Lancium raised $150 million for a renewable Bitcoin mine in Texas

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This picture shows the Amazon wind farm in Texas.


HOUSTON – Lancium, a Houston-based technology company, announced on Tuesday that it has raised $150 million to build a Bitcoin mine in Texas, which will use renewable energy.

In the coming year, the company plans to launch more than 2,000 megawatts of capacity at multiple sites, which Lancium calls “clean parks.” In this context, downtown Dallas uses 200 megawatts of electricity.

Lancium said that this round of financing was led by clean energy company Hanwha Solutions and other power companies.

Lancium CEO Michael McNamara said: “I think the fact that all energy companies are investing shows that we have a common vision for the role that Bitcoin mining should play in the grid.”

Bitcoin mining has two purposes: creating new coins and maintaining a log of all transactions of existing digital tokens. To this end, miners around the world have contributed their computing power to verify all Bitcoin transactions.

Recording these exchanges requires a lot of energy, but these energy buyers also provide what Texas desperately needs: flexible customers, willing to buy when supplies are sufficient, and close when supplies are insufficient. This flexibility is a huge help when stabilizing the power grid, which is rapidly being connected to inherently unstable power sources such as wind and solar power.

When the weather is particularly windy or sunny, the grid is fully charged and not always full of enough recipients. However, when it is cloudy and there is no breeze, sometimes demand exceeds supply. In either case, it will tilt the supply-demand curve to extreme prices, which is not good for the entire grid. Bitcoin mining helps balance these price fluctuations.

Texas also offers a lot of things for miners.

The state has some of the cheapest energy on earth-this is the main incentive for miners competing in low-margin industries, whose only variable cost is usually energy. The state is also home to crypto-advanced and business-friendly politicians, not to mention large tracts of land.

“Bitcoin was born for the power grid,” said Brandon Arvanaghi, a Bitcoin mining engineer who now runs Meow, a company that enables corporate finance departments to participate in the crypto market.

“This is a match made in heaven,” Arvanaghi continued.

Improve the economics of renewable energy

West Texas is the mecca of renewable energy in the United States.

“In Western Texas, you can perfectly overlap with solar mass and wind speed,” explains Sean Cornell, executive vice president of Lancium Power.

Large areas of West Texas are located along the “American Wind Belt,” which includes the highest wind speeds in the country. The state also has the cheapest utility-scale solar energy in the country, at 2.8 cents per kilowatt-hour.

The share of wind and solar energy in the Texas grid is also rapidly expanding, from 9% in 2011 to 26% of the grid, and Cornell expects this growth rate to accelerate in the next few years.

“In this year alone, we have added 14 gigawatts of solar and wind energy,” Cornell said. “It took only 20 years to produce 35 gigawatts of wind and solar…we will double that in the next five years, and this is happening in West Texas.”

In theory, it is a good thing to connect all of these renewable energy sources to the grid for power generation, because it is replacing less environmentally friendly energy sources such as coal and natural gas.

Solar panels can be seen in this drone photo of the Impact Solar Facility in Deport, Texas on July 15, 2021.

Drone base | Reuters

But it also brings some logistical complications.

“The grid of the future is a problem,” McNamara told CNBC. The head of Lancium stated that there is a geographic mismatch between the areas with the most wind and solar energy and the areas where customers live.

“You can’t build a 1,000-megawatt solar power plant in New York City, Tokyo or Frankfurt,” McNamara said.

Another problem is to ensure that renewable energy can meet the minimum demand level of the grid. In the industry, this is called base load, which is lacking in many renewable energy sources.

“Solar and wind energy cannot be used as base load power generation,” explained Nic Carter, founding partner of Castle Island Ventures.

“Solar energy works 10 hours a day, and there is wind-maybe wind or no wind. In fact, this means you have to prepare for all renewable energy to go offline at any time,” Carter continued.

According to Carter, there are several different options to support zero output. You can use energy sources such as natural gas to make up for the shortfall, but this involves starting or shutting down the turbine in a short period of time to make up for fluctuations in renewable energy.

A new option recently implemented by Lancium’s patented technology is to turn Bitcoin mining into a demand dial that can be gradually turned up or down in just five seconds.

Bitcoin was born for the power grid. This is a match made in heaven.

Brandon Awanagi

Bitcoin mining engineer

Carter explained: “You can adjust demand instead of adjusting supply variables to match supply and demand.”

The company is building mines with abundant wind and solar resources and limited transmission systems, which means that electricity wants to flow along the line, but the line is full.

These clean parks, as the company claims, will also host high-throughput computing and other energy-intensive applications to help solve congestion problems.

As described by McNamara, the Lancium site is like a large power station, but in reverse. When supply exceeds demand, the mine will absorb abundant renewable energy, thereby monetizing these assets when there are no other buyers. On the other hand, as the demand for the power grid increases, mines will gradually reduce their energy intake.

“When resources are scarce, our data centers will go down, and these lines can deliver renewable energy to Houston, Dallas and Austin, where they need energy,” McNamara said.

Adding Bitcoin miners to energy buyers’ portfolios can help improve the core economy of volatile renewable energy production. Cornell told CNBC that by 2020, West Texas will experience negative energy prices 10% to 20% of the time, which happens when supply exceeds demand.

Carter told CNBC that providing demand for these semi-stranded assets also makes Texas’ renewable energy economically viable, while in other cases they may not be viable.

The constraints are that West Texas has approximately 34 GW of electricity, 5 GW of demand and only 12 GW of transmission.

You can almost treat Bitcoin miners as temporary buyers and keep these energy assets in operation until once a new transmission channel is established to release these stranded power sources, the grid can fully absorb them.

McNamara said that the net effect of this is to eliminate coal and natural gas faster, while rapidly increasing wind and solar energy, fundamentally making Bitcoin mining “a fundamentally decarbonized technology.”

Chad Harris, who runs the largest bitcoin mine in the United States, described this dynamic in an appropriate way. On Monday night, he told a group of Bitcoin miners and oil and gas executives in Houston that Bitcoin miners are “the most efficient battery on the market.”

What are the benefits for miners

Lancium did not selflessly choose to stabilise the power grid by sometimes shutting down some or all of its Bitcoin mining machines to release electricity for those in need.

Instead, its arrangement with the non-profit organization that operates the Texas power grid includes many financial allowances. The Electric Reliability Council of Texas (ERCOT) has a relatively simple and mutually beneficial relationship with Bitcoin miners, in which ERCOT pays the miners’ fees to power them off.

Arvanaghi said: “Imagine how much you have to pay to get Amazon to say,’Hey, the electricity demand is too great. Please shut down your data center.'”

“But it can easily do this with Bitcoin, because all you have to do is pay the miners a little higher than what they paid for mining Bitcoin in that hour,” Arvanaghi continued.

Even Bitcoin miners who have not yet reached an agreement with ERCOT sometimes voluntarily cut off power during peak consumption periods when prices soar. According to Lancium’s data, by 2021, if miners voluntarily reduce their expected uptime from 100% to 95%, they will lower the price per MWh from US$178 to US$25.

Facts have proved that this strategic time limit is particularly important for the Texas power grid that exists as its own island.

Unlike the rest of the continental United States that is part of the Eastern or Western Interconnect (the name of the two interconnected grids connecting the states), 90% of Texas runs on ERCOT, an unregulated independent energy supply Business network, unrestricted any other power grids in the United States

Although this highly competitive market usually depresses electricity prices because suppliers use cost competition to attract customers, it also means that there are fewer safety nets in the power grid. This can be problematic in the face of catastrophic events, such as power shortages or natural disasters, such as the deadly winter storm that destroyed most of the state in early 2021.

Adding “controllable load resources” like Bitcoin miners to the grid serves as a kind of life insurance policy. It’s almost like a hedge against disaster.

Another unique feature of the Lancium and ERCOT arrangement is that they can accurately adapt to the specifications of electricity deficits or surpluses, thanks to its “SmartResponse” software, which allows its Bitcoin mining farms and data centers to adjust server power consumption as needed. Measure the grid.

This allows Lancium to shut down the power of individual miners in order to switch to the exact specifications of the grid.

And this has nothing to do with the back of Bitcoin miners such as Lancium. Bitcoin has no uptime requirements, nor does it wear gears due to periodic power outages. This is almost a victory, a victory.

“This is the beauty of Bitcoin-it is something other industries cannot really do,” Arvanaghi told CNBC. “It’s very synergistic.”

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