Startup Series: Vespene Energy
Today's guest is Adam Wright, CEO and co-founder of Vespene Energy, which uses landfill methane to fuel Bitcoin mining.
At MCJ we’ve spent some time at the intersection of Bitcoin as an incentive mechanism for halting methane emissions with Crusoe Energy and their work with flared waste gas at oil wells. But understanding the actual scale of the landfill emissions problem and how the status quo doesn't provide economic incentive for improvements is pretty mind blowing. Perhaps a carbon tax could pass some day or fines for landfill owners could aim to remedy the issue, but the truth is we need landfills and collaborative solutions for all the waste we produce. Vespene's answer is to provide a carrot rather than a stick. The company offers operators the financial upside of the biogas that their sites produce in exchange for Vespene being able to use it.
Adam describes Bitcoin mining not as the end-all-be-all for Vespene, but instead as an immediate economic consumer for biogas that doesn't require facilitating a buyer or hooking up a ton of expensive infrastructure. It essentially bootstraps an energy business with a third party, logistics-free, economic model attached. And it's a model that can unlock totally different use cases once it's in place, including EV charging and more. Vespene is on the early side of building out its business, and they'll no doubt learn a lot about the real world atoms at play as they move forward. But if they can incentivize the halt of the 15% or more of the US's methane footprint that comes from landfills, they can make a real difference on the climate front.
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Vespene Twitter / Adam’s Twitter
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Episode recorded on October 17, 2022.
In this episode, we cover:
[3:25] Adam's journey transitioning from submarines and ocean conservation to landfill-based climate problems and Bitcoin
[5:25] The problem of methane in landfills today compared to other sources
[7:30] Landfill projects, EPA regulations, and issues with underreporting
[12:50] Vespene's solution
[15:18] An overview of biogas
[12:34] U.S. landfill ownership and community beneficiaries
[20:34] An overview of Bitcoin and its implications from a climate perspective
[22:41] Demand side of Vespene's solution and uses for Bitcoin data processing
[25:55] How Vespene uses Bitcoin as a tool
[35:18] Bitcoin mining as a low margin but scalable business
[37:09] Profitability from a Bitcoin mining perspective
[39:25] Vespene's progress to date
[43:02] Geographic nature of landfills and benefits for Vespene's business
[45:07] White House Office of Science and Technology Policy report
[47:10] Vespene's funding from the crypto and climate worlds
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Jason Jacobs (00:01):
Hello everyone, this is Jason Jacobs.
Cody Simms (00:04):
And I'm Cody Simms.
Jason Jacobs (00:05):
And welcome to My Climate Journey. This show is a growing body of knowledge focused on climate change and potential solutions.
Cody Simms (00:15):
In this podcast, we traverse disciplines, industries, and opinions to better understand and make sense of the formidable problem of climate change and all the ways people like you and I can help.
Jason Jacobs (00:26):
We appreciate you tuning in, sharing this episode, and if you feel like it, leaving us a review to help more people find out about us so they can figure out where they fit in addressing the problem of climate change.
Cody Simms (00:40):
Today's guest is Adam Wright, CEO and Co-founder of Vespene Energy, which uses landfill methane to fuel Bitcoin mining, and in doing so, aims to create an economic incentive for landfills to dramatically reduce methane emissions. At MCJ, we've spent some time at the intersection of Bitcoin as an incentive mechanism for halting methane emissions, namely with Crusoe Energy and the work they do with flared waste gas at oil wells. In today's conversation with Adam at Vespene, I was fascinated to learn about the scale of the landfill emissions problem and how the status quo doesn't really provide them a great economic incentive to do anything about it. Maybe a magical carbon tax could show up someday, or we could find landfill owners into oblivion until they comply, but well, we need them. What would we do with all our waste without landfills? Vespene's answer is to provide a carrot rather than a stick.
(01:34):
They provide landfill operators with financial upside for the biogas that their sites produce, in exchange for Vespene being able to use it. And biogas is an unavoidable byproduct of landfills and one that's only going to continue to grow over time as long as humans keep producing waste. And then, the conversation really took me to a new place. Adam describes Bitcoin mining, not as the end-all be-all for Vespene. In fact, he paints a picture of Bitcoin mining as a relatively low margin business. But what Bitcoin mining is good at, is being an immediate economic consumer for this gas that doesn't require facilitating a buyer on the other end, or hooking up a ton of expensive infrastructure and grid connectivity. It essentially bootstraps an energy business with a third party logistics free, known economic model attached. And it's a model that can unlock totally different use cases once it's in place, including EV charging and more.
(02:26):
I learned a lot from Adam in this conversation. They're on the early side of building out this business with their first pilot site in development in California right now. And they'll no doubt learn a ton about the real world Adams at play as they build this whole system out. I'm interested to hear how it advances as they grow and if they can incentivize the halts of the 15% or more of the US' methane footprint that comes from landfills. If they can do so, they can make a real difference on the climate front. Adam, welcome to the show.
Adam Wright (02:53):
Glad to be here. Thanks for having me, Cody.
Cody Simms (02:56):
There's so much I want to touch on. I don't think we've had anyone on the pod talk about the phenomenon of landfill methane, and what that means from a climate footprint perspective. But before we go into that, I need to understand how you went from working on submarines to working on landfill based climate change problems and Bitcoin mines. Sorry for this super, like, "Let's just jump right in," direct question, but help us catch up to where we are today and how we got here with your personal journey.
Adam Wright (03:25):
Absolutely. My background is mechanical engineering, specifically from an ocean's perspective. I was the Founder and CEO of a company called DeepFlight. We built high performance submersibles for recreation and tourism, but also to spread awareness of ocean conservation projects. My grandfather actually, was the Co-founder of an ocean nonprofit called the Oceanic Society. Climate activism and just climate issues in general have always been part of my upbringing. I grew up in San Francisco and the North Bay, so I've always been connected through my family to climate issues and very much so through DeepFlight as well.
(04:06):
I got into Bitcoin in 2017 and as an engineer, but also as a liberal and somebody that cares about the climate. I've understood the social aspects of having a decentralized currency that can remove the need to have a central bank and what these things can bring to society. But I've also taken an engineers approach at looking at the energy consumption and how we can utilize that energy consumption for good. And so, that's how Vespene Energy was born, which was utilizing Bitcoin and other high energy data applications to solve a real world problem.
Cody Simms (04:50):
Fantastic. We're going to have so much to dive into on the Bitcoin side of things. You frame it as a foregone conclusion in your mind that, it is a positive climate solution. And I can guarantee you there are many listeners here who, that is not how they would think about Bitcoin. And so, we're not going to have today's whole recording be about Bitcoin, but we're definitely going to dive into that side of the conversation for sure. But let's first start with the problem you identified in terms of access to energy that could power these minds. And before we even get into how they might power the mines, let's talk about the problem itself.
(05:25):
And so as I understand it, landfill methane today, so basically, the gas that is coming off of junkyards, landfills, is responsible for a significant amount of the overall methane footprint, which as I think most people listening to this have done enough homework to understand that methane itself is a incredibly potent greenhouse gas, much more potent in the short term than carbon dioxide is, in terms of its heat trapping capacity. Maybe I will now quit pretending like I'm the expert here, because you are an expert in this area. And maybe walk us through the overall problem set of methane in landfills today and why so far at least very little has been done to solve that problem?
Adam Wright (06:13):
I know it's important to understand the context. We look at landfills as a major contributor to climate change through methane emissions. The EPA estimates that landfills contribute about 17% of all US methane emissions, but there's been various studies, NASA participated in a study that actually showed that, those numbers were potentially under-reported by a factor of two to three X, which makes landfills one of the biggest, if not the biggest methane emitter in the United States.
Cody Simms (06:45):
And what does that compared to the other top emitters, I assume oil and gas wells are the biggest?
Adam Wright (06:51):
Oil and gas and agricultural sources. Agricultural, [inaudible 00:06:55], meaning basically cow burps and as well as cow manure management or livestock manure are both big emitters. But because the EPA data is all based on self-reported data from landfills themselves, there is a significant opportunity for under reporting of data.
Cody Simms (07:13):
And with oil and gas, we know for example, there are EPA requirements that they are supposed to be doing something about this method and we know a lot of them leak and are flaring, which is imperfect. With landfills, are they just open to the air today? What is the situation?
Adam Wright (07:30):
Nope. There are definitely EPA regulations around landfills for sure. Taking a step back for a moment, there's basically two types of projects that are typically run on landfills in terms of beneficial utilization of this biomethane. The first is, you build a power plant and then you sell those electrons to the grid. The second is, you build a gas refinery. You're actually building a, they call it Renewable Natural Gas or RNG. And so you're refining that landfill gas, which has a lot of pollutants and a lot of other constituents. You're refining that into pipeline quality and then you're either injecting it into the pipeline or you're marketing it in some other fashion, whether it be compressed natural gas for vehicle fuel or even LNG or Liquified Natural Gas. And so, the problem with these two project types is that they're very capital intensive and very infrastructure dependent.
(08:26):
Basically, you have a product whether it's electrons or molecules, and your end user of that product is somewhere far away from the landfills. You need to either inject that gas into a pipeline to transport it to the end user, or you're building out infrastructure like power lines to essentially sell that electricity to the end user. And because of that, these projects only really work, or what we say pencil out, they only, [inaudible 00:08:55], pencil out for larger landfills that have enough gas production to warrant the additional infrastructure cost or are located in a proximity very close to existing infrastructure.
Cody Simms (09:06):
I guess, put simply just make sure I understood that, put simply, landfills typically don't live next to either a natural gas pipeline or don't live next to large scale energy transmission lines that connect to the grid. Therefore, if you are processing the methane byproduct into either usable gas or combusting it into energy, you don't have anywhere to send it today.
Adam Wright (09:30):
That's right. You do, but in order to send it, you need to build out that additional infrastructure. If you have, let's say you have a site and it's 10 miles away from a metro gas pipeline, then you need to factor in that 10 miles of pipeline in order to actually get your product to a market.
Cody Simms (09:44):
And most landfills today are in municipal areas or close by them. Is that a correct assumption?
Adam Wright (09:52):
Most landfills are in very rural areas. They are in proximity to population centers, but still fairly far out. Some landfills, there's a lot of closed landfills that are in urban centers, because back in the day you would have your landfill right there, but a lot of landfills are fairly remote and decentralized. I guess, put into context, there's about 3000 municipal solid waste landfills in the United States. Only about 500 of those landfills have active projects on them. And when I say active project, I mean either a power plant or a gas refinery. That leaves a large 2,500 landfills who have no use case for their methane and some of those landfills are regulated. Regular regulation actually goes into the individual states. The EPA has a set of standards that says landfills of a certain size have to install gas capture and control systems to actually destroy that methane or flare the methane, but they basically put the onus on the individual states to regulate that.
(10:58):
That means that of those 2,500 landfills that don't have active projects, only about 30% of those are flaring it. That means they're capturing the methane and they're burning it off. That's at least benefiting the environment because they're not emitting methane. Methane is anywhere from 80 to... It's 80 times worse than CO2 in a 20 year period. If you consider it a hundred year period, it's like 25X. Anyway you shake a stick at it, methane is a horrible greenhouse gas, but the vast majority of those landfills, so 70% of those 2,500 are actually just emitting it. That's mostly because they're either too small to fit the EPAs threshold. The EPA has a certain threshold for landfills to capture and destroy their gas, or, in a lot of cases, and this is something that we've uncovered through our company, is that landfill operators are actually strategically under reporting their emissions in order to get underneath the threshold that they would be required to then install these capture systems.
Cody Simms (11:59):
And so, there's a threshold which they have to basically absorb a ton of CapEx to put these capture and flaring systems in place. Are there fines and fees for not complying here? I have heard that in the oil and gas world, sometimes it's actually cheaper to just pay the fine than it is to install all the appropriate leak mitigation technologies.
Adam Wright (12:22):
Yeah. I think the basic penalty, I guess you can say, is that they lose their operating permit, and so they're not able to operate as a landfill anymore. But the timeframe on these things is very, very long. You have to test for your emissions every five years. Once you've reached a certain threshold, they give you another 30 months to install your system. These are very long timeframes, and we don't have that much time. The climate doesn't have that much time. And so this is where Vespene Energy comes in, is that we provide a third alternative. Essentially what we do is, we build what we call self-sustaining microgrids onto landfills and other wastewater treatment plants and other sources of biogenic methane emissions. A self-sustaining microgrid is essentially, or at its core, it's a turbine based biogas to energy project that's co-located with interruptable data processing, most notably Bitcoin mining.
(13:24):
And so in this way, we're able to bring the user of the energy onto the site, rather than exporting the energy to the user. And so in other words, we're able to monetize data rather than electrons or molecules. And now, this unlocks a number of different attributes. Firstly, we're able to now, because we don't have that additional infrastructure cost, we can now profitably develop sites that were once too small to be targets for traditional developments. And so by now putting a financial value to this waste gas, we're able to basically provide a carrot as opposed to the EPA or regulation stick.
(14:14):
If you imagine the regulator is making you test for your emissions every five years and now is forcing you to comply for these various things, we instead provide a financial incentive to mitigate that methane. And the reason that's important is because we look at methane not only as a, of course, it's not just a US problem, it's a global problem. And there are many countries in the world that have little to no regulation around their landfill gas. And so, if we can provide a non-governmental incentive to capture, [inaudible 00:14:46], destruction of landfill gas, then that's going to be able to scale globally.
Cody Simms (14:50):
Great. Two clarifying questions of things you mentioned. One is, you used the phrase biogas, we talked about methane. Just make sure for everyone listening and for my own education, you can define what biogas is. I presume it is the output of methane from a biological method like a landfill or the sludge leftover in our sewer systems and bacteria that are eating it away and releasing methane. Is that generally correct?
Adam Wright (15:18):
Yep. Biogas is basically just another word for biogenic methane. Biogas does have other gases in it. Generally when you say biogas, it includes, it's generally around 50 to 60% methane, the rest is nitrogen, oxygen, CO2, and then other types of contaminants like hydrogen sulfide and other things like siloxanes and other types of VOCs. And so, another cool thing about our process is that, in addition to mitigating the methane emissions, we're also mitigating the emissions of those other constituents. And so, generally when people think about climate change, you're thinking about global warming and methane is a big part of that. But in terms of things like local air quality and local pollutants, things like hydrogen sulfide, VOCs, NOx, these are things that make a big impact on air pollution, smog, local health, air quality. And these are all things that we also mitigate the release of during our process.
Cody Simms (16:16):
And then, the second clarifying question was around the commercial nature of these landfills in the first place. You mentioned a number of them are quite small, et cetera. Are these municipally owned typically, or are they typically private enterprises?
Adam Wright (16:34):
In the United States, landfills are split up about 50/50, in terms of municipally owned and privately owned. But even if it's a privately owned landfill, generally speaking, the ultimate beneficiary of a landfill is going to be a community of some kind, because when we say landfill, we actually mean municipal solid waste landfill. And so, these are basically where your trash goes to rest. And there's a number of really great programs happening throughout the country in terms of trying to divert organic waste away from landfills, whether it be through organics, composting, or other types of programs.
(17:16):
One interesting thing or key part of our technology is that, not only do we populate and are able to develop active landfills, but we can also profitably capture methane from closed landfills. And when a landfill closes, which means it's not receiving any more trash, that landfill is still going to be producing methane for decades after, so 40, 50, even 60 years worth of gas, that needs to be mitigated. And so, rather than putting that expense onto a community to pay for the operations and maintenance of the flare infrastructure, again, we're able to come in and place financial value to that waste stream and provide a revenue stream back to communities, which can then be used for social programs or whatever else the community decides to do with that revenue.
Cody Simms (18:08):
If I then understand, the high level framing here it's, "Hey, we can go and help these," in many cases, municipally owned landfills or if not municipally owned, they're privately owned, but they are very much core to the fabric of a given city or metro area. And you can walk into these places and say, "Hey, this methane thing that is causing climate change, and that is a real problem you have but is expensive for you to deal with it, we can come in and not only remove the expense of dealing with it, but actually give you a potential profit center without you having to necessarily do all that much. And as part of that, you're going to have onsite energy that can be used around your landfill in a way that you otherwise don't have access to today." Am I understanding the Vespene pitch at the highest of levels?
Adam Wright (18:59):
Yeah, you're absolutely right. Our pitch is essentially speaking, we're helping landfills turn a liability into an asset. Again, we're targeting the spaces or the sites that are, generally speaking, overlooked by traditional developments. And so again, because of the infrastructure requirements, a lot of these sites have no way of, traditionally speaking, no way of monetizing that gas, because there's no developer that wants to come in and buy it because they can't get a return on investment on whatever system they're trying to sell that product into. And so now, the landfills that we're talking to, they either have a financial liability in the sense that they are required to, buy the EPA, to install capture and flaring infrastructure, which is a large CapEx on the front end, and then an ongoing OpEx basically into infinity, or they have an environmental liability.
(19:55):
And the environmental liability is the methane that is being generated by their landfill. But not only does the municipality have that environmental liability, the whole world has that environmental liability. And so, every site that we're able to populate makes a marked reduction in methane emissions, which the UN in 2021, and I think it was during the Glasgow Conference, basically stipulated that immediate reduction in landfill emissions is by far the most powerful lever that we have as humanity to reduce the intensity of climate change.
Cody Simms (20:34):
Super helpful, and that helps me understand a huge setup on the supply side of the business that you're building, where this power comes from and why there's a problem today that both prevents that latent power from being harnessed, which is basically, connecting these landfill sources to the grid or to a gas pipeline is extremely expensive. And helps me understand how you're able to provide an economic incentive to the owners of these landfills to have you come in and work with them. Let's shift to the demand side, which to me is the whole Bitcoin ecosystem. Bitcoin is a very complicated world in climate circles, as I'm sure you know better than me. My understanding is the proponents of Bitcoin as a climate oriented solution will say that, "Look, Bitcoin is essentially the world's first currency that's backed by energy or backed by compute power."
(21:32):
What makes Bitcoin fungible is the fact that it is expensive from an energy perspective to secure the network, that the computations that are running aren't necessarily individual transactions, they are the regular security mechanism around the network that makes it hard to crack, which allows it to be trustless. It allows no government to control the ledger because the ledger is expensive. You can't attack it with a bunch of computers, because it would cost too much energy to do so for any one party necessarily. I'm sure I'm butchering that argument, but that's my general understanding.
(22:08):
I think the argument of Bitcoin as a problem, from a climate perspective is the same thing. It uses a lot of energy. And in order to use that energy today, because we don't have pervasive renewable energy all around the world, it's doing things like slowing the retirement of coal plants, which are being kept online to power Bitcoin mines, et cetera, et cetera. And so, I'm really interested to hear you explain the demand side of what you're building, which is taking this energy and moving it into the Bitcoin system, into the Bitcoin network as a climate solution and how you think about that.
Adam Wright (22:41):
Absolutely. We try not to get too involved in the philosophical discussion of Bitcoin, because there certainly are going to be people that are anti-Bitcoin, they don't see the value, they don't understand the value of Bitcoin. And if somebody has that viewpoint, any energy consumption by Bitcoin, no matter how small is always going to be bad. Because you don't understand the philosophical reason for Bitcoin, you're always going to think that it's going to be bad if it consumes energy. I think the other important thing to look at is, there's a difference between energy consumption and emissions, because Bitcoin generally gets vilified by saying it has the same energy consumption as some countries like Argentina or I'm not sure which countries are the latest ones that people are comparing to. But I think what's not compared to is the emissions profile.
(23:39):
And so, the other thing I think to understand is that Bitcoin has some really interesting properties, and the main interesting one is that it doesn't matter where on earth the mining is done. And I think firstly, it's important for people to understand, it's, mining is really the wrong word for it. Mining conjures up these images of dirty people in coal mines with pickaxes. Really it's what a miner is, is a decentralized auditor, essentially of the Bitcoin network. And what Bitcoin mining is, is essentially data processing. And so, when you frame it in that perspective, firstly, it's a little easier to understand and relate to. But then also, so it has this magic property that you can operate a Bitcoin data center anywhere on earth where there's energy, because you can send that data via satellite. You don't need a connection or great connection to do it. So Bitcoin is uniquely able to scalably populate these areas, these pockets of stranded or wasted energy, and in our case, that energy just happens to be methane.
(24:51):
And methane, as we know, is a powerful greenhouse gas for every, let's say, ton of methane that I combust, I've basically prevented the equivalent of 25 tons of CO2 to go into the atmosphere. And so therefore, from a, we call that CO2e or CO2 equivalency. And so from a CO2e perspective, what we've done there, is actually become carbon negative. And so over time, as more companies like us come online and as grid, let's say grid power or normal energy becomes more and more expensive, then miners are just going to, by nature of the, [inaudible 00:25:31], they're going to be migrating more and more towards these cheaper energy sources and cheaper energy sources just happen to be cleaner, and ours happens to be carbon negative. We do believe that in several years time, the Bitcoin network will become, from a carbon equivalency perspective, carbon neutral, or even carbon negative, which is a really interesting perspective.
(25:55):
I think one thing that I did want to mention though, that's important in terms of Vespene's development is that we're actually not really a Bitcoin miner per se. You can look at Vespene in a number of different ways. I think we're primarily a methane mitigation company, but also a renewable energy developer. But we use Bitcoin mining essentially as a tool. We use it as a tool to set up these self-sustaining microgrids. And once that microgrid is set up and, firstly, you're mitigating your methane and you're being provided with financial remuneration, so we call it, we would consider that basically a base camp. If renewable energy development is a mountain that we've just set up a base camp, so we've prevented the release of that methane and we were able to sustain ourselves in a financially beneficial way. And then, over time we can integrate other use cases for that energy.
(26:48):
And the main one is electric vehicle charging. Obviously as time goes on, there's more and more adoption of electric vehicles. California recently banned the sale of new gas vehicles, I think by 2035, there's going to be a massive, or there is a massive push to electrification. And so, landfills are actually going to play a very important role in that electrification, because landfills, if you think of a landfill, there's a ton of different vehicles that are interacting with that landfill. Primarily with trash collection fleets, there's a big movement within the landfill community to electrify fleets. And generally speaking, if I wanted to electrify my fleets, I would have to contact my local utility, have them build out high power charging electrification out to the site. And then, I would have to size that investment to be exactly, how many trucks I'm going to be charging at the apex of my electrification.
(27:52):
What we allow landfills to do, is actually electrify at their speed, because we have this data processing load operating in the background. We think of that as a, it's an energy ballast, so any unused energy is always getting monetized. And so let's say day one you say, "Hey, I'm going to have a pilot program, or I'm going to put in one charging kiosk and charge one truck." Great. Well, we siphon off as much energy as that truck needs to charge, and the rest of it gets eaten up by the data load. And then, over time you can build on that. And so basically, that Basecamp model allows that electrification to commence at the speed that the landfill wants to and doesn't require any additional infrastructure or input from the local utility.
Cody Simms (28:43):
We're going to take a short break right now so our partner Yin can share more about the MCJ membership option.
Yin Lu (28:49):
Hey folks, Yin here. Our partner at MCJ Collective. Want to take a quick minute to tell you about our MCJ membership community, which was born out of a collective thirst for peer-to-peer learning and doing. That goes beyond just listening to the podcast. We started in 2019, and since then grown to 2000 members globally. Each week, we're inspired by people who join with differing backgrounds and perspectives. And while those perspectives are different, what we all share in common is a deep curiosity to learn and bias to action around ways to accelerate solutions to climate change.
(29:19):
Some awesome initiatives have come out of the community. A number of founding teams have met, nonprofits have been established, a bunch of hiring has been done. Many early stage investments have been made, as well as ongoing events and programming like monthly women in climate meetups, idea jam sessions for early stage founders, climate book club, art workshops, and more. Whether you've been in climate for a while or just embarking on your journey, having a community to support you is important. If you want to learn more, head over to mcjcollective.com and then click on the members tab at the top. Thanks and enjoy the rest of the show.
Cody Simms (29:51):
All right, back to the show. Super helpful. And there are two directions I want to go with this. One is making sure I understand how you go from A to B to C and building out using Bitcoin, data centers are actually kind of... If I understand it, because the nature of Bitcoin is such that, other than getting the machines there in the first place, there's not necessarily a logistics play that's involved with Bitcoin, in that you don't have to transport the electrons or transport anything anywhere. As long as you're connected to the internet, once you've processed the energy on site, converted it to Bitcoin and are basically using your facility to be a Bitcoin node, you can do that anywhere in the world.
(30:40):
And so, every other use case you mentioned had some real world physical limitation to it, whereas this allows you to very quickly and easily do it and to do it at fairly subscale if you need to start, because you can continue to add compute power to your local node, and then you can add other nodes around the world. But it doesn't matter how close they are to each other really, other than again, that initial build out of getting the machines there and just your operational overhead of running all these, [inaudible 00:31:08].
Adam Wright (31:07):
That's right. The other thing that does though, is that it allows... So that means that your data, the data on my site that I'm processing is what we call not mission critical. That means I can basically... The only thing that happens when I, let's say, turn off my Bitcoin server is that I'm losing revenue. There's no customer that cares if their Netflix show went down or their website wasn't hosted anymore. These are examples, [inaudible 00:31:35].
Cody Simms (31:35):
Or their hospital equipment doesn't work, [inaudible 00:31:37], much more extreme use cases.
Adam Wright (31:38):
Oh, yeah. A hundred percent. And so, what that means is that we can actively dial up or dial down very scalably to accommodate these other onsite use cases, whether it be electric vehicle charging. Again, you think of it as the concept of self-sustaining microgrid and microgrid can support any number of different electric consumers of electricity. The primary ones that we're actively pursuing are charging, but also 5G. Cell phone towers, especially 5G, are actually fairly energy intensive. And it also just so happens that the communities that need access to higher connectivity are the ones that where landfills are located. Landfills are in of rural areas, and we believe in helping to benefit those communities, whether it be by that charging infrastructure or the 5G infrastructure. And then, there's a number of other use cases that we can get into including ultimately grid connection.
(32:36):
There are going to be sites that, over time that make sense because of the way the population is building out or the way that energy prices become, that it will ultimately potentially make sense to connect some of those sites through grid. The reason why you wouldn't do that in the first place is, it can take many years to get a interconnect agreement put in place. And then generally speaking, a wholesale electricity sales can be quite low margin. Because we've essentially amortized the cost of all of our equipment by virtue of either the Bitcoin mining or the data center application, we can now accept a lower margin activity for a much longer time period.
Cody Simms (33:18):
Super helpful. And actually the second question I was going to ask, I think actually builds on this, which is, what I'm hearing you say is Bitcoin serves at least initially almost as a bootstrap, because there's almost, doesn't matter how much or how little power you have, you can grow with the size of the network. One thing I think we didn't mention about biogas is just the nature of it, is that it's always on. Unlike other semi renewable forms of energy, there's no intermittency to this. It's producing methane all 24 hours a day, I'm guessing. And so, it's always on for you to control. The question I have, when it comes to Bitcoin is one of the perverse incentive question, which is as it gets more and more profitable, all these other use cases are imaginable.
(34:03):
You could power the EVs of the garbage trucks that are coming to and from the landfill sites. You have these hubs presumably, that are highway connected, that could even be stop over hubs for, I assume medium and long haul trucking that are EVs that are going to need a place to stop and charge. But the net per electron profitability question is going to come into play, which is, is it more profitable for you to do those things or is it more profitable to mine Bitcoin? And I think it's that same perverse incentive that I know a lot of people get concerned about with climate and Bitcoin as well that I mentioned earlier, which is a coal plant that's scheduled to be shut down, but then a Bitcoin mining company scoops in and buys it and keeps it up and running. That's a one-off use case in my mind that should be prevented with good regulation.
(34:47):
But we know good regulation doesn't always happen in the United States, sadly, depending on the location. But how do you manage the perverse incentives of not just pouring everything into Bitcoin all the time? Or should you? I don't know. But it feels like if the idea is this broader of stranded energy asset that can be used for multiple use cases, if Bitcoin is trading at hundreds of thousands of dollars per coin someday, it would seem to me your sites are going to be a hundred percent mining Bitcoin all the time.
Adam Wright (35:18):
You bring up a really great question, and I think the important thing to understand is that Bitcoin mining is actually a very low margin business. It's potentially higher margin than, let's say wholesale electricity sales, but it's low margin in comparison to, let's say EV charging. Even the cheapest EV charging is by and large... I would a hundred percent gladly if you said, "Hey, do you want to do Bitcoin mining at this site? Or do you want to a hundred percent charge vehicles all the time?" I would say, "Charge vehicles." Electric vehicle charging is more profitable from a per kilowatt hour basis, than Bitcoin mining will ever be. And so, it's not really a question of profitability, it's more a question of scalability. Bitcoin mining is really the... It's the only thing that you can take without needing a customer or any other type of infrastructure development that you can now populate these sites at scale.
Cody Simms (36:21):
Really it's the ultimate bootstrap? As I was saying.
Adam Wright (36:24):
Yeah, no. It's absolutely the ultimate bootstrap, but I think it's important to note that over time, if you dig a little bit deeper into Bitcoin, you'll understand that the concept of the halving, which happens essentially every four years, the protocol or the network essentially cuts in half your reward as a miner. And so, the more miners that come online and the more powerful the machines become, Bitcoin mining is becoming a lower and lower margin activity. And so therefore it's always, it's important for us as a company to view Bitcoin mining as that bootstrap based camp application and then bring in these other applications with a much more stable cash flow for the long term.
Cody Simms (37:09):
Let me understand more on the mining side of profitability. We're currently, we would quote in a bear market for crypto, even though today price prices of Bitcoin are what was an all time high price, I don't even know, three years ago or something like that. Not even that long ago, I don't think. We're recording in October, and I guess Bitcoin prices are hovering around $19,000 a Bitcoin. Help me understand what does profitability from a mining perspective look like? We could spend, I'm sure hours on this, but just to help our listeners understand, get at least a baseline of knowledge in this regard. And I don't know a ton about this, it has something to do with how modern your machines are, how you've financed them, all sorts of intangibles. I'm sure that matter in this regard.
Adam Wright (37:52):
Yeah. We could definitely dig in super deep on the mining economics, but I think the important thing to understand is that as a miner, the amount that you're earning from a transaction or from your activities as a miner, are dependent not only on the price of Bitcoin, but also the number of other miners that are on the network. And so generally speaking, because Bitcoin itself, [inaudible 00:38:15], asset, is a volatile asset, your profitability is also going to be volatile over time. It's important when you're modeling it, it's important to be conservative in terms of... And actually and also have access to very low cost of power. And I think by definition, using essentially waste methane is, by definition going to be an inexpensive form of energy. And so, I think it's important to understand that it is going to be volatile over the long term. And so that's why it's important to layer in these other use cases and also hedges against Bitcoin to provide a diversity, [inaudible 00:38:54], different revenue streams.
Cody Simms (38:56):
Got it. Again, back to the original supply side of your business, which is the actual landfills themselves, it's going to these operators and saying, "Hey, we've got this way for you to earn some money. It's going to be volatile, we're going to give you a profit share on this, that's going to fluctuate, but right now, this is all cost for you. So hey, we're turning some cost into upside." And then, are you holding the Bitcoin on your balance sheet? Are you selling it? What does Vespene business model from that perspective look like?
Adam Wright (39:25):
Look, we're still a young company and we're much more focused on growth and expansion. In general, we're going to be leveraging or utilizing whatever revenues that we have to come back into the business and expand. There's a big opportunity in landfills, not only in the United States, but also worldwide, wastewater treatment, other methane sources, it's a wide, wide world of wasted methane opportunities. And I'll speak briefly about where we are as a company. We have a pilot site under construction currently in Central California. This will be about one and half megawatts, which would be considered smaller, on the smaller side of landfill. Generally that size of site and given its proximity is not a target, again for these traditional developers. And then addition to that, we have another 10 sites that are currently in our active pipeline that are going to be coming online within the next year to 18 months.
Cody Simms (40:20):
And then, one other just of technical question about these sites and what you're getting out of them, what's the general BTU content look like coming out of these sites? Is there enough pressure to really drive on-site use cases? I'm definitely not a methane expert or a gas expert, but it feels like these are the questions that come up around gas power plants. Just making sure I understand that.
Adam Wright (40:43):
Typically, so landfill gas to energy or landfill gas to electricity is a fairly well understood technology. There's a number of sites across the country that are active power plants, where they're combusting landfill gas and sending that energy to the grid. Generally, what happens on a technical level is that you have basically a vacuum system that's pulling a vacuum on the landfill, the landfill has a series of piping and wells that are dug into the landfill. And that gas basically comes out under a vacuum, and then when you use a turbine based approach like we do, we're actually compressing that gas. Firstly, we're filtering the gas, we're cleaning the gas, cleaning out the contaminants like the H2S and the siloxanes, et cetera, and then we're compressing the gas and feeding that into a micro turbine. And a micro turbine is essentially a, it's a fancy generator that combusts the gas in of the cleanest possible way and then creates electricity.
(41:37):
And so from an engineering perspective, all of the challenges in terms of getting landfill gas out of the landfill and into a combustion chamber, those are all very well understood project. Where we come in, is adding on that Bitcoin mining layer, and then allowing that Bitcoin mining to facilitate, by scaling up and down to facilitate these other onsite uses.
Cody Simms (42:03):
Awesome, Adam. Well, I so appreciate you taking the time to explain all this. And I spent a little bit of time in this space because, as I think listeners know, we've had Chase Lochmiller from Crusoe Energy on the show before. At MCJ, we're investors in Crusoe, so we have a bit of an understanding of the model and the climate impact as we view it, but that's focused on gas flaring from oil wells that are essentially stranded, whereas doing this on landfills and with biogas, that is a completely different source of energy. And so, interesting to hear how you view that. And I guess that's the last question I would have for you on the overall business is, the geographic nature of these landfills, presumably you believe affords some degree of future economic benefit. And I'm curious, maybe it's the EV charging use case we talked about, but I'm curious what you think the benefit of this, being a highly distributed system across the United States provides for your business.
Adam Wright (43:02):
Absolutely. Well, firstly, Chase and the whole team of Crusoe are good friends of ours, and they're pioneers in the space. I think there's a couple of key differences, I think between oil and gas, flare gas mitigation, and comparing that with landfills. I think firstly, landfills are going to require somewhat more capital to actually build out, because you need to have that gas purification step, you need to filter out those contaminants, which are generally not in place, certainly to the same extent in oil fields. But I think the thing that you gain on the landfill is both the proximity, relative proximity to population centers that opens up these other use cases, but also the length of time that, that landfill is going to be producing methane. And so, I think that because in an oil field application, your natural gas or your methane is basically a byproduct of the oil exploration. And so once that oil is basically removed or sucked out, that the natural gas production is basically going to taper down.
(44:02):
It's actually the opposite in landfill. The landfill is actually increasing in gas production over time as that landfill takes in more and more trash. The landfill is going to be increasing in gas production. And so, as long as a landfill is open, and these landfills can be open a hundred years, potentially, so it's a very long term play. And we believe that the future of energy is electric, and it's important to balance other forms of renewables such as wind and solar, which are not base load, they're intermittent. It's important to balance that with base load. And by leveraging this decentralized network of landfills, smaller decentralized landfills, we can actually make a, in aggregate, we can make a significant impact on electrification in general. And whether it be from a vehicle charging perspective or a grid connection perspective, or even a decentralized data processing perspective, every little bit helps.
Cody Simms (44:59):
And I guess, Adam, if listeners don't believe you or don't believe me for having you on here as a potential climate solution, maybe you can describe the paper that the White House recently published.
Adam Wright (45:07):
Yeah. Well, so the White House, actually, it was the White House Office of Science and Technology Policy, they published a report on cryptocurrency mining and its energy usage. And I think the report was, and again, I don't want to get into politics about sources of information, but in general, it says, "Yes, Bitcoin mining is an energy intensive process and we need to be careful about the emissions profile." But it did mention specifically that, in certain applications and methane mitigation applications that Bitcoin and cryptocurrency mining can be used to further the Biden Administration's goals of de-carbonization. And they mentioned landfills specifically by name. That was, [inaudible 00:45:44], exciting to us that the White House is actually mentioning our business model as a potential climate solution. This is exciting for us in a way for us to further develop the business and potentially scale out even more quickly.
Cody Simms (45:57):
Fantastic. And on that note, you all recently announced a seed funding round. Maybe share a little bit about how that's going and what you view the future of the business looking like from a financial perspective in terms of capital needs.
Adam Wright (46:10):
We closed a seed round with Polychain Capital being our lead investor, but we also had several climate focused smaller groups as well as angel investors. The purpose of that was to facilitate standing up the pilot site, but because we're getting a lot of traction, we'll be pivoting into a series A fairly quickly. We also capitalize each individual site on a project finance basis, so we're not actually using company funds to a hundred percent capitalize every site. We basically bring in outside investors to take positions, equity positions in each site so they can benefit from the site by site economics.
Cody Simms (46:47):
I'm curious, who is funding the build out of the sites? Are these typically debt investors who are typically funding landfill build outs? Are they investors that work in biogas already and are looking for alternative solutions? I'm curious, without revealing the secret sauce about where your capital's coming from, what pools of capital are interested in this?
Adam Wright (47:10):
That's a great question. Our capital reach I think is fairly diverse, because we're able to stand at the intersection of cryptocurrency, as well as climate and methane mitigation and renewable energy development. And so, we're able to draw capital from a variety of different pools. I think primarily, so far we've been drawing capital primarily from climate and crypto focused investors, but over time, we also want to get more into the energy capital mix.
Cody Simms (47:39):
How are you finding pools of capital today on the infrastructure build outside? Are you currently starting to attract traditional infrastructure dollars that would invest in a landfill project or in a natural gas project? Or is that what you hope to grow into in the future?
Adam Wright (47:57):
That's a good question. And I think because of the nature of our business, we stand right at the intersection of cryptocurrency, climate and renewable energy. And so, we've been able to draw capital from a variety of different groups. Currently, most of our capital is coming from the crypto world as well as the climate world. And so, in terms of accessing dollars from more traditional energy project developers, we're actively engaging in conversations around that. But we have some fairly big players that are interested in us. As soon as we can prove out our viability from a pilot perspective, and so we'll be able to... Generally, it's like the proof is in the pudding, you got to get the steel in the ground. And so, having our pilot project under construction right now, as well as these other projects that are in the pipeline are very helpful in that. But as soon as we get that project up and running, which should be end of this year, early next year, we'll be able to start accessing additional capital, whether it be debt or equity based.
Cody Simms (49:00):
Excellent, Adam, and for people listening who are interested in what you're building, you're working at the intersection of projects that I know a lot of folks who work in both tech and in climate have a keen interest in. Where are you needing help right now?
Adam Wright (49:13):
Great question. I think firstly, we're very open book, our company in terms of collaboration and joint ventures and things of this nature. And so, feel free to reach out and contact me, I'm at Digital_Ore on Twitter O-R-E, or you can just hit us up at vespene.energy. In terms of where we're focused on mostly, we're still very small and nimble. We have a small team and we're mostly, essentially horizontally integrated in terms of utilizing subcontractors for most of our build outs. But as we move forward, we're going to be bringing a lot of that in-house, so things like manufacturing of the gas treatment systems and some of the on-site engineering will be able to do that in-house and help on the CapEx margins. And then other than that, understanding regulatory frameworks and all of the different incentive programs that are offered by, there's a litany of different, there's the IRA, there's the Build Back Better, there's all kinds of different government programs that have potential for funding, whether it be grants or tax credits and things of this nature, that we're going to be seeking to capitalize on.
Cody Simms (50:25):
Well, I so appreciate you joining us today, and it was great hearing about your story and hearing your approach. And I can't wait to hear once the first site is up and running, how things are going.
Adam Wright (50:35):
Yeah. Awesome. Thanks a lot, Cody. It was a pleasure.
Jason Jacobs (50:38):
Thanks again for joining us on My Climate Journey Podcast.
Cody Simms (50:42):
At MCJ Collective, we're all about powering collective innovation for climate solutions by breaking down silos and unleashing problem solving capacity. To do this, we focus on three main pillars, content like this podcast and our weekly newsletter, capital to fund companies that are working to address climate change and our member community to bring people together as Yin described earlier.
Jason Jacobs (51:04):
If you'd like to learn more about MCJ Collective, visit us at www.mcjcollective.com. And if you have guest suggestions, feel free to let us know on Twitter @mcjpod.
Cody Simms (51:19):
Thanks and see you next episode.
