Waste coal-burning plant diversifies into crypto-mining
In March 2017, Bill Spence got suddenly, catastrophically sick. A part of his pancreas died. His gall bladder failed. When he got to the emergency room, the doctors found kidney cancer.
Just a few weeks earlier, Spence had walked into the Scrubgrass waste coal plant in Kennerdell, Pennsylvania, that he had just bought and hung a black pirate flag in the office. The coal plant was a pirate ship, he announced. “We sink or profit together.”
The power plant and the mountains of waste coal that it burns were now in the hands of this group, not the large corporations and hedge funds that had owned it until then. Then, all of a sudden, the captain of the ship was at death’s door.
Spence eventually recovered. It left him homebound for several years, but it also left him with plenty of time to do what he does: come up with business ideas.
The plant he had bought was in trouble. It was competing with cheap natural gas on the power grid and losing – endangering the 35 jobs at Scrubgrass Generating Station, along with the effort to clean up millions of tons of leaching coal waste left behind by mining companies over the course of decades.
The plant couldn’t just rely on the grid for revenue any more, because the grid simply didn’t need its power all that often. Spence started to look for other customers.
As he convalesced, Scrubgrass General Manager R.J. Shaffer and the plant’s engineering manager, Jeff Campbell, would visit with him in his Fox Chapel home to brainstorm ideas.
“Do you know what a bitcoin is?” Spence asked them one day in late 2017.
Bitcoin is the most widespread of the cryptocurrencies in use today. These digital currencies, which involve a huge amount of computing power, aren’t issued by a central bank but are instead ‘mined’ by computers that perform the energy-intensive work of validating transactions and adding them to a digital ledger, called blockchain.
Just as mining coal or gold is a matter of who gets to the commodity first, so too is digital mining, where computers race against each other to be the first to validate a block of transactions and win their reward.
With each new computer vying for the prize, the algorithm adjusts to make getting it more difficult.
Rather like a coal company hiring more coal miners, crypto miners buy more and faster computers, creating a kind of arms race that’s driving a huge demand for power.
Already, some power generators – finding they can make more money supplying electricity to bitcoin-mining operations than selling it to the grid – are shifting focus.
Energy Harbor, which owns the Beaver Valley Nuclear Plant in Beaver County, announced earlier this month that it will supply nuclear power to a bitcoin-mining data centre in Ohio.
Talen Energy, owner of the Susquehanna Steam Electric Station in Luzerne County, is doing the same. The company said last month that it will develop a data centre to mine digital currency that could use up to 300 megawatts, or 12 per cent of the nuclear plant’s capacity.
Bitcoin miners, in turn, are hyper cognisant of power prices and availability.
Some are taking mobile units into the oilfields, hooking up their machines to run on natural gas, that would otherwise be flared. Others, worried about the substantial and growing carbon footprint of all this digital mining – bitcoin’s highest profile booster Elon Musk recently called the industry to account for its contribution to climate change – are trying to find renewable sources of energy to power their machines.
Today, Scrubgrass, an 85-megawatt blue box with a black smokestack in the hills of Scrubgrass Township, looks much like it did when it first opened in 1993 – except for the trailers filled with bitcoin miners in the back.
Earlier this month, Spence stood on that flattened ground in northern Allegheny County, now home to a pair of soccer fields and an indoor sports complex, and talked about what’s possible when waste coal is cleaned up.
But it’s not the environmental good that hooked investors during two funding rounds that yielded more than US$100 million over the past several months.
The appeal was the bitcoin operation, said Greg Beard, CEO and president of Stronghold Digital Mining, a company that he founded with Spence to turn Scrubgrass and several other waste coal plants into a crypto hub.
On July 27, Stronghold Digital Mining filed documents with the US Securities & Exchange Commission for an initial public stock offering of shares.
‘Is this real?’
Campbell, the plant engineer, started researching bitcoin as soon as he got home from Spence’s house in 2017. He watched a 40-minute YouTube video and said the idea clicked into place: “This is currency that’s underpinned by power.”
On Amazon, he bought a US$50 USB stick that promised to mine bitcoin. He switched his computer to an isolated network and plugged it in.
At that time, bitcoin was still “fringe,” Campbell said, and he worried about getting a computer virus or even ending up on an FBI watchlist because of cryptocurrency’s reputation in moving funds for terrorism.
The USB stick worked as advertised, and after a few weeks, Campbell invested US$1,000 and bought a mining machine, a computer whose sole purpose is to run computations. It ran for a week and generated the equivalent of US$6.65 in bitcoin.
Nervously, Campbell linked the machine’s digital wallet to Scrubgrass’ PNC account to transfer the spoils, then he went into the office to check if it really showed up there.
“Oh, my God. I can’t believe this is really going to work,” he said. “All we need to do is put 15,000 of these in,” he told Spence.
According to Campbell’s calculations, at that price, mining for Bitcoin with 15,000 machines would add about 50 per cent to the plant’s operating revenue.
The earnings from the first machine funded the purchase of the second, then those two funded the third, and so on.
Today, there are about 3,000 cryptocurrency miners packed into retrofitted shipping containers behind the power plant, most of them owned by Stronghold and some that belong to other mining companies that buy power from the plant. Another 5,000 machines are scheduled to arrive next month. According to the documents filed with the SEC, Stronghold is planning to operate 57,000 miners by the end of next year.
In 2020, when the power plant seldom ran, Stronghold made more money from its bitcoin operations than by selling Scrubgrass’s energy to the grid. During the first three months of this year, the trend reversed. It received almost US$2 million from power sales and more than US$1 million from its crypto data centre.
Spence talks to his kids about blockchain, the cryptography involved in storing and verifying huge swathes of data, the way people in the 1960s talked about plastics.
“I feel that blockchain is gonna change the world,” he said.
For Campbell, it feels like the beginning of the internet did: He knows it’s going to be revolutionary and ubiquitous, but the vision is still fuzzy. “Facial recognition? Three-dimensional rendering? Autonomous driving? Artificial intelligence?” he spitballs.
Stabilising the grid
Spence’s business partner, Beard, who used to manage energy investing at Apollo Global Management Inc, isn’t as exuberant.
“I’m not sure that you need to be a believer,” he said.
He plugged the numbers into an Excel spreadsheet and saw that it makes economic sense to mine. That was enough for him.
Stronghold is buying another waste coal plant, Panther Creek Energy Facility in Carbon County, with plans to replicate its crypto-mining data centre there, and is eyeing a third.
While bitcoin is the shiny veneer of the operation, it’s actually a means to an end — giving Scrubgrass a reason to run more than the electric grid needs so it can continue to burn waste coal.
For the first 20 years, the plant ran nearly constantly. It had a power purchase agreement with the local utility, which meant there was a guaranteed demand and a guaranteed price for its output.
When that ended, in 2013, Scrubgrass struggled to navigate the competitive power market, where the price of power was falling, in part because the Marcellus Shale was making natural gas a cheaper fuel for electricity than coal, let alone waste coal.
Plants — especially smaller ones like Scrubgrass that find themselves on the margin — often run only at peak times when the demand on the grid raises prices enough to make it worth their while.
Having a constant demand, like the attached data centre, means Scrubgrass doesn’t need to shut down when prices for power fall. It also means that when the grid needs it, Scrubgrass can act like a battery — instantly switching its power to the grid.
“I think 10 years from now, people are going to say, ’Bitcoin is the thing that power plants do to regulate the grid,’” Campbell said.
He’s already thinking of ways to route the heat produced by the miners back into the power plant. Last winter, Campbell heated his home with bitcoin machines.
The Post Gazette via AP