coindesk.com
Bitcoin mining firm Sangha Renewables aims to help renewable energy companies start their own bitcoin mines.
Green power producers often struggle with stranded energy and are even sometimes forced to pay the market to take excess electricity.
Sangha is closing a 19.9 MW deal to open its first facility in West Texas; the operation is projected to generate 900 bitcoin over the next 10 years.
What if renewable energy companies mined bitcoin?
That’s essentially the question that Spencer Marr, the charismatic 37-year-old president of bitcoin (BTC) mining firm Sangha Renewables, asked himself at the tail end of the 2017 crypto bull market, in what he describes as a eureka moment.
Today, his idea is one step closer to becoming reality, with his firm set to sign a 19.9 megawatt (MW) deal — enough power to energize about 4,000 homes — with a major renewable energy company in West Texas. And he does not plan to stop there. “We’re talking about gigantic companies," Marr told CoinDesk during a series of interviews. “We’re now getting third, fourth, fifth meetings with them.”
The pitch? Help the company turn otherwise wasted electrons into valuable digital currency. The hope? For every independent power producer to eventually adopt a similar business model. It’s no easy task. Giant energy companies are extremely conservative by nature, and slow to adopt new technologies.
“Bitcoin is still this exotic thing they don't understand. ‘And what if it goes to zero?’ But that’s changing with the ETF,” Marr said, referencing the spot bitcoin exchange-traded funds that launched in the U.S. in January with support from major Wall Street firms. “Now they see that BlackRock is involved, and it changes their perception.”
Not only could bitcoin mining upend how the power business works, but the adoption of the technology, at scale, could eventually create a new way of tracking energy prices, according to Marr. “Just as Brent provides a global index for the price of crude oil, I think bitcoin mining will, over time, create a global index for the price of electricity,” said Marr, who has a background in law and helped New York City increase its renewable energy systems.
To spur interest, Sangha has moved away — at least for now — from trying to convince energy producers to run bitcoin mines themselves. Instead, the negotiations are now about giving Sangha exclusive rights to serve as an intermediary; Sangha will develop the site and resell electricity to a miner, without the energy company needing to put up any cash.
“In a lot of conversations, they'll be like, ‘Wait, so what's the catch?'” Marr said. "We tell them there's no catch. This is real."
Turning wasted energy into crypto profits
One of the constraints large renewable energy companies often face is trapped energy — they produce electricity that nobody can consume.
A wind farm, for example, may generate a lot of electricity on a windy night — right when everyone is asleep and consumption is lowest. Unlike other commodities, electricity is instantaneous; for the most part, it must still be consumed in the moment, since, even though the cost to store that power in batteries has come down, it's still too expensive to be used at scale by the industry. In many cases, the renewable firms are forced to pay the market to take their energy from them, meaning that the excess electricity turns out to be a net negative for these companies.
Transmitting electricity from one place to another is also tricky. Not only is energy lost in the process, but most of the U.S. electrical grid is over 50 years old, and revamping it is a costly task that involves numerous stakeholders with competing interests.
“The grid was designed for stable energy generation in proximity to where it would be consumed,” Mike Cohen, CEO of Pow.re, a bitcoin mining company that makes infrastructure investments in renewable energy grids, told CoinDesk. “Wind and solar are geographically dependent on areas where production conditions are right.”
This is where bitcoin mining, Marr realized, can provide a profitable solution. If a solar plant, or a wind farm, has the ability to convert, nearly instantly, its excess electricity into bitcoin instead of selling it at a loss, renewable energy companies could significantly boost their revenue. That, in turn, would make the financing of new green energy projects more palatable, and reduce the industry’s need for government subsidies.
Contrary to other types of data centers, like artificial intelligence clusters, which need almost 100% uptime, bitcoin mines can be turned on and off with a flick of a switch when the cost of electricity gets too high for the operation to remain profitable.
Spun up in July 2020, the West Texas solar plant — operated by “one of the top five energy companies globally,” Marr told CoinDesk without disclosing the firm’s name — has been forced to sell 10.1% of its total energy generation at a loss, according to a Sangha pitch deck. But the bitcoin mine, once it goes live in spring of 2025, is designed to create a price floor by absorbing that excess energy and boost the site’s revenue by 3.7%.
With bitcoin mining's use of energy being a hot topic for debate, the deal would be sort of a vindication for the industry, potentially providing a proof-of-concept that mining can be a legitimate tool for the development of renewable energy in the U.S.
The folks at Sangha aren’t the only ones working on this either. There’s Satoshi Energy, for example, a firm that develops mining sites for energy companies and then partners the companies up with experienced bitcoin miners, which then run the operations.
“We’ve had conversations with [the Sangha team] in the past and appreciate their contributions to the growth of the Bitcoin ecosystem,” Andrew Myers, the firm’s founder, told CoinDesk. “Welcome to West Texas!”
Pushing renewable energy companies to operate their own bitcoin mines is “not a totally new idea, but basing an entire business on it in the U.S. is likely innovative,” Taras Kulyk, the CEO of Synteq Digital, a firm that provides hardware and infrastructure needs for bitcoin miners, told CoinDesk. “Bhutan, Australia, and Ethiopia are all jurisdictions where this [kind of effort] is active that we're aware of and have helped on.”
'Welcome to West Texas!'
Marr is acutely aware that the West Texas facility is just a pilot project, and the road ahead is still long. “We’re not looking to just do this one deal and go home,” he said. The energy company has other locations in need for that kind of infrastructure — and its competitors are interested, too, Marr said. “We’re proving that we have what it takes to go the distance.”
However, the project won't be scaling up immediately due to regulatory reasons. “You can't go past 20 megawatts without needing a bunch of special permissions that take longer to get,” Marr said. “Pending final approval, we can go up to 110 megawatts, but we can’t get that started until July of 2026.” For context, 20 MW is enough to power 4,000 homes, according to the Electric Reliability Council of Texas (ERCOT), the Lone Star State’s electrical grid operator.
Assuming the deal goes through, Sangha will, through a series of subsidiaries, own the miner and purchase electricity from the energy company, but the idea, according to Marr, is for the energy company to eventually vertically integrate the operation and mine the bitcoin itself — with Sangha acting in an advisory capacity. “They're open-minded about that possibility in the future, but they're not ready for it yet,” Marr said.
The operation is projected to bring in $42 million in revenue in the first 12 months, and mine roughly 900 bitcoin over the next 10 years, according to the pitch deck. It will have access to electricity for anywhere between 2.8 cents and 3.2 cents per kilowatt-hour on a 30-year lease, meaning that investors will be able to acquire bitcoin at a 25% to 50% discount. “This will basically stay true over time regardless of the absolute value of bitcoin at any given moment,” Marr said. For comparison, B Riley Securities recently said that the estimated average power costs for the sector is around 4.5 cents per kilowatt-hour.
Part of the pitch is that the energy company itself doesn’t have to pay for anything. Sangha is raising $10.7 million from investors of all stripes — small funds or high net worth individuals with interests in real estate, energy, bitcoin mining or crypto in general. A bank will provide an additional $25 million loan secured against the project’s assets, like its mining equipment and electrical infrastructure.
Meanwhile, Sangha profits from fees at various stages of the project development, including construction management, the overseeing of the site, the asset management and ownership distributions.
The firm is set to finalize the contracts for the mine by Nov. 30, Marr said. Construction should begin in January 2025, and the operation should come online in April or May of the same year.
Creating a global electricity index
What does it mean for the future of bitcoin mining — and the renewable energy industry — if Marr is right?
The Sangha co-founder’s theory is that, down the line, if energy providers all over the world begin operating their own bitcoin mines, the electricity market will radically change and go global.
“Picture wheat, or oil or gold. … There's a physical product, you can put it in a shipping container, and therefore it’s easy to trade it on an international scale regardless of where it is extracted,” Marr said. “Electricity hasn’t been capable of this because its production and consumption is local. There’s no such thing as generating an electron in Texas and selling it in China.”
Bitcoin changes the game, according to Marr, because miners have the option of refining local electricity into a digital commodity that can then be traded on a global network. “The market doesn’t give a sh*t where a specific bitcoin is mined,” Marr said.
In other words, it’s not so much storing electricity like in a battery, but converting it into something new, which has different properties — an alchemical process, according to Marr. And as the bitcoin network scales, energy providers will become increasingly aware of the asymmetry between the local value and the global value (via bitcoin) of the electricity they generate.
“In theory, we could trade electricity [intercontinentally] in microseconds, because firms will constantly be determining where their electricity is being valued the highest,” Marr said.
Marr's claim might sound bold and futuristic, yet it's important to know that other parts of the energy sector have already dipped their toes into bitcoin mining — for example, oil and gas companies have been looking into incorporating bitcoin mining to reduce the so-called flaring of natural gas since at least 2019.
So how does one calculate the global price of electricity? Turns out, according to Marr, it’s remarkably simple, if using bitcoin mining metrics.
“You could do it at a machine level, at a fleet wide level or at a network level,” Marr said. “But you take the hash price [a measure of mining profitability], divide it by miner efficiency and you immediately derive your revenue per megawatt-hour.”