Bill Spence became suddenly and catastrophically ill in March 2017. One part of his pancreas was destroyed. His gall bladder was damaged. The doctors discovered that he had kidney cancer when he arrived at the emergency room. His doctor advised him to wait 48 hours before he could be discharged.
A few weeks prior, Mr. Spence, a happy tower of man, walked into Scrubgrass’s waste coal plant and displayed a black pirate flag. He declared that the coal plant was a pirate vessel. “We all sink or profit together.”
This group now had control of the power plant and the mountains containing waste coal it produces. Not the corporations or hedge funds that owned them. The captain of the ship was suddenly dead.
R.J. Shaffer was Scrubgrass’ general manger when he learned of the news. He printed a photo from the Venango County power station and delivered it to Mr. Spence. Two pirate flags were attached to the picture, which was signed by the crew. The caption read: “The Power of Healing.”
“I knew it would inspire him to get better,” Mr. Shaffer stated.
And Mr. Spence did. While he was unable to work for several years after his recovery, he was able to continue his business activities.
The plant he bought was in serious trouble. It was losing to cheap natural gas and competing for it on the power grid. This put at risk the 35 jobs at Scrubgrass Generating Station as well as the effort to clean up the millions of tons of leaching coal refuse left by mining companies over the decades.
Because the grid didn’t use its power very often, the plant could not rely on it for revenue. Mr. Spence began to search for other customers.
While Mr. Spence was recovering, Mr. Shaffer, the plant’s engineering manger, Jeff Campbell, visited Mr. Spence in his Fox Chapel home to discuss ideas.
Mr. Spence asked them a question in late 2017: “Do you know what Bitcoin is?”
COMPUTER ARMS RACE
The most widely used cryptocurrency is Bitcoin. These digital currencies require a lot of computing power and are not issued by any central bank. Instead, they are “mined” by computers which do the energy-intensive work to validate transactions and add them to a digital ledger called the blockchain.
Digital mining is just like mining coal or gold, it’s a matter who gets the commodity first. Computers race against each other in order to validate blocks of transactions and win their rewards.
The algorithm adapts to each new computer that vies for the prize.
Crypto miners are much like a coal company that hires more coal miners. They buy faster computers and create an arms race that drives a large demand for power.
Some power generators are already shifting their focus, realizing they can make more by supplying electricity to Bitcoin mining operations than selling it to customers.
Energy Harbor, the Beaver Valley Nuclear Plant’s owner, has announced that it will supply power to an Ohio Bitcoin-mining data centre.
Talen Energy, the owner of the Susquehanna Steam Electric Station, in Luzerne County is also doing the same. Last month, the company announced that it would develop a data centre to mine digital currency. It could use 300 megawatts (or 12%) of the nuclear plant’s power.
Bitcoin miners are also hyper aware of power prices.
Some people are taking their mobile devices into oil fields to hook up their machines to natural gas. This is a byproduct from oil products that would otherwise be flared. Others are concerned about the growing carbon footprint of digital mining. Elon Musk, the most prominent supporter of Bitcoin, recently called the industry to account. They are now trying to find renewable energy sources to power their machines.
THE PILES THAT RETURN
Scrubgrass is a 85-megawatt blue box that sits in Scrubgrass Township. It has a black smokestack and a black smokestack. Today, Scrubgrass looks almost exactly the same as it did in 1993. The trailers containing Bitcoin miners are in the back.
Initially, the operation was launched along with several other similar plants to address Pennsylvania’s legacy of abandoned coke piles.
In the 1990s, a new technology was introduced to allow plants to burn low-grade materials and reduce sulfur and nitrous oxide emissions. To neutralize acid, limestone is added to the process.
The Pennsylvania Department of Environmental Protection estimates that there are approximately 9,000 acres of waste coal piles left in Pennsylvania. This is after 3,700 acres were reclaimed in the last three decades. Most of these piles have been burned in waste coal power stations. Some piles can be hundreds of feet high.
“There is clearly more to be done,” Patrick McDonnell, DEP Secretary, told a state legislative panel last year at a hearing about the greenhouse gas emissions from such power plants. Because their fuel quality is lower than that of regular coal, they emit more carbon dioxide per unit of energy than regular coal plants.
This has always been the tradeoff: cleaning up coal waste piles cleans up water and treats unsightly, dangerous land. The CO2 stays in the air.
Scrubgrass produced 371,000 tons of CO2 in 2019, the latest year for which federal data is available. This is the same greenhouse gas footprint as 80,000 cars driving for one year. It emitted nearly a million tons in 2012, when it was at its full power.
Emissions from the waste coal piles are also a concern.
McDonnell stated that “of the remaining piles,” he said last year, “approximately forty have ignited, and continue to burn, significantly impacting the local air quality, and releasing significant amounts carbon dioxide and other pollutants.” Others put the number at over 90.
The DEP basically exempted waste coal plants of buying carbon credits in its plan to join Regional Greenhouse Gas Initiative (a multistate carbon cap and trade program).
THE PILES OF WEST DEER
His father’s illness was what brought Mr. Spence to the waste coal industry. He was a mining engineer from Mon Valley. His father became sick in the early 1990s and Mr. Spence started to travel to Pittsburgh to help him.
He noticed a change in the way he saw the piles of waste coal as a child. They looked like an opportunity.
1994: Mr. Spence purchased a 5-million-ton pile of garbage of bituminous in West Deer. He secured a contract to operate the waste coal at a new Venango County plant.
It took over a decade for all that material to be trucked 60 miles north to Scrubgrass. The ash from the fire was then trucked back home to West Deer, and spread across the land. It remained there for a decade, compacting.
Stronghold Digital Mining filed its initial public stock offer with the Securities and Exchange Commission (SEC) on July 27, 2018.
Mr. Spence stood earlier this month on the flat ground in northern Allegheny County that is now home to two soccer fields and an indoor sport complex and discussed what was possible with waste coal.
He drove another quarter mile down the road to find abandoned coal waste mountains that showed just how much work remains.
Another West Deer pile, which now sends 50 trucks every day to Scrubgrass, is the remains of a coal mine. It was once used to produce steel for U.S. skyscrapers as well as weapons during World War II. The mine was opened in 1904, and it was closed eight decades later. There are still heaps of coal left on the ground.
The earth’s remnants of heavy metals leach into the soil, making streams turn orange when it rains.
It’s not the environment that attracted investors to the company during the two rounds of funding that have brought in more than $100m over the last few months.
Greg Beard, CEO of Stronghold Digital Mining and President, stated that the appeal was in Bitcoin operations. He and Mr. Spence co-founded Stronghold Digital Mining to transform Scrubgrass and other waste coal plants into a crypto hub.
Stronghold, a registered public company, filed documents with Securities & Exchange Commission on Tuesday.
“IS THIS REAL?”
Jeff Campbell, a plant engineer, began researching Bitcoin after he returned from Mr. Spence’s house in 2017. He watched a YouTube video for 40 minutes and realized the idea: “This is a currency that’s supported by power.”
He bought a $50 USB Stick from Amazon that promised to mine Bitcoin. He set up an isolated network on his computer and connected it to the internet.
He said that Bitcoin was still “fringe” at the time and that he was concerned about getting a virus or being placed on an FBI watchlist due to cryptocurrency’s reputation for moving money for terrorist activities.
After the USB stick worked as promised, Mr. Campbell spent $1,000 to buy a mining machine. This is a computer that runs computations. It was able to generate $6.65 in Bitcoin after running for one week.
Nervously, Mr. Campbell connected the machine’s digital wallet with Scrubgrass’ PNC to transfer the spoils. He then went into the office and checked if the money had actually arrived.
“Oh, my god. He said, “Oh my God.
He told Mr. Spence that 15,000 of them are all we need.
Mr. Campbell calculated that mining Bitcoin for Bitcoin would bring in about half the operating revenue of the plant at this price.
The first machine’s earnings paid for the purchase of the second. Second, the two machines then funded the third.
Today there are approximately 3,000 cryptocurrency miners in retrofitted shipping containers at the power station. These containers are mainly owned by Stronghold, but some also belong to other mining companies who buy power from the plant. The arrival of another 5,000 machines is expected next month. According to documents filed with SEC, Stronghold plans to operate 57,000 miner by the end next year.
Stronghold made more money selling Scrubgrass’s electricity to the grid in 2020 than it did from Bitcoin operations. The power plant was rarely running. The trend reversed in the first three months. It was able to receive almost $2 million in power sales and $1 million from its crypto-datacenter.
Mr. Spence speaks to his children about blockchain and the cryptography involved with verifying large amounts of data. He also talks about the 1960s way people talked about plastics.
He said, “I believe that blockchain will change the world.”
It feels almost like the internet’s beginnings. Mr. Campbell knows that it will be revolutionary and universal, but his vision is still unclear. “Facial recognition?” Three-dimensional rendering Autonomous driving? Artificial intelligence? He spits.
Mr. Spence’s business associate, Mr. Beard, who was once the manager of energy investments at Apollo Global Management Inc. is not as enthusiastic.
He said, “I’m not certain that you need to believe in God.”
He entered the numbers into Excel and realized that it made economic sense. He was satisfied.
Stronghold plans to buy another waste coal plant in Carbon County, Panther Creek Energy Facility. It also has plans to duplicate its cryptomining data centre there.
STABILIZING YOUR GRID
Although Bitcoin may be the shining face of the operation it is only a means to an end. It gives Scrubgrass the opportunity to run more than what the electric grid can handle so that it can burn more waste coal.
The plant was almost in constant operation for the first 20 years. The plant had a power purchase agreement in place with the local utility. This meant that there was a guaranteed demand for its output and a guaranteed price.
Scrubgrass was left struggling to navigate the power market after the 2011 recession. The price of power was dropping partly because natural gas was cheaper than coal for electricity.
Smaller plants, such as Scrubgrass, are often only run at peak times when demand on the grid rises enough to make their efforts worthwhile.
Scrubgrass is able to keep its power supply running even when the price of electricity falls. Scrubgrass can also act as a battery, switching power to the grid when it is needed.
Campbell stated that “I believe 10 years from now people will say, Bitcoin’ is what power plants do to regulate grid.
He is already looking at ways to redirect the heat from the miners into the power station. (In the last winter, Mr. Campbell heated his house with Bitcoin machines.
The plant is still trying to find its identity, even though it’s not a spring chicken. It feels like a place where people experiment and tinker. Mr. Shaffer spent the majority of his career at the plant and proudly boasts that his coworkers are not “typical power plant people.” The data center is managed by a former restaurant manager.
He was not your typical entrepreneur, but he was an entrepreneur who has had ventures that ranged from natural gas services and a magazine about health. The framed photo of Scrubgrass was hung right outside his front door.
He said that they should build more plants like these, and not less. It’s not perfect. That’s okay. It’s still pretty good.