Bitcoin City should be based on energy economics just as much as energy marketing

Lorenzo Vallecchi
10 min readFeb 12, 2022


Why volcano energy alone might not be the best fit for El Salvador’s President’s dream city.

A version of this story was first published in Bitcoin Magazine.

The creation of a Bitcoin City powered by “volcano energy” proposed by El Salvador’s President Nayib Bukele is appealing for many bitcoiners at an emotional, esthetic level.

Envisioned in the shape of a perfect circle, like a coin, with a bitcoin-symbol-shaped public square in the middle and a multitude of urban nodes radiating in every direction, the proposed city’s esthetics aim to resonate symbolically with bitcoiners.

This vision makes sense based on Bukele’s communication and marketing savviness. It could also be a great opportunity for fr·ee, the architecture and industrial design firm founded by Fernando Romero, as Bitcoin City is a rehash of Romero’s FR-EE City, the 2012-project of an “urban prototype for building new cities in the emerging economies of the 21st century.”

The emotional, esthetic foundations of Bitcoin City can be viewed as quite sound among bitcoiners. But its energy foundations may not be the best possible fit for the bitcoin edifice Bukele wants to spur — at least in terms of their cost and speed.

The “volcano energy” Bitcoin City is supposed to tap into is more commonly known as geothermal energy. Calling it “volcano energy” sounds of course more exciting than geothermal energy and it demonstrates once again Bukele’s marketing and branding acumen.

The reason why geothermal energy might not be the best and quickest fit for Bitcoin City has to do with its development time and costs. It can take 5–7 years to go through all the phases involved.

In the case of the Colchagua Volcano, which is the one near which Bitcoin City would be built, the first few phases are underway or have been already carried out, as last June Bukele twitted that engineers had already dug a well with an estimated 95 MW geothermal capacity at the site.

Even so, it will take at least another 2–3 years before the plant can start generating electric power, to be used for a planned “bitcoin mining hub around it.”

This already hints at one big reason as to why geothermal energy has not been hugely developed in the last few decades, either in El Salvador or in the world in general, even if it avoids the drawbacks of intermittency that solar or wind power suffer. Although cheap to operate and providing almost unlimited hours of operation, geothermal energy has very long lead times and until all the technical I’s have been dotted and the economic T’s have been crossed, results are uncertain. Projects or parts of them can remain, quite literally, holes in the ground.

Solar and wind power plants can also take time to be developed, but that’s usually due to permitting issues, not technical difficulties and uncertainty about solar irradiation or wind speeds, and their lead time is generally much shorter, about 1–2 years for large utility-scale systems, and much less for smaller ones.

Issues of time and costs cannot be underestimated in the decisions of many public and private investors. Let’s try and paint a reasonably simple, yet comprehensive picture with broad data that are representative of different renewable energy technologies across the world.


In 2020, the average total installed cost of eight new geothermal plants monitored by the International Renewable Energy Agency (IRENA) was $4,486/kW, ranging from a low of $2,140/kW to a high of $6,248/kW.

Focusing on El Salvador, a recent study presented at the last World Geothermal Congress by Salvadorean, Icelandic and Iranian researchers quotes a total cost of $480 million for a 50 MW geothermal plant in the Central American country, or $9,600/kW.

For comparison, the average total installed cost of solar photovoltaic (PV) projects commissioned in 2020 and monitored in the IRENA database was $883/kW — five times cheaper per kW than IRENA-monitored geothermal power, or 10 times cheaper than the example quoted at the World Geothermal Congress. If we take offshore wind power as a term of comparison, its average total installed cost came at $1,355/kW in 2020 — one and a half times cheaper than volcano energy.

Besides development and installation expenses, another important factor to consider is the cost of generating energy once a plant has started production. To do that, let’s look at the Levelized cost of energy (LCOE), which measures the average net present cost of electricity generation for a power plant over its lifetime. It’s a key number used to plan investments and compare different methods of power generation on a consistent basis.

The average LCOE of the geothermal projects commissioned in 2020 was $ 0.071/kWh, slightly lower than in 2019, but broadly in line with values seen over the last four years. That compares with an LCOE for solar and onshore wind that has been falling rapidly in the last 10 years and that in 2020 was, respectively, 0.057/kWh and 0.039/kWh.

That means geothermal energy is about 25% more expensive to produce than solar and 82% more expensive than onshore wind.

As far as costs and lead times are concerned, solar and wind power are the clear winners over geothermal energy, as this 10-year graph by IRENA on the global LCOEs from new, utility-scale renewable power generation technologies shows.


As mentioned, geothermal power is not intermittent and plants can produce for more hours than solar or wind systems. The measure of how much electricity any given plant produces compared to its theoretical maximum possible output is called the “capacity factor”. It’s an important measure because it indicates how fully a power plant can be used.

Let’s compare them, according to the latest IRENA’s data.

In 2020, the global average capacity factor for newly commissioned geothermal plants was 83%, ranging from a low of 75% to a high of 91%, while the average capacity factor for new, utility-scale solar PV plants was 16.1% and that for onshore wind farms was 36%.

That means the capacity factor, i.e., the effectively available hours of operation, for geothermal plants was five times higher than for solar and 2.3 times bigger than for onshore wind.


The amount of usable energy that any power generation technology produces compared to its energy input is called energy conversion efficiency, and in the case of geothermal energy, it depends on many variables, including the power plant design, size, gas content, dissolved minerals and many other parameters.

The highest reported conversion efficiency is approximately 21% at an Indonesian geothermal plant, with a global efficiency average of around 12%, according to a 2014-worldwide review of 94 geothermal plants published in the Geothermics journal.

The energy conversion efficiency of new, commercially available photovoltaic panels is now between 21 and 23%, with researchers that have already developed solar cells with efficiencies approaching 50%. Wind turbines extract on average about 40% of the energy from the wind that passes through them.

Bottom lines

Basically, geothermal power is five times more expensive to develop and install than solar, and around two-three times more time consuming, but it can produce 5 times the energy of solar and more than twice that of wind power per MW, as it can work day and night, winter and summer, doldrums and gale, unlike solar and wind (unless one uses large battery systems, whose development is fast progressing, but that presently can only cover a few hours of consumption every day).

But geothermal energy is also a quarter more expensive to produce than solar, almost twice as expensive as onshore wind and its energy conversion efficiency is around 10 percentage points lower than solar PV and about 3–4 times lower than wind power.

One can capture the combination of these different factors by looking at the dual efficiency score for renewable energies. The higher the score, the better a technology performs on a wide series of criteria.

This score summarizes economic dimensions as inputs on one side and energy, environmental and social dimension as outputs on the other, based on data from IRENA, the World Bank and the Yale Center for Environmental Law and Policy, as illustrated in a recent study focusing on OECD countries and published in the Sustainability journal.

The authors warn that “reliable data for geothermal energy were available for only three countries, Chile, Mexico, and Turkey [in] 2014, with an efficiency score of 77.9%, 72.8%, and 86.4%, respectively”. These data compare with an average of 92.98% for wind and solar energy in 2016.

It should be reiterated that in the 5–7 years since these data were collected, costs for solar and wind have fallen considerably, while their energy efficiencies have increased, as opposed to geothermal energy, whose costs have increased and whose energy efficiency has remained stable.

Even so, on average, geothermal energy in the two Latin American countries considered in the study, i.e., Chile and Mexico, sharing some of the same tectonic plates and geological formations as El Salvador, have a dual efficiency of around 75% — almost 18 percentage points below solar or wind’s dual efficiency.

Geological map of El Salvador (detail) with the Colchagua Volcano area in the green circle — Illustration by United States Geological Survey
Geological map of Mexico (detail) — Illustration by United States Geological Survey


Even if El Salvador has a rainy season from May to October, the area of the Colchagua Volcano, in the South-East of El Salvador, near the port town of La Union, where Bukele wants to build Bitcoin City, is blessed with very high sun irradiation, as this illustration of El Salvador’s photovoltaic power potential shows.

Colchagua Volcano area in the green circle — Illustration by World Bank Group

As an example, one only needs to look at the Capella solar PV plus storage facility, which has officially opened last December providing electricity and power reserve to El Salvador’s grid.

The Capella Solar operation is located in the Usulután department in El Salvador’s southeast — in the same general area as Bitcoin City would be, about 100 km to the west of the Colchagua Volcano.

The solar plant is now the country’s largest. It has a 20-year power purchase agreement with local power distributors at an average price of $0.049/kWh ($49.55/MWh), which is now the cheapest energy in the Salvadorian market. Attached to it there is a 3.2MW/2.2MWh lithium-ion battery storage system, which provides frequency regulation support to the grid and is the largest system of its type to date in Central America.

Volcano Bonds

President Bukele intends to finance construction also by issuing a series of so-called “volcano bonds”, worth $1 billion each, carrying a coupon of 6.5%. The name refers to the idea that these 10-year bonds will be backed by bitcoin, both mined with “volcano energy” and bought on the market. Half of the sum would go to buying bitcoin on the market and the other half would pay for the city’s infrastructure such as the development of bitcoin mining facilities, Bukele said. The first 10-year bond should be issued this year and others would follow. After a five-year lock-up, El Salvador would start selling some of the bitcoin used to fund the bond to give investors an “additional coupon”.

As construction is to be funded by volcano bonds, which are to be backed by bitcoin, which are at least in part to be mined with geothermal energy, timing and costs of the energy infrastructure is a key factor both for the long term sustainability of the city and, more importantly, for the upfront financial viability of the project itself.

The biggest bang for El Salvador’s buck would come from mining its own bitcoin with its own renewable energy as soon as possible, as opposed to buying bitcoin on the market. As any miner would attest, access to the cheapest possible energy is the single most important factor in determining the viability of any mining project.

If time and cost are of the essence for bitcoin mining and Bitcoin City, then maybe geothermal energy is not the best possible option.

Developing a geothermal project presents a unique set of challenges when it comes to assessing the resource and how the underground reservoir will react once production starts. Underground resource assessments are expensive to carry out and need to be confirmed by test wells that allow developers to build models of the reservoir’s extent and flow. Bukele says engineers have already done at least part of this job.

“Much, however, will remain unknown about how the reservoir will perform and how best to manage it over the operational life of the project. In addition to increasing development costs, these issues mean geothermal projects have very different risk profiles compared to other renewable power generation technologies, in terms of both project development and operation”, IRENA says.

Mix it up!

Research focusing on the relationships between energy flows and urban development shows that “intensive and diversified energy sources build up the structure and enhance metabolism in urban areas”, according to a study published in Ecological Modelling.

As geothermal energy is home-grown in El Salvador, way less polluting, way more available than many other sources and directly usable both for thermal and electric energy generation, it’s certainly worth pursuing, but not necessarily as a first choice. It would probably work better as a component of a wider renewable energy mix.

In this respect, it’s worth noting that El Salvador has just signed a framework agreement with IRENA to collaborate on decarbonization and economic development. Both Geothermal and solar energy will be part of this strategy.

One should be able to install a utility-sized solar PV field in less than a year and start mining bitcoin much sooner than the 2–3 years at least that a geothermal project would take. That 2–3-year head start could make a big difference in making the financial foundations of Volcano bonds sounder and Bitcoin City more likely to succeed.

Other types of renewables may become part of the mix in the future, like offshore wind power and tidal power, making the energy mix more diversified and reliable overall.



Lorenzo Vallecchi

Italy-based renewable energy specialist with >20 years of experience in operations, consulting & journalism in Italy, Canada, & the Middle East.