Why cryptocurrency miners are the next big threat to Texas’ power grid

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Texas, already home to the most vulnerable power grid in the United States, is about to be hit by an increase in demand for electricity twice that of Austin.

An army of cryptocurrency miners heading to the state for its cheap electricity and laissez-faire regulations are expected to push demand up to 5,000 megawatts over the next two years. The crypto migration to Texas has been building for months, but the amount of energy these miners will need – twice as much as the capital of nearly a million people consumed in 2020 – is only becoming clear now.

The boom comes as the electricity system is already strained by a growing population and a robust economy. Even before the new demand went live, the state’s network proved fatally unreliable. Catastrophic power outages in February plunged millions of people into darkness for days and ultimately left at least 210 dead.

Supporters like Republican Senator Ted Cruz and Governor Greg Abbott say crypto miners are ultimately good for the grid because they say miners can soak up excess clean energy and, if necessary, can intentionally slow down in seconds to help avoid power outages. But it begs the question of what these miners will do when the state’s demand for electricity inevitably exceeds supply: will they adhere to an honor system of reducing their energy use, especially when the price Bitcoin itself is so high, or will it mean even more pressure on an overwhelmed grid?

“No one is looking at the scale of potential crypto investments and its demand for energy over the next two years and trying to factor it into some kind of strategic plan,” said Adrian Shelley, director of the crypto industry. Texas consumer advocacy office and public citizen lobby group, which has strongly criticized vulnerabilities in the state’s unregulated electricity market.

Here’s what you need to know about Texas, cryptocurrency, and the power grid.

Why Texas?

Texas rolls out the red carpet for crypto miners as the former Chinese leader banned the industry. Mining for crypto requires massive amounts of energy, complicating Beijing’s efforts to reduce greenhouse gas emissions and consolidate energy supplies before winter.

Miners moving to Lone Star State can often count on a 10-year tax rebate, sales tax credits and state workforce training, depending on where they are found and the number of jobs they add. Even without formal incentives, cheap electricity prices and the government’s non-intervention policy towards businesses are often attractive enough.

The pitch is working: the network operator Electric Reliability Council of Texas, or ERCOT, will represent around 20% of the Bitcoin network worldwide by the end of 2022, up from 8% to 10% today, according to Lee Bratcher, chairman of the Texas Blockchain Council. Currently, ERCOT has an extraction capacity of between 500 and 1,000 megawatts, out of around 2,000 nationwide. The public grid will add another 3,000 to 5,000 megawatts to mining demand by the end of 2023, he said.

While it is likely that the grid will have sufficient total capacity to meet the increased demand, the even more important question at stake is reliability and whether there will be enough power when demand is at peaks and that the supply is vulnerable, according to Moody’s analyst Toby Shea.

“Texas has been very business friendly and ERCOT is one of the largest deregulated energy grids in the world,” said Dave Perrill, CEO of mining infrastructure company Compute North. His company had planned to develop more mining capacity in the United States in 2023, but pushed it back until 2022 due to high demand.

All nine of the U.S. and Canadian power grids have miners on them, but Texas now has the most, said Gregg Dixon, CEO of Voltus Inc., which helps large consumers obtain electricity and provides electrical services. response to demand from US cryptocurrency miners. Chinese nationals are largely responsible for this boom, he said.

“They come in and write checks for $ 100 million on the spot,” he said.

Meanwhile, the Texas grid has been strained as the population has grown by over 4 million over the past decade to nearly 30 million, as part of a boom that has created the one of the fastest growing economies in the United States. Austin is the fourth largest in the state. city, which is home to just over 3% of Texas residents.

Why this could be bad for the network

While ERCOT predicts that several thousand megawatts of mining demand will be added to the grid, the grid operator said it has no estimate of current demand from miners. It also doesn’t know how much will be added to its peak demand forecast, or how many companies will voluntarily choose to reduce their consumption in the event of a disaster. ERCOT is supposed to keep additional supplies on hand – at least 13.75% more than this expected peak – to help avoid power outages during a cold snap or heat wave.

Forecasting supply and demand was already becoming more difficult on American networks. Extreme storms caused by climate change have disrupted supplies and more electricity is now coming from intermittent wind and solar power. The rise of electric vehicles is also making it more difficult to predict when and where they will plug in. In addition, mining “is a huge variable load,” said Tom Deitrich, CEO of Itron Inc., which provides utilities with demand response capabilities. .

Overall, this means the grid could have the wrong amount of electricity when the state needs it most. Mismatched priorities in Texas’ energy sector and a massive lack of electricity demand forecasts in February ended in disaster: millions in the dark, more than $ 20 billion in damage and calls for overhaul of the state’s energy sector.

“The impact of Bitcoin mining will only increase peak demand, increasing stress on the grid,” said Ben Hertz-Shargel, global head of Grid Edge, a division of the energy consultant. Wood Mackenzie. “In times of scarcity, such as in February of this year, Bitcoin mining could have an unnecessary contribution to the net load.”

Critics also say the scale of the new mining demand could increase electricity costs for average consumers, although no one has been able to quantify by how much prices could rise. When Plattsburgh in upstate New York attracted crypto miners, they first used up all the cheap hydro power available, resulting in higher costs across the city; he eventually had to put in place tariffs for minors in order to reduce the costs of everyone else.

“They turned on the switch and all of a sudden we realize – Holy smoke! – where does this electricity consumption come from? Mayor Christopher Rosenquest said.

Another overlooked aspect of mining is that its energy intensity will continue to increase as the system is designed to make it harder to extract every additional part. Miners are evolving from little “moms and dads” adding connections in their basements to massive rack servers in large air-conditioned warehouses, using more and more energy.

Ed Hirs, an energy specialist at the University of Houston, warns that Texas and crypto don’t mix.

“Who is the beneficiary of the Bitcoin mining? It doesn’t provide jobs, it doesn’t pay taxes, ”he said. “There are welfare issues here that I think a lot of people will tend to ignore until there is a crisis.”

Why this might be good for the grid

The crypto industry’s talk about why this makes sense in Texas is simple: It’s good for the energy transition and the environment. The miners say they will lead a wave of new wind and solar developments by signing long-term contracts, speeding up the state’s transition to coal. And mining operations can act as a balancing force by absorbing excess clean energy that would otherwise be wasted. Elon Musk said Tesla Inc. will re-allow Bitcoin transactions once mining is done with cleaner energy.

Unlike a factory or an oil refinery, crypto miners can reduce their electricity consumption in seconds to ease tight grid conditions. The mining industry likes to draw parallels with battery storage technology which can step in when needed.

Crypto mining is “a very special type of demand; it can be reduced very quickly, ”said Carrie Bivens, former head of public grid operations who now serves as an independent market monitor with Potomac Economics. “Likewise, if this burden had never existed, there would be no need to reduce it. “

Some miners voluntarily opt for programs in which they are paid to sell electricity back to the grid during times of high demand – both a benefit for the common good and their own cash flow. For example, if a miner had purchased electricity for $ 50 per megawatt hour, he could have sold that electricity back to the grid for $ 9,000 during the February crisis and pocketed the difference.

A 300-megawatt mine site in Rockdale, central Texas that Riot Blockchain Inc. purchased earlier this year, called Whinstone, is one of two facilities to date that have signed up for the “Controllable Load Resource” program. ”From Ercot, which pays a premium to industrial users which will allow the network operator to automatically reduce or increase their energy consumption when needed. The other in the program is the 50 megawatt Compute North facility in Big Spring, West Texas.

During a recent weekend, ERCOT ordered the Whinstone site to reduce its usage for two consecutive days after two factories were taken offline. “The power of our machines danced and increased and decreased depending on what ERCOT asked our software to do, and what it did was help stabilize the network while it was doing so. “More generations were coming,” said Chad Everett Harris, CEO of the facility. Harris said it voluntarily shut down on February 11 as temperatures plunged across Texas, three days before ERCOT began cutting power to save the grid.

In fact, miners realize that much of their appeal right now is their ability to do good – cutting back on production to help the network even at the risk of their own profits – otherwise they lose the argument that they are helping. to the energy transition, said Dixon of Voltus. . That’s why he believes companies will do the right thing, unregulated or unregulated.

Naureen Malik, Bloomberg

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