Microsoft is building huge AI data centers in Arizona and Wisconsin to provide the infrastructure for powering this transformational technology. And AI is hot — literally.

Such data centers put a severe strain on power grids by requiring vast amounts of electricity. By 2026, one estimate forecasts AI will consume about 40 gigawatts (GW) of the projected 96 GW in global power demand from data centers, up from a total demand of 49 GW in 2023. This energy use generates a lot of heat and requires a lot of water to cool down data servers. With an estimated usage of 56 million gallons of water a year from Microsoft's data center in Goodyear, Arizona alone, the local desert communities risk running out of water to accommodate their new power hungry neighbors.

On the other hand, while often criticized as an “energy hog,” Bitcoin mining is actually an amazing way to help make power grids more stable and efficient. This is due to a Bitcoin miner’s ability to adjust energy usage in near real-time.

To keep a power grid at the correct frequency, grid operators must “balance” the power grid by adjusting energy production to match user demand. This process is called “load following.” Historically, increasing and decreasing energy production was the only real-time response action grid operators had available to them. But now, during periods of high or low electricity demand, Bitcoin miners can quickly adjust their power consumption to create a second, real-time response action that grid operators can use to establish balance.

Since renewable energy production fluctuates with the weather and is difficult to ramp up or ramp down to establish grid balance, Bitcoin mining is proving to be a scalable and economically feasible variable load solution. This new grid balancing pattern, made possible through Bitcoin mining, has now paved the way for use by new, larger and less flexible AI power consumers.

But why can't AI simply adjust its energy usage in real-time also? Bitcoin miners’ energy usage has a unique aspect compared to AI data centers. The Bitcoin network is a constant customer that is not adversely affected by miners throttling down or turning off their equipment. However, if an AI data center turns off some of its servers to throttle down AI compute, customers are adversely affected.

This flexibility makes Bitcoin mining an effective way to stabilize power grids – especially in helping manage electricity consumption from large AI data centers – because it can quickly respond to fluctuations in electricity supply and demand.

We see states like Oklahoma embracing this model by encouraging Bitcoin mining and its power grid benefits. On May 30, the state senate passed a bill to make the sales of machinery and equipment used for commercial mining tax exempt if the miner provides an adjustable load to the local power producer.

Texas, Scandinavia and Iceland

Texas has invested heavily in wind energy production, leading to periods that put extra strain on power grids because energy supply often exceeds local demand (especially at night).

By increasing their activity during off-peak hours, Bitcoin miners consume this surplus of excess electricity generated from wind energy that would otherwise remain unused due to lack of demand during these periods. Their energy consumption stabilizes the delicate balance between electricity supply and demand and helps prevent the grid from becoming overloaded, which can lead to disruptions such as blackouts.

During a destructive winter storm in February 2021, Texas experienced severe power outages because it couldn’t meet the sudden surge in electricity demand. Bitcoin miners there were able to shut down their operations quickly, reducing their load and helping to stabilize the power grid during this crisis.

Scandinavia is another region where wind turbines dot the landscape. Here wind energy is produced in excess during off-peak hours and would otherwise be wasted due to lack of immediate demand and storage solutions. Bitcoin mining facilities are dynamically using this surplus, providing a sizable demand while helping maintain equilibrium and overall efficiency within the grid.

In Iceland, where geothermal and hydroelectric power production is abundant, Bitcoin mining operations have become integral to the energy market. The country’s renewable energy sources generate more electricity than its population can reasonably use. Bitcoin miners consume this excess electricity, providing a flexible, consistent demand that supports the nation’s renewable energy industry.

Making Renewable Energy More Viable

Bitcoin miners’ stabilizing effect on power grids has another interesting benefit: improving the financial viability of renewable energy projects. How?

Wind and solar often provide lower-cost electricity compared to fossil fuels like coal, which is a crucial factor for Bitcoin miners seeking to maximize profitability. However, renewables often face challenges due to the intermittency of their power generation and the gap between supply and demand. For example, solar panels produce the most energy during the day when demand is relatively low, while wind turbines may generate more power at night.

But by providing a constant and predictable demand, Bitcoin miners can bridge this gap and ensure a steady revenue stream for wind farms in Texas and Scandinavia and hydropower plants in Iceland. (Norway generated a whopping 98% of its energy from renewable resources in 2020, including 92% from hydropower). In addition, this positive financial impact from Bitcoin miners helps make renewable energy projects more economically attractive and can encourage the use of sustainable, clean energy solutions worldwide.

The Road Ahead

Bitcoin mining, AI data centers, and renewable energy projects intersect and provide good opportunities for innovation in energy management. Smart grid software that uses real-time data analytics to optimize electricity production and distribution will eventually integrate seamlessly into Bitcoin mining operations. This integration will further enhance power grid efficiency and reliability, especially in areas of rapidly growing populations and where big AI data centers are located.

Global energy production and distribution is incredibly complex, competitive, and highly subject to political, economic, and regulatory forces. So the ability of Bitcoin miners to stabilize and optimize power grids – especially in regions with significant renewable energy resources and/or energy-intensive AI data centers – makes them invaluable partners in the expansion of renewable energy production and overall energy management.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.