How voraciously Bitcoin mining messes with Texans
Texas has declared itself open to Bitcoin mining, an energy-intensive endeavor that involves warehouses of powerful computers trying to solve complex mathematical problems to unlock valuable cryptocurrency tokens. Texas also has an increasingly strained power grid that only serves Texas and continues to fail or threaten to overload during winter storms and summer heat waves.
This combination of Bitcoin miners’ voracious appetite for energy and the limited and capricious amount of power produced in Texas has led to massive cryptocurrency mines making money to agree to shut down in emergencies, raising more money to shut down in short periods and leave Texas residents must foot the bill, New York Times reports. Here’s what you need to know about how Bitcoin mining is hurting — or helping — Texas energy customers.
How Much Energy Do Bitcoin Mines Use?
A lot. The largest Bitcoin mine in the US – operated by Riot Platforms in an abandoned Alcoa aluminum smelter in Rockdale, Texas, about an hour outside of Austin – uses the same amount of electricity as the nearest 300,000 homes, Times reports. Add the Bitdeer mine about a mile away, and Rockdale’s Bitcoin mines use more electricity than all the houses in a 40-mile radius.
A 1 megawatt mine uses more energy per day than a typical American home does in two years. Lee Bratcher, president of the Bitcoin lobby group Texas Blockchain Council, estimates that Bitcoin miners use about 2,100 MW of electricity in Texas each day, while the Texas State Comptroller’s Office said cryptocurrency mining consumes 3,000 MW.
The Electric Reliability Council of Texas (ERCOT), which manages the Texas grid, “projects that mining could increase by 6,000 MW over the next couple of years and potentially increase to 17,000 MW by 2030,” or nearly what Houston — America’s fourth largest city – use during high demand, the comptroller’s office said in an August 2022 report.
On top of that, “prospective cryptominers have asked to put approximately 33,000 more megawatts into the ERCOT interconnection queue over the next few years (enough to power the entire state of Florida),” Texas Observer reports, although no one expects all of these requests to come true.
Worldwide, Bitcoin mining in July 2022 used the annual equivalent of 132 terawatt-hours of electricity, “comparable to the electricity consumption of Argentina,” the Texas comptroller’s office said. “A single bitcoin transaction used nearly 1,452 kilowatt-hours (kWh) of electricity, equivalent to the power consumption of an average American household for nearly 50 days.”
How have Bitcoin miners made it into cold hard cash?
“Their massive energy consumption combined with their ability to shut down almost instantaneously allows some companies to save money and make money by deftly pulling the levers of US power markets,” Times reports. A significant portion of the revenue major Texas cryptominers bring in comes from their participation in ERCOT’s Responsive Reserve Service program, designed to protect the power grid during periods of high usage.
The program pays them for their participation and their promise to shut down if the grid approaches blackout levels. “In practice, they are rarely asked to shut down,” the Times reports. “Several of the companies are paid through these agreements most of the time they operate. Most years they are asked to shut down for just a few hours and then they get paid even more.”
Bitcoin miners can also avoid fees that Texas charges to maintain and strengthen the power grid by strategically shutting down during high demand, when those fees are considered. And when power prices are high, miners can also shut down and resell their allocated power – which they pre-purchase at low prices – for huge profits.
The Times gave two examples of how this works. During the 2021 winter storm Uri, in which about 40 Texans froze to death during extended power outages, ERCOT paid Bitdeer’s Bitcoin mine in Rockdale an average of $175,000 an hour not to operate, earning the company more than $18 million over four days – ” from fees eventually paid by Texans who had weathered the storm,” the Times add. Another Bitcoin company made tens of millions selling electricity under Uri.
During one day of a heat wave in June 2022, when Riot earned $342,000 a day mining Bitcoin at the Rockdale facility, it also earned $42,000 from midnight to 4:00 a.m. for participating in the Responsive Reserve Service program and saved $5.5 million in taxes by shutting down from about. 04.00 to 06.30 in July 2022, Texas Observer adds, the same Riot Bitcoin facility made more from reducing energy use, $9.5 million, than the $5.6 million in profit it made from mining Bitcoin.
For the whole of 2022 is Times reports, Riot earned $9.3 million from participating in the blackout prevention service (despite being asked to reduce power for only about 3.5 hours), saved about $27 million in potential fees, and earned about 18 million dollars on reselling electricity to other customers. Riot earned $156.9 million from Bitcoin mining last year.
Is this how the Texas grid is supposed to work?
ERCOT told Times it “does not discriminate based on the type or activity” of the companies that sign up for the Responsive Reserve Service program. “We want to be able to serve any business that wants to do business in Texas,” Pablo Vegas, ERCOT’s new CEO, said in November. “And that includes crypto miners.”
“There is a set of rules that exist,” said Carey King, associate director of the Energy Institute at the University of Texas at Austin. Observer. And the crypto miners “fit the definition of being able to provide … emergency services.”
“I think they’re exploiting the system,” said Severin Bornstein, a professor at the University of California, Berkeley Times. “But they’ll say, ‘You know, the system was already there,’ and I’m sympathetic to that in some ways.”
How does this make energy more expensive for ordinary Texans?
The cost of Bitcoin miners selling electricity during peak demand falls on consumers, says University of Houston energy economist Ed Hirs. Times. “Ironically, when people pay the most for their power, or lose it altogether, the miners make money selling power back to Texans at prices 100 times what they paid.”
There is also a cost from the miners’ enormous power consumption. Bitcoin miners say they set up camp in areas where they can use otherwise useless renewable energy, but their energy needs are so great that they actually get 85 percent of their energy from coal and natural gas plants, causing “as much carbon pollution as laying to 3.5 million gas-powered cars for America’s roads,” it Times reports, citing an analysis from tech nonprofit WattTime.
The 1,800 MW used by the 10 Bitcoin mines connected to the Texas grid requires more expensive power generators to come online, and this “increased demand has caused electric customers’ bills to rise nearly 5 percent, or $1.8 billion per year, ” Times reports, citing a simulation conducted by energy research and consulting firm Wood Mackenzie. “In West Texas, where several Bitcoin mines have settled down, bills have increased by nearly 9 percent.”
A group of seven federal lawmakers, including Sen. Elizabeth Warren (D-Mass.) and Rep. Al Green (D-Texas), asked ERCOT about the state’s cryptocurrency boom and electricity consumption last fall. “Given the impacts of cryptomining on the climate, the web, and for ratepayers, ERCOT’s support of this industry is irresponsible and deeply concerning,” they wrote.
“It’s a huge financial burden on Texans,” Wood Mackenzie’s Ben Hertz-Shargel added Times. And because of how the Texas market works, the increases are steepest for residential customers. Riot, for example, told investors that because of its different strategies, it paid 2.96 cents per kilowatt-hour last year. “By comparison, the average price for other Texas manufacturing companies was 7.2 cents,” it Times reports. “For residents, it was 13.5 cents.”
What are Bitcoin supporters saying?
Bitcoin miners and their supporters highlight the benefits they bring to rural communities and argue that their significant energy use will encourage the construction of more power plants, particularly wind and solar generation that are not yet able to circulate online due to a lack of transmission lines . The Bitcoin companies also say that the criticism against them is unfair.
The analysis cited by Times “can be used to attack any industry that uses electricity,” said David Fogel, CEO of Coinmint. “I think the whole idea of singling out specific industries like this is unfair.”
“The thing about crypto is that they really don’t do anything useful,” says Molly White, a software engineer and cryptocurrency researcher. “It’s primarily used for speculation. I think that’s important to realize. And it’s kind of worth the power consumption of small countries?
Is Texas Doing Something to Address Bitcoin Mining Power Consumption?
Yes. The Texas Senate unanimously passed legislation in April that would cap Bitcoin miners’ participation in ERCOT’s demand response program at 10 percent, require them to shut down during peak demand anyway, and eliminate tax incentives — and the Bitcoin lobby is working hard to make sure it fails in the House. Bitcoin boosters are running a “Don’t Mess With Texas Innovation” campaign aimed at stopping this “anti-competitive” bill, SB 1751.
The Texas Senate also sent the House a bill that aims to stabilize the power grid by building natural gas-powered power plants that can generate up to 10 gigawatts of electricity in emergency situations. The Senate claimed it would cost $10.8 billion to build the facilities, but an estimate by the quasi-government Lower Colorado River Authority said it could cost $18 million. It is not clear whether the state would pay for the backup power generators with reserve funds or let ERCOT pass the cost onto energy customers.
The proposal, a priority for Lt. Govt. Dan Patrick (R) “has a lot of opponents,” reports KUT Austin. “Environmental groups are concerned about the amount of additional carbon dioxide emissions from fossil fuels that it will lock into the state’s energy mix. Existing power companies say it will destroy the competitive energy market in Texas. Meanwhile, consumer advocates point out that it will sharply increase already rising electricity bills. in Texas.”
How did Texas end up with all these Bitcoin mines in the first place?
Initially, Texas invited Bitcoin miners in, and they accepted, drawn in by cheap energy and relatively few regulations. They have to go somewhere. Bitcoin mining used to be centered in China, but due in part to the industry’s massive energy consumption, Beijing declared crypto mining “undesirable” and banned it in 2021. Many miners moved to Iran and Kazakhstan, which also cracked down. Texas rolled out the red carpet.
“Texas will be the crypto leader,” tweeted Gov. Greg Abbott (R), who also hosted the Texas Blockchain Council at the governor’s mansion. ERCOT’s former chief declared himself “pro-Bitcoin.” For the Bitcoin miners, “the main attraction is cheap wholesale electricity prices,” UT’s King said.
“Cryptocurrency mining can operate from anywhere in the world,” the Texas comptroller’s report noted. “It’s not bound by transportation networks or access to raw materials or a specialized workforce. What the data centers require is a huge amount of electricity to cool and power the mining machinery, and Texas provides an attractive draw for such needs.” And if that ever changes, they could move on to another place, leaving Texas with a lot more power.
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Password: 15 April 2023
