Lancium raises $150 million for renewable-run bitcoin mines in Texas

HOUSTON – Houston-based tech company Lancium announced Tuesday it raised $150 million to build bitcoin mines across Texas that will run on renewable energy. 

In the year ahead, the company plans to launch over 2,000 megawatts of capacity across its multiple sites, which Lancium refers to as “Clean Campuses.” To put that in context, downtown Dallas uses 200 megawatts worth of power. 

The funding round was led by clean energy company Hanwha Solutions, along with other power companies, Lancium said.

“I think the fact that it’s all energy companies investing suggests that we have a shared vision of the role bitcoin mining should play in the grid,” said Lancium Chief Executive Officer Michael McNamara.

Bitcoin mining serves two purposes: To create new coins and to maintain a log of all transactions of existing digital tokens. To do that, miners around the globe contribute their computing power to verifying all bitcoin transactions. 

Logging these exchanges takes a lot of energy, but these energy buyers also offer something that Texas desperately needs right now: a flexible customer, willing to buy when supply is abundant and shut down when it’s not. That flexibility is a huge help when it comes to stabilizing a grid that is rapidly onboarding inherently unstable sources of power like wind and solar. 

When it’s especially windy or sunny, the grid is flush with power and not always replete with sufficient takers. But when it’s cloudy and there isn’t a breeze, demand will sometimes outstrip supply. In either case, it skews the supply and demand curve to extreme prices, neither of which is good for the grid as a whole. Bitcoin mining helps to even out those price swings.

Texas also has a lot to offer the miners. 

The state boasts some of the cheapest sources of energy on the planet – a major incentive to miners who compete in a low-margin industry, where their only variable cost is typically energy. The state is also home to crypto-progressive and business-friendly politicians, not to mention lots of land.

“Bitcoin is made for the grid,” said bitcoin mining engineer Brandon Arvanaghi, who now runs Meow, a company that enables corporate treasury participation in crypto markets.

“It’s a match made in heaven,” continued Arvanaghi.

Large swaths of West Texas exist along the “U.S. wind belt,” which encompasses regions with the country’s highest wind speeds. The state also has the cheapest utility-scale solar in the nation at 2.8 cents per kilowatt hour. 

Wind and solar’s share of the Texas grid is expanding at a rapid clip, as well, growing from 9% in 2011 to 26% of the grid, and Connell expects that rate of growth to pick up in the next few years.

“In this year alone, we’re adding 14 gigawatts of solar and wind,” said Connell. “What took 20 years to produce 35 gigawatts of wind and solar…we’re set to double that in the next five years, and this is really happening in West Texas.”

In theory, all of this renewable energy being piled onto the grid is a good thing, because it is replacing less environmentally friendly power sources like coal and natural gas. 

But it also presents certain logistical complications.

“The grid of the future is a problem,” McNamara told CNBC. The Lancium chief said there is a geographical mismatch between where the most wind and solar energy is captured and where customers live. 

“You can’t build a 1000-megawatt solar plant in New York City, or Tokyo, or Frankfurt,” said McNamara. 

There is also the issue of ensuring that renewable power sources are able to meet the minimum level of demand on an electrical grid. In industry speak, this is referred to as the baseload, and it is something that many renewables lack.

“Solar and wind don’t generate power as a baseload,” explained Castle Island Ventures’ founding partner Nic Carter.

“Solar works 10 hours a day and with wind – it could be windy or there could be none whatsoever. In practice, that means you have to be prepared for all renewable energy to go offline at any point,” continued Carter.

To brace for an output of zero, there are a couple different options, according to Carter. You can compensate for the shortfall with a power source like natural gas, but that involves spinning turbines up or down on short notice to make up for the volatility of renewables. 

A newer option recently made possible by technology patented by Lancium is to turn bitcoin mines into a sort of demand dial that can be incrementally turned up or down in as little as five seconds. 

“Instead of twiddling the supply variable to match supply with demand, you can twiddle demand,” explained Carter. 

The company is building mines where wind and solar are abundant and the transmission system is constrained, meaning that power wants to flow down the line, but the lines are full. 

These Clean Campuses, as the company calls them, will also host high throughput computing and other energy intensive applications, helping to resolve that congestion problem. 

As McNamara describes it, Lancium’s sites act like a large power station but in reverse. The mines will absorb abundant renewable energy at times when supply outpaces demand, thereby monetizing these assets when there are no other buyers. And on the flip side, the mines will incrementally ramp down their energy intake, as demand on the grid rises. 

“In times of scarcity, our data centers will go down, and those lines can carry the renewable energy to Houston, Dallas and Austin where they need the energy,” said McNamara.

Adding bitcoin miners to the portfolio of energy buyers helps to improve the core economics of renewable power production, which has been fraught with volatility. Connell tells CNBC that in 2020, 10% to 20% of the hours in West Texas had negative energy prices, which happens when supply outpaces demand. 

Providing demand to these semi-stranded assets also makes renewables in Texas economically viable when they might not be otherwise, Carter tells CNBC.

The constraint is that West Texas has roughly 34 gigawatts of power, five gigawatts of demand, and only 12 gigawatts of transmission.

You can almost think of bitcoin miners as temporary buyers keeping these energy assets operational until the grid is able to fully absorb them once new transmission channels are built to unshackle these stranded power sources.

McNamara says the net effect of this is retiring coal and gas faster, while rapidly adding wind and solar at the same time, essentially making bitcoin mining “a fundamentally decarbonizing technology.”

Chad Harris, who runs America’s biggest bitcoin mine, had an apt way of describing the dynamic. He told a crowd of bitcoin miners and oil and gas executives in Houston on Monday night that bitcoin miners are “the most efficient battery on the market.” 

Instead, there are a lot of financial perks baked into its arrangement with the non-profit organization that operates Texas’ grid. The Electric Reliability Council of Texas, or ERCOT, has a relatively simple and mutually beneficial relationship with bitcoin miners, wherein ERCOT pays miners to power down.

“Imagine how much you would have to pay Amazon to say, ‘Hey, there’s too much demand for power. Please power down your data center,'” said Arvanaghi. 

“But it can do that with bitcoin very easily, because all you have to do is pay the miners slightly more than what they would have made mining for bitcoin that hour,” continued Arvanaghi.

Even bitcoin miners that haven’t cut a deal with ERCOT sometimes voluntarily power down at times of peak consumption when prices shoot higher. In 2021, had miners voluntarily cut back their uptime expectation from 100% to 95%, they would have slashed their per megawatt hour price from $178 to $25, according to Lancium data. 

This strategically-timed energy curtailment proves especially vital for the Texas grid, which exists as its own little island. 

Unlike the rest of the continental U.S. that belongs to either the Eastern or Western interconnection (the names of the two interconnected power grids linking states), 90% of Texas runs on ERCOT, a deregulated and independent network of energy providers that is not tethered to any other grid in the U.S. 

While this competitive market often drives down the price of power as providers compete on cost to capture customers, it also means that there is less of a safety net baked into the grid. This presents problems in the face of calamitous events, such as a power shortage or a natural disaster, like the fatal winter storm in early 2021 that devastated much of the state. 

Adding a “controllable load resource” like bitcoin miners to the grid acts as a sort of life insurance policy. It’s almost like a hedge against disaster.

What is also unique about Lancium’s arrangement with ERCOT is that they can precisely fit the specifications of the power deficit or surplus, thanks to its “SmartResponse” software, which allows its bitcoin mines and data centers to adjust server electricity consumption based on the needs of the power grid.

This enables Lancium to power down individual miners, in order to toggle to the exact specifications of the grid. 

And it’s no skin off the back of bitcoin miners like Lancium. Bitcoin has no uptime requirement, nor is the gear worn down by regularly powering off and on. It’s pretty much a win, win.

“That’s the beauty of bitcoin – it’s something no other industry can really do,” Arvanaghi told CNBC. “It’s very synergistic.”