A Blueprint for Offgrid Energy and Bitcoin Mining in Africa

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Reducing the electricity-access gap in underprivileged regions with offgrid renewable power generation, minigrids, and small-scale bitcoin data centers: An open-source blueprint for advancing power infrastructure in Africa and beyond.?

Combining small-scale bitcoin data centers and renewables-based minigrids forms the foundation of a new model to expand profitable electrification to communities in emerging markets reducing the need for charity, aid, gifts, or government subsidy. The main challenge is that minigrids have a low ROI and are not economically viable without subsidies due to their high CAPEX cost, low initial consumption, and long payback period.

The co-location of small-scale Bitcoin mining and renewables-based microgrids helps to address the problem of stranded renewable energy. By providing a consistent and reliable demand for electricity, Bitcoin mining helps to utilize excess renewable energy that might otherwise go to waste, thereby unlocking the potential of stranded renewable energy projects and contributing to a more sustainable energy future.

“Once people have access to larger amounts of electricity, they can use cassava grinders, welding equipment, sewing machines, band saws, refrigerators, water pumps, washing machines, and scores of other important devices.”?- RMI Minigrids in the Money report

Context and ongoing problems?

Human progress is driven by affordable and accessible energy.? At a macro-level we know that economic growth and GDP per capita are directly correlated to energy availability and consumption per capita. We also know that the basic necessities of life remain out of reach to those without electricity.?

Yet, last year in Africa, 600 million people, or 43% of the total population in the continent, lacked access to electricity, most of them in sub-Saharan Africa, according to the International Energy Agency (IEA). Considering energy in all its forms, today, 333 million people living in the United States consume 19 times more per person than 1.4 billion people living in Africa, and the roughly 600 million people living in all of Europe consume more than 8 times per capita than people in Africa, according to BP’s Statistical Review of World Energy 2022. In fact, there is more energy consumed in Norway than all of Africa combined.??

To put a finer point on the energy chasm that Africa sits at the bottom of, more energy is used by kitchen appliances in the US each year than all of the energy used by every person in Africa combined.?

There are many reasons for this situation, but at a very basic level the problem of Africa’s limited access to electricity is a supply and demand problem, a market problem that both markets and international and multilateral institutions have not been able to solve thus far.

To put it briefly, in remote and underprivileged areas of the world, where many people have little or no home appliances and industrial machinery, electricity demand is too low to justify the large investments necessary to build energy generation stations and power grids.? The time it takes for a remote or rural community to build up the demand for electricity takes too long for normal investment to take it seriously, which has meant that the primary way this power capacity is funded today is with concessionary capital such as grants or low cost debt.

The best answer to this problem thus far is minigrids, with a typical energy generation of under 1MW. This is because having a smaller local (more cost efficient) scale grid makes more sense in the case of low demand compared to long and costly extensions of the national grid.

Traditionally, a large, centralized power generation plant produces electricity that is then transported by a transmission and distribution network for consumers and small businesses. This is a one-way delivery system from generation to usage. This model is now being increasingly complemented by bi-directional, small, distributed energy resources (DER) which are located closer to the end-user. DERs often combine renewable energy installations such as rooftop solar modules, small wind turbines, or small hydro-plants, combined with a battery or a generator to form a minigrid.

Large national grids often have gone as far to the edges as is profitable for them to go, so to push the edges of electrification outward to less dense or less profitable areas minigrids are the solution.? Minigrid developers can find the right density of people, and using the plentiful renewable energy resources in Africa, they are able to pop up just about anywhere. It is a more resilient and efficient use of energy, as the electricity is used close to where it is produced and provides remote communities with a reliable supply of sustainable electricity.

The problem with minigrids is that “the risks perceived to be associated with minigrid projects are not aligned with the risk/return expectations of commercial financiers”, according to the Mini-Grids Partnership's Global Mini-grids Market Report 2020 published by Bloomberg NEF and Sustainable Energy for All (SEforALL).

In other words, the financial effort required to set up a minigrid is not worth the result as virtually all minigrids projects so far have not been economically sustainable – and if they are not economically sustainable, especially in the initial phase after commissioning when demand is still very low, it’s hard to expect them to help reduce the electricity-access gap in Africa and other regions.

Minigrid developers have to overbuild their sites due to the variable nature of renewable energy supply, whether sun, water, or wind.? This is balanced against the consumer demand that starts slow and can take many years to build up to a more “full” capacity in people’s homes and businesses.? On top of that, the energy demands by the community peaks at 6-8am and 6-9pm, while there is very little energy used in the other hours of the day. All of these combine to form the image of high upfront capital costs to build, but slow and erratic returns from the electricity sold.?

This is where bitcoin data centers come in:?

• Wasted energy: Since they have real-time demand leveling, they can turn on or off their energy needs within seconds, increasing efficiency for the energy developer by reducing over- or under-generation of electricity.?
• Financial Sustainability: Since they are an anchor tenant, the minigrid developer has financial stability from day one with consistent and predictable demand.
• Co-Located with Generation: Since they are location agnostic, they can be placed anywhere.?

“Although the technologies used in minigrids are proven and the costs of solar hybrid minigrids [and other technologies] have become increasingly competitive, most developers rely on their own balance sheets and struggle to raise external finance. Without additional mechanisms, supports or guarantees from public organizations, commercial financiers have shied from funding minigrids due to concerns over ambiguous electrification strategies, a lack of regulations to protect minigrid assets, a lack of developer track records and the limited power demand of rural consumers,” the authors of the Mini-Grids Partnership's report explain.

New solutions are needed to break the “no power demand - no power supply - no power demand” vicious circle.

Overview: weaving the business case with the energy development model

“Minigrid companies have seen that rural energy consumption does not grow as quickly as once hoped, and therefore load growth must become a core element of their businesses to be viable.” From the 2020 Africa Minigrid Development Association report.

Small-scale bitcoin data centers and renewables-based minigrids can act as the missing link. They can close the gap between perceived risks associated with minigrids and the risk/return expectations of investors, aligning the incentives of financiers, multilateral organizations and local communities in remote regions.

Minigrids can become sustainable, especially in their crucial initial phase, if they can rely on an anchor customer. Small-sized, specialized bitcoin data centers can provide the initial and ongoing demand for power that makes the initial investment into renewable power infrastructure possible, sustainable and profitable.

The way to address the problem of stranded renewable energy projects is by co-locating small bitcoin data centers alongside these minigrids. This approach can help break the cycle of insufficient power demand leading to inadequate power supply, which in turn creates further low demand. Combined, these data centers and minigrid projects provide a reliable and consistent demand for renewable energy, thereby unlocking the potential of stranded renewable energy projects that have thus far remained untapped.

In addition, clean electricity distributed by minigrids made possible thanks to the power demand provided by location-agnostic, small-scale bitcoin data centers can serve many other local businesses and families that had no access to electricity before. The same setup can also power basic community internet connectivity capabilities where none were present before.

This symbiotic power-bitcoin-connectivity infrastructure can then also act as a metaphorical loom to start weaving together threads in the community into a richer economic and social tapestry. They can provide the basic building blocks, the uncomplicated infrastructure to start twining together key pieces of the prosperity puzzle that have so far remained elusive – energy investments and energy demands that are big enough to kickstart the productivity engine, but small-enough to fit the size and needs of rural communities around the world.

Bitcoin data centers are extremely flexible as to when they use electricity and how much of it they use. With automated real-time demand leveling they ramp consumption up and down as much as needed at a moment’s notice relative to the minigrid’s overall supply. This uncommon feature allows bitcoin data centers to play three crucial roles as:

1. buyer of first resort, purchasing energy when there is no other demand;
2. buyer of last resort, buying when nobody else has a use for that energy;
3. grid-balancer of last resort, providing demand-response ancillary services to keep the minigrid always stable.

The key to this foundational energy-bitcoin-connectivity infrastructure is that it is community-based, locally sourced, location-agnostic, affordable and sustainable for everyone.

A weak point to acknowledge is that there still is a minimum utilization rate that is required.? It doesn't make sense to have a bitcoin miner that runs 1 hour per month. The capital expenditure per terahash, plus the value of the bitcoin will determine where that cut-off point is.? For example, does mining on solar mini grids (with sun for only 8h/day) make sense?? The answer to that depends on the cost of the bitcoin miner, the efficiency of the machine, and the value of bitcoin.

Small-scale bitcoin data centers and renewables-based minigrids, accompanied by basic connectivity infrastructure, are the spool, the loom, and the sewing machine to start organizing the thread and begin weaving stronger, seamless, diverse, versatile socio-economic fabrics in energy poor areas of the world.

Addressable market

Estimates vary, but, in a sustainability scenario, we need to build between 162,000 and 217,000 minigrids globally between 2022 and 2030 to reach between 288 million and 490 million people, at a total investment cost between $93 billion and $127 billion. This according to data by the International Energy Agency and the World Bank, elaborated by the Energy Sector Management Assistance Program (ESMAP), a partnership between the World Bank and 24 other private and public organizations. Data are included in a 2022 World Bank report titled Mini Grids For Half A Billion People.

That means we need to build around 2,000 minigrid projects per key access-deficit country per year by 2030. Year-on-year growth needed to achieve universal access will require scaling up private-sector-led minigrid deployments from dozens to hundreds to thousands of minigrids per country per year in each of the countries with the highest electricity access deficit rates today.

Importantly, after decades of minigrid development there still isn’t a mobile and flexible consumer of energy, which in turn has throttled the growth of this type of energy development. Bitcoin data centers are just that.

Public or non-for-profit programs do provide important financial and community benefits to countries and end users. Yet, if we are to increase access by orders of magnitude by 2030, private-sector initiatives need to greatly increase across the board to reduce disparities with other regions.

ESMAP estimates that the number of minigrids in Africa need to grow from 3,100 in 2021 to 160,000 in 2030, more than 50-times over nine years, with a cumulative investment of $91 billion by 2030. If the current pace of minigrid development continues, only about 44,800 minigrids will be installed by 2030, serving only around 80 million people in Africa.

More than 380 million people in Sub-Saharan Africa living in 58 access-deficit countries can receive electricity access at affordable cost via minigrids, ESMAP says. In Sub-Saharan Africa, nearly 291,000 population clusters have profiles favoring the deployment of minigrids. That is, they are located more than 1 km from the existing grid network and have a population density (>1,000 people/km2) that favors decentralized system deployment, according to the World Bank’s report.

More than 177,000 settlements have a population of 100 to 500 people. These settlements could be powered by smaller minigrids of up to 20 kilowatts (kW) each. Nearly 96,000 settlements, each with populations of 500 to 2,500 people, could be powered by medium-sized minigrids of up to 80 kW. Larger mini grids, up to 200 kW, could power more than 15,000 settlements, each with 2,500 to 10,000 residents. Finally, for nearly 3,000 settlements, each with 10,000 to 100,000 people, minigrids at the 500 kW to 1 megawatt (MW) scale would be required, according to the report.

“Mini grids are not a new phenomenon: nearly all centralized electricity grid systems began as isolated mini grids that were connected to each other over time” – The World Bank.

Achieving universal access to affordable electricity by 2030, as in the International Energy Agency’s Sustainable Africa Scenario (SAS), would require an even more ambitious target of connecting 100 million people a year in the continent.

Current financing commitments to global energy access in the 20 highest-access-deficit countries are estimated at $32 billion a year – just 78% of what is needed to achieve universal access by 2030. However, forecasts indicate that 95% of the investment has to be directed to Sub-Saharan Africa, with only 15% channeled to the continent so far. Looking at the numbers, a 2022? report by the Africa Minigrid Developers Association (AMDA) stated that,? “...only $10 million was disbursed to AMDA developers to build projects in 2020, out of a total of only $60 million since 2013. Comparing the $1.6 billion committed to the sector from donors.”? In a sector where concessionary funding is supposed to drive growth, the organizations involved talk and commit, but are not following through.

Regulatory hurdles create a high cost of entry to building minigrids, generally taking over one year to get through the approval process, and while countries vary, improvements here can make a large impact on the speed of rural electrification. Lighter approaches to regulation for these low-risk, high-reward, decentralized technologies are helpful for both the regulator as well as the independent power producer.?

In Africa, where rural communities of more than 200 people are near a road, but more than 10 kilometers (km) from a main grid, minigrids are usually the best solution, according to the IEA’s Africa Energy Outlook 2022. Minigrids represent around 30% of new household connections and meet 65% of new connections in communities more than 20 km from grid infrastructure in the SAS.

“Minigrids meet 65% of new connections in sub-Saharan African communities located more than 20 km from a grid” – IEA.

Incremental installed capacity averages around 300 MW per year in the 2021‐30 period, according to the IEA’s Sustainable Africa Scenario. Connections for non‐household uses, including public services such as schools or health facilities and commercial businesses, also increase substantially in the IEA’s sustainable scenario.

“Businesses, notably in agriculture, mining and telecommunications, often serve as important anchor customers for grid extensions and minigrid projects, so integrating energy and rural business development planning is crucial to accelerate connections. An anchor customer can lower costs and tariffs, boost household incomes and, in turn, improve repayment rates to facilitate the financing of electricity access projects. This calls for better access to credit and the simultaneous development of infrastructure”, concludes the IEA – framing the issue in a way that seems to fit seamlessly with the value proposition linking minigrids with bitcoin data centers.

In conclusion

Minigrids rhyme perfectly with the distributed, decentralized, horizontal nature of renewable energies – sources nobody controls, and anybody can access. Small-scale bitcoin data centers fit perfectly with the distributed, decentralized, participatory nature of a type of money based on energy – a neutral asset nobody controls, and anybody can access.?

“Productive uses of electricity can be a game changer for both minigrid developers and socioeconomic development. It presents an ‘everyone-wins’ scenario for developers, local entrepreneurs, communities, and national utilities”, the ESMAP Minigrids by the Numbers report’s authors say.

They are right. And their case could get a decisive boost when a specific bitcoin data center cost/benefit analysis is added to the equation. bitcoin data centers can be at the forefront of all the other income-generating uses the report considers.

The energy infrastructure is made more resilient and robust when global energy generation is both decentralized and distributed. Bitcoin is also made more resilient and robust when the mining data centers are decentralized and distributed. Minigrids powering bitcoin data centers as their first and last resort anchor-customer can catalyze the private investments needed to bring electricity to hundreds of million of people living currently without power, and they can help make those investments both profitable and sustainable.

“The only way to reach the scale of investment needed to connect 490 million people to minigrids by 2030 is to enable current investors to invest more and to attract new investors. Existing financial flows are typically the result of one-off deals. What the sector needs are new types of financing vehicles, developed for investors by investors, that remain actively managed and sustainably funded,” ESMAP says.

Small-scale bitcoin data centers and renewables-based minigrids can be the cornerstones for a faster and sounder buildup of the power infrastructure in Africa and beyond, aligning the incentives that will generate more prosperity and sustainability for all.

In an upcoming document we will provide actionable information to help minigrid developers and investors navigate the specifics of co-locating a renewables-powered minigrid with a small-scale bitcoin data center.

Minigrids by the numbers

ESMAP identified 21,557 minigrids installed in 131 countries and territories around the world as of 2021. About half of them are powered by solar PV, with hydro and fossil fuels accounting for an additional 35% and 10%, respectively, providing electricity to 48 million people. Another 29,353 minigrids are being planned in 77 countries, 95% of them in Africa and South Asia, with 99% of them powered by solar PV, connecting more than 35 million people at an investment cost of $9.3 billion. ESMAP provides the following estimates.

Investments:

• $29 billion – Cumulative global investments in minigrids to date.
• $9 billion – Cumulative global investment in Africa and South Asia in mini grids to date.
• $2.6 billion – Development Partners committed, including AFD, AfDB, FCDO, the Islamic Development Bank, GIZ and the World Bank, among others.
• $1.4 billion World Bank commitment to mini grids in 31 countries through 2027.
• ?$500+ million – Private-sector investment in minigrid developers in low-income countries since 2013
• 25% – Average World Bank share of total mini grid investment (government, development partners, and private sector) in client countries.
• $93 billion – $127 billion needed to reach 2030 global targets.

Profit potential:

• $3.3 billion – Annual profit potential for developers across all minigrids deployed through 2030.
• $5.8 billion – Net profit potential across all minigrid component and service suppliers in 2030 alone.

Typical 3rd generation minigrid:

• $0.5–$1 million investment
• 200–800 clients connected
• 800–4,000 people receiving electricity for the first time

Appendix: Maps of renewable energy locations in Africa.?

Source: MDPI “Energies” report, 2018

Source: “Geothermal renewable energy prospects of the African continent using GIS” report