Biogas Bitcoin Mining — VegaX Research Report
A persistent theme throughout the various installations of the Bitcoin Educational series has been that, as a network, bitcoin is incredibly robust and can adapt to adverse market environments and niche use cases. Hash rate, a proxy for the health and security of a network, continues to increase over time, even as the price of BTC is depressed by macroeconomic headwinds. This robustness can be at least partly attributed to the genuine decentralization of the network; of course, there are indications of miners centralizing in certain geographic locations due to favorable regulatory environments. But that speaks to the tendency of both individual and industrial-scale miners to make decisions based on jurisdictional agreeability and price signals from the market.
It is worth repeating that bitcoin miners are energy-source agnostic as it relates to their electricity demand: wind, solar, stranded flare-gas, and even thermal energy harnessed from seawater temperature differentials are all viable power sources for a bitcoin miner. As discussed in the installment linked above, bitcoin mining can function as a “bridge” that enables a generation project to monetize excess or stranded power to an insatiable demand-side buyer of power. This demand consistency, therefore, allows otherwise unprofitable forms of generation to create revenue streams to continue research and development or increase cash flow to commercialize the enterprise.
The generation source agnosticism and the ability of bitcoin mining operations to add monetization avenues to any generation project ought to be kept in mind, especially these days. Since Ethereum’s transition from a Proof of Work consensus model to the purportedly less energy-intensive Proof of Stake, a renewed fervor can be seen in the naive marketing campaign of Greenpeace — “Change the code, not the climate.” The messaging is fundamentally misguided: those behind the campaign seemingly do not understand that bitcoin mining’s energy usage is what ties it into reality. Real change comes from the intentional investment of resources, not from top-down mandates by bureaucrats with self-serving interests.
Innovation comes from conviction, and conviction comes from countless hours of research and a thorough understanding of the opportunities at hand. In this installment of the Bitcoin Educational series, we will take a trip up to the county of Armagh, in Northern Ireland, where an enterprising young company has partnered with a biogas power generator owner to mine bitcoin using stranded power from an anaerobic digester.
This piece will cover:
- What an Anaerobic Digester is, and how it produces biogas and other products.
- Why well-meaning renewable energy generation facilities are often unprofitable without subsidization.
- Scilling Digital Mining’s biogas mining solutions and the implications of such a partnership on the industry at large.
From Waste to Wealth
In landfills, underneath a mass of material, raw organic matter slowly breaks down and releases a combination of methane and carbon dioxide — not ideal on the surface. But what if it were possible to harness those excess gasses and convert them into a sustainable, ecologically friendly fuel source?
Anaerobic digestion is a series of biological processes in which microorganisms break down biodegradable material in the absence of oxygen. One of the byproducts of these processes is biogas, a fuel source that can be combusted to generate heat and electricity, or can be further processed into natural gas and transportation fuels. Anaerobic digestion technologies are able to convert livestock manure, municipal wastewater solids, food waste, high-strength industrial wastewater, fats, oils and grease (FOG), and other organic waste streams into biogas — all with virtually no generation downtime. Additionally, separated digested solids can be composted, applied directly to cropland, or converted into other usable products; nutrients in the liquid stream can be used as agricultural fertilizer.
In general, there are four distinct stages associated with anaerobic digestion. The first is hydrolysis, where microorganisms are applied to the organic matter in order to break down insoluble organic polymers like carbohydrates and make them available for bacteria. Acidogenic bacteria then convert the sugars and amino acids into carbon dioxide, hydrogen, ammonia, and organic acids. From there, acetogenic bacteria convert the resulting organic acids into acetic acid, along with additional ammonia, hydrogen, and carbon dioxide. Finally, methanogens convert these products into methane and carbon dioxide.
As mentioned at the beginning of this section, landfill sites are full of these processes — the layering of organic matter underneath non-organic matter creates an anaerobic environment that is suitable for methane and biogas production. Commercially speaking, there are several different options for anaerobic digester infrastructure — thus, it is important to consider factors like input feedstock (waste materials), proximity to power grids, and whether or not it is feasible to invest in connectivity to those power grids.
In terms of input feedstock, the more solid the waste material is, the more it must be diluted with water, and the more mixing and heating it will require in order to produce biogas. Similarly, one must consider how the produced biogas will be marketed — electricity has the tendency to dissipate as it travels across transmission lines and residential power grids. Lack of consideration in this regard can lead to costly infrastructure expenses that result in “stranded” energy products — stranded products are generally not profitable to be transported to market.
Co-location, Co-location, Co-location
A dirty secret not often publicized by the renewable energy industry is that, in many cases, renewable generation projects are not profitable without subsidization. What one needs to keep in mind with any energy generation project is the enormous amount of capital that needs to be deployed upfront to finance the construction. In order for investors to put that capital up, they must have a reasonable amount of certainty in the project’s potential to return their principal and generate a return on investment from there.
There are a myriad of reasons why this is the case, but each renewable generation site will have its own context as to why subsidization is necessary for profitability. For the purposes of this piece, we will briefly touch on a few main issues. The first is a lack of consistent base load energy supply generated by certain renewable sources — wind and solar in particular. After the construction of a large-scale solar field, or of a row of wind turbines, the generation of power is at the whim of nature, so to speak. During times of high winds or unobstructed sunshine, generation capacity is increased to the point where supply exceeds demand, and the excess energy goes unused. The opposite case is equally true.
Both cases represent a major flaw in solar and wind power generation: power grids cannot function properly without a reliable base load. Storage of excess power leaves much to be desired in terms of efficiency, as well. During periods of little wind, or cloudy days (and nights), powerful batteries are needed to store and subsequently use power from periods of excess power supply generation. Countless engineers and scientists are working on this bottleneck, but the fact remains that adequately robust and scalable battery solutions do not yet exist in the forms necessary to meet the majority of human power demand from solar or wind power generation.
Finally, consider that many renewable energy generation operations are located in remote regions that may not have infrastructural avenues through which to market the power generated on-site. This consideration is not limited to solar and wind generation, even in the case of biogas, if there is no connection to a residential power grid, the electricity generated on-site is effectively stranded. We will cover this in greater detail in the section that follows, but many would-be owners of renewable energy generation operations fail to consider the capital expenses associated with infrastructure development.
Scilling Digital Mining
Based out of Cork, Ireland, Scilling Digital Mining is a bitcoin mining solutions provider that specializes in the conversion of stranded energy products into BTC as a way to contribute to the financial viability and sustainability of the renewable energy sector. Their website astutely notes that stranded energy from renewable generation sources represents a unique opportunity for both power producers and would-be consumers — bitcoin miners, in this case. By offering containerized mining solutions — miners outfitted into shipping container-like enclosures — power producers are able to secure an on-site power buyer who will buy electricity at nearly any price with no downtime. Therefore, energy is monetized at the source removing the costs and logistics associated with obtaining a grid connection in isolated areas.
Circling back to subsidization, the UK government recently established a 10 million GBP fund with the intention of assisting in funding renewable energy generation plants across the country. When one considers that the UK is home to numerous small farms with sufficient quantities of anaerobic digester feedstock (livestock manure, FOG and other organic wastes), biogas generation appears to be a viable option for generating electricity on-site at such farms. This fund would, in fact, lead to the proliferation of anaerobic digestion technologies in Northern Ireland — however, in many instances, grid connections failed to materialize in the remote, northern region of the country.
Grid infrastructure is often prohibitively expensive, to illustrate this point, we will reference some estimates provided by various sources. Assuming that a reliable connection to a power grid already exists, upfront capital expenditures for a commercial anaerobic digestion plant can range between 200k — 1m GBP with an expected ROI of 4–7 years. However, without previously established grid infrastructure, upfront costs can increase to as much as $5m as most farming and ranching operations’ margins are already razor thin, and cannot afford a price tag of $5 million dollars.
But again, stranded energy products represent a massive opportunity for enterprising bitcoin mining solutions providers, like Scilling Digital Mining. Bitcoin Mining fills the gap between energy produced by anaerobic digesters and the lack of a demand-side buyer such as an on-site demand load or power grid connection. Co-located BTC miners act as an on-site demand load, thus monetizing the stranded energy. Scilling’s COO Mark Morton estimates that under most market conditions and with co-located miners, anaerobic digester owners could pay back their upfront investment in roughly two years. In favorable market conditions, the payback period could be as short as ten months.
Biogas produced from anaerobic digester technologies is composed of 40–50% methane and 30–40% carbon dioxide, on average. The composition of the biogas and nearly zero downtime make it a perfect candidate for combustion-based electricity generation, especially on farms where the source material is abundant. Entrepreneurs like Mark and the team at Scilling are doing the world a great service: they are aiding cash-strapped farmers by providing affordable monetization avenues thereby reducing agricultural emissions, and contributing to the security of the most robust global ledger network in existence.
The implications of Scilling’s efforts — and co-locating miners on generation sites, more broadly speaking — are astounding. The miner co-location trend is likely to continue financing innovative generation solutions in the future by providing consistent revenue streams. It is not unlikely that in the future, we see less government subsidization of renewable energy technologies (which end up burdening taxpayers, anyways), and begin to see more private partnerships between bitcoin mining solutions providers and the energy industry.
At VegaX, we believe that it is important to highlight bitcoin use cases such as these because too often we hear that “bitcoin has no utility.” Of course, if one is not looking for innovative forms of utility, one will never find them!
In any case, keep an eye out for more modular, portable bitcoin mining solutions to come onto the market as the push toward decarbonization of power grids continues. Governments may not be able to subsidize these projects indefinitely, but as long as electricity is generated, such renewables will always have a buyer of last resort in bitcoin miners.
We hope you have enjoyed this piece and found it informative, thanks for reading!
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