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A Crypto Grid? The Opportunity for Crypto Miners in Australia

This article is part of our Digital Power Series focusing on the deep connection between power and the digital economy. Throughout the series, we explore the opportunities that data centres and crypto miners bring to the National Electricity Market (NEM), green financing available for crypto miners, important digital security considerations for energy asset holders, the ‘tokenisation’ of energy related projects and relevant ESG considerations when acquiring a digital assets business

The Crypto Market

The market value of the global digital asset ecosystem is approximately AUD$2.8 trillion with over 221 million users having engaged with cryptocurrencies or used a blockchain based application. A report by EY and Mawson predicts that digital asset adoption and deployment will increase 30 fold by 2030, adding approximately AU$68.4 billion to the Australian economy and creating new jobs.

Despite the growing market, crypto is often scrutinised for its excessive energy consumption. As a result, crypto mining companies focus on using renewable electricity. Recently, Sydney based crypto mining companies Mawson Infrastructure and Iris Energy both successfully listed on the Nasdaq, having raised over US$250 million much due to their strong ESG commitments. However, both companies operate predominantly in the United States with only Mawson active in Australia.

Government Awareness

The Australian government has recognised the opportunity to become a global leader in the digital assets space. In October 2021, the Select Senate Committee on Financial Technology and Regulatory Technology Final Report recommended a 10% tax discount for companies undertaking renewable powered digital asset ‘mining’ and related activities in Australia.

Although the recommendation was not pursued, it opened the door for the government to create a structured plan and incentives for new energy powered crypto mining. In the meantime, Data Centres, and hence Crypto Miners, enjoy preferential treatment in the NEM under national Energy Laws.

Whilst the move to crypto is increasingly clear, the question remains: can crypto miners actually add value to the energy transition in the NEM?

A Crypto Grid

Opportunities in the NEM

We have recently written about the electricity Duck Curve and have seen an increase in daytime negative pricing intervals across the NEM. The NEM is also plagued by grid connection difficulties for electricity generation assets resulting in:

  1. stranded renewable generation assets that are incapably exporting electricity to the grid; and
  2. declining investment certainty in the NEM.1

Crypto mining possesses the ability to utilise stranded capacity and provide a demand response mechanism for the notoriously volatile peak demand in the NEM.

Can crypto miners be a demand response mechanism?

In 2019 the Australian Energy Market Commission changed the rules around demand response, incentivising large electricity customers to participate in demand response mechanisms. Few industry participants can however change their electricity demand as quickly as crypto miners.

Data Centres often conduct computing processes that cannot be interrupted. Google has however started aligning flexible and non-time-sensitive computations with new energy generation but is limited by the speed at which sudden changes can be adapted to.

In contrast, crypto miners can shut off and turn on with comparatively little response time and negligible losses for stopping the mining process. This makes crypto mining a quicker, more flexible and more responsive alternative than data centres.

Demand Response Flexibility

Emphasising the following strengths of crypto mining compared to traditional demand response will ensure crypto mining can be sustained and viewed as a viable option in the NEM:

  • Ability to manage fluctuations - crypto miners can operate 24/7 and have the capacity to increase or decrease activity depending on whether excess power is available. This allows power system operators to fluctuate loads as required and leaves them less reliant on, say, industrial loads which only run during work hours. This leads to the next strength -
  • Consistent scalable loads - if grid operators can be convinced that crypto mining can create reliable, and highly predictable scalable loads, they will be able to use these assets to efficiently manage peak demand and, conversely, avoid oversupply which may cause the grid to collapse.
  • Flexibility - crypto mining typically utilises non-time-sensitive computations, partially due to the feasibility of mining for new coins. Without this time-dependence, crypto miners are able to operate more flexibly.

Utilising Energy Generation

Instead of storing electricity, crypto mining consumes it in large quantities to power their operating functions, deterring the possibility of excess energy causing grid frequency problems and simultaneously providing an alternative revenue stream for renewable energy generators.

The NEM has multiple partially or fully developed generation assets that haven’t been able to connect to the grid - unutilised generation capacity. The U.S has capitalised on bitcoin mining to utilise cheap, stranded energy and turning a profit on the way. Three projects ranging from Texas to Montana currently provide electricity to bitcoin mines for under $0.03/kWh, substantially less than the current median price for bitcoin mines in the US. Additional mines in the Pacific Northwest and Texas are being powered by cheap New Energy respectively. [2]

Capitalising on the unutilised generation capacity in the NEM will provide New Energy developers additional revenue to support and facilitate further developments, which may increase much needed investor confidence.  

Conclusion

While crypto mining’s primary function is not to expedite or enable the energy transition, its responsiveness and ability to use stranded capacity present an opportunity to support the NEM’s energy transition.

We will explore the abilities of crypto miners to provide value to Virtual Power Plants in our next article.


At Hamilton Locke, we advise across the data centre and crypto mining project life cycle as well as the energy project life cycle. Our team assists in project development, grid connection, green financing, renewable energy purchases and the construction of projects, including the selling and operating of projects.


Matt Baumgurtel leads the New Energy team at Hamilton Locke.

Adriaan van der Merwe is a senior associate in Hamilton Locke’s New Energy team.

Cedric Von Duering is a lawyer in Hamilton Locke’s New Energy team.

Megan Chau is a graduate in the Hamilton Locke New Energy team.

Rahul Tijoriwala is a paralegal in Hamilton Locke’s New Energy team and specialises in construction and infrastructure.


1See https://aemo.com.au/consultations/industry-forums-and-working-groups/list-of-industry-forums-and-working-groups/connections-reform-initiative