infrastructure fails and we get blackouts.
Call it the grid’s golden rule. Frame it🖼️. Put it above your bed🛏️. Kiss it before you go to sleep😘.
To maintain compliance with the golden rule, grid operators rely on “dispatchable” assets. Dispatchable, in this context, means being able to ramp up or down on command.
Because no one wants to be told when they can and can’t consume electricity, we’ve always relied on the supply side of the grid to be dispatchable. Imagine what it’s like to quickly increase the heat of a gas stove and you’ve got an oversimplified understanding of “dispatching” electricity from a fossil-fueled power plant.
Unlike traditional sources of electricity generation, solar and wind aren’t dispatchable. It doesn’t matter how good your dance💃 is, you can’t tell the sun to shine or the wind to blow on command.
Recognizing this conundrum, and to increase flexibility for grid operators, renewable energy advocates have started pushing more heavily for demand response programs.
Demand response is exactly what it sounds like. To balance supply/demand, the grid doesn’t care if you produce more electricity or demand less electricity. So instead of controlling supply and ramping up electricity production, why not control demand and ramp down electricity consumption?
Demand response is just one aspect of a broader movement to help grid operators handle the increasing penetration of non-dispatchable solar and wind generation. At the center of this broader movement lies distributed energy resources (DERs) and virtual power plants (VPPs).
DERs include assets like battery storage, rooftop solar, and, you guessed it, demand response. When you hear renewable energy folks talk about the future of the grid, a shift from centralized power plants to distributed energy resources is almost always a core component of their vision.
VPPs, on the other hand, are simply aggregated DERs. This aggregation allows one operator to intelligently control many distributed assets with remote software in order to provide the service the grid needs at that particular moment in time - reduce demand, shift demand to a different time, consume more power, export power back into the grid, etc. So, as the argument goes, a VPP would provide the same service as a traditional dispatchable power plant.
There’s just one problem - it’s been almost impossible for DERs to make money. DERs have had very limited access to wholesale electricity markets, but that’s changing.
In 2020, the Federal Energy Regulatory Commission (FERC) issued Order 2222 to open up wholesale electricity markets to DERs (emphasis added):
FERC Order No. 2222 will help usher in the electric grid of the future and promote competition in electric markets by removing the barriers preventing distributed energy resources (DERs) from competing on a level playing field in the organized capacity, energy and ancillary services markets run by regional grid operators.
This rule enables DERs to participate alongside traditional resources in the regional organized wholesale markets through aggregations, opening U.S. organized wholesale markets to new sources of energy and grid services.
While regional grid operators are still dealing with the nuances of how to actually implement Order 2222, it was a landmark directive. Without this order, DERs are left without a market. Without a market, there is no money to be made. Without money to be made, there is very limited innovation.
Seems like progress, right? DERs are critical to the future of the grid and now they’ll finally be able to make some cash for the services they can provide. Yayy.
Of all the DERs out there, demand response is particularly easy to implement because it doesn’t involve building and connecting more physical assets to the grid. It’s the low-hanging fruit. Electricity consumers get compensated for reducing demand on command and their willingness to do so gives grid operators a desperately dispatchable resource.
Any major electricity consumer that opts into demand response would be cheered and welcomed by environmentalists… right???
Just ask Bitcoiners.
A few weeks ago, the Texas Senate passed SB 1751 to limit Bitcoin miners’ ability to participate in demand response programs. Let’s pause to digest how comical this situation is:
Environmentalists advocate for the expansion of demand response programs.
Bitcoin miners participate in demand response programs.
Environmentalists propose legislation to prevent Bitcoin miners from participating in demand response programs.
While we’re skeptical that the Bill will pass the Texas House of Representatives, it shows that Bitcoin is not winning the hearts and minds of environmentalists. But why not?
For those that don’t know, it takes an enormous amount of power to run the “mining facilities” at the heart of crypto transactions. Vocal supporters of the Bill will tell you that they’re worried about the carbon emissions associated with such heavy processing power.
The response from Bitcoin advocates has been disappointing (emphasis added):
Datacenters engaged in the industrial-scale mining of digital assets do not emit CO2 or any other pollutants, like other industrial facilities do; they are merely server farms engaged in computation.
The best way to combat bad thinking isn’t with misleading statements. Of course crypto mining causes carbon emissions. Anything that connects to the grid causes carbon emissions 🤦🏻♂️.
Bitcoiners shouldn’t be trying to tout the low emissions of Bitcoin mining to win over environmentalists. You can’t reason with crazy. It’s impossible to win an argument about carbon emissions when the environmental pushback stems from anti-consumption roots. The driving force that led to the Bill is the environmentalist belief that energy consumption, in and of itself, is bad. You can’t kill a weed unless you pull it out from its roots.
Besides, there’s a bigger story being missed here. By allowing the lunacy of the green movement to distract them, Bitcoiners are missing the fact that the government is using “environmental impact” to justify policies against a technology it doesn’t like. This is all part of regulators’ crypto crackdown (see crypto’s recent ejection from the banking system) and environmentalists are just useful idiots.
Just look at Biden’s proposed Digital Asset Mining Energy (DAME) excess tax, which would impose a 30% tax on the electricity used to mine cryptocurrency like Bitcoin. What other electricity consumers are subject to a tax like this?
Not sure about you, but it makes us prettyy uncomfortable when the government takes an authoritarian position on the “proper” uses of electricity. This isn’t a debate about the environmental impacts of Bitcoin, this is a debate about whether the government should decide how people and businesses use electricity.
To close, we think it’s important to say that we’re what the crypto world refers to as no-coiners - i.e., we don’t own any cryptocurrency. We’re throwing our hat into the ring not because we have a financial stake in seeing Bitcoin go to the moon, but because a) the demonization of Bitcoin mining by environmentalists is ridiculous and b) the rationale used by federal officials to support a crypto electricity tax is disingenuous. Both need to be called out as such.
Useful idiots don’t hit the “♡ Like” button 😉