Bitcoin Miners Are Flocking to Texas as Grid Operator Warns of Future Blackouts

Bitcoin Miners Are Flocking to Texas as Grid Operator Warns of Future Blackouts
A worker installs a new row of Bitcoin mining machines at the Whinstone US Bitcoin mining facility in Rockdale, Texas, on October 9, 2021. (Photo: Mark Felix / AFP, Getty Images)

Everything’s bigger in Texas — including problems with its electric grid and energy demand for bitcoin. A new analysis shows that the electric grid is just as vulnerable to crisis as it was before February’s blackouts just as the state is gearing up to welcome cryptocurrency operations that will add an enormous amount of stress to that grid. And, experts say, there’s no telling what might happen.

A report published on Friday by ERCOT, the organisation that operates Texas’s electric grid, finds that extreme weather — even conditions less severe than those the state saw in February that caused a massive blackout — could still trigger power outages and create problems for the grid. ERCOT has been through the ringer following February’s crisis, but this analysis, critics say, is evidence that the biggest problems with how ERCOT prepares for extremes haven’t been fixed. In other words, despite promises from politicians like Gov. Greg Abbott that they’ve fixed the problems, Texas’s grid is just as poorly prepared for disaster as it was in February.

And there’s a new stress coming to this already-fragile grid: bitcoin miners, whom the state has been enthusiastically encouraging to settle in Texas. Bloomberg reports that the new power demands for crypto mining in Texas could reach around 5,000 megawatts over the next two years — around twice the yearly electricity demand for all of Austin in 2020. That means that creaky old grid could become the home for 20% of the world’s bitcoin network by the end of next year, up from between 8 to 10 per cent now. Texas is at the forefront of a huge push by U.S. states and cities looking to lure crypto mining operations, following a crackdown in China this summer. The U.S. is now the #1 destination for bitcoin miners.

Suddenly introducing double an entire major metropolitan city’s worth of electricity demand to a grid that struggles under normal circumstances may seem like a dangerous idea, especially given how power demands from bitcoin miners has led to blackouts in places like Iran and Kazakhstan. By contrast, bitcoin defenders, including Gov. Greg Abbott and everyone’s favourite Sen. Ted Cruz, have said that crypto mining operations will strengthen the Texas grid.

In a purely theoretical sense, bitcoin could work with a sensitive grid like the one ERCOT operates. In this ideal world, mining centres would operate only when demand is low, using up extra electricity generated by power plants, and would shut off when demand goes up.

“If they just all came online tomorrow, you’d add large demand to the ERCOT grid,” said Joshua Rhodes, a research associate at the University of Texas. “However, during most of the year, not all our power plants are running all the time. That argument that they’re saying about strengthening the grid really rests on if [miners] are willing to be flexible.”

While Texas politicians aren’t currently working on any mandates for mining centres to shut down during peak demand, there could be market-based solutions. Rhodes has served as an advisor for a Texas-based company developing software to help mining centres respond in real-time to ERCOT demands for power reduction. The software works with what’s known in ERCOTspeak as a controllable load resource, which refers to a large energy consumer that says it’s willing to not use power for a certain price at peak times. Controllable load resources have traditionally been large manufacturers, like oil and petrochemical refineries, but the company Rhodes worked with as well as a couple of other mining and data centres have started working in the ERCOT system as load resources. The financial incentives for not using power under this system, Rhodes said, could be high enough to motivate miners to listen to ERCOT’s needs.

“I think [bitcoin] can be a good neighbour. There’s pathways for it,” he said. “They’re just going to have to choose if they will.”

Data scientist Alex de Vries, who founded the cryptocurrency website Digiconomist and runs an index of bitcoin’s energy consumption, is more sceptical about how this might play out in real life.

“Shutting down for any period of time is not attractive for a miner, especially because machines become obsolete relatively quickly,” he said. “Anytime they shut down, they miss out on a level of profitability, which is never coming back. If they want to be competitive with the rest of the field, effectively, the only option is to run their machines 24/7.”

And financial incentives to shut down like the controllable load resource program, De Vries said, may not be attractive enough for most miners to willingly agree to power down.

“In all cases, continuing to run is more profitable for a miner than shutting down,” he said. “Even if they get paid additional money to shut down, running machines remains more profitable. In Texas, they may get more money for shutting down than they get in other places, but it still remains unappealing.”

Given what happened last February, and how ERCOT has basically admitted that the grid is still in a bad place, de Vries said that the only way for Texas regulators to make sure bitcoin demand doesn’t overwhelm the system is to regulate how much electricity miners can use — something that previously crypto-friendly places like Quebec have started doing after they saw increased demand. (Given Texas’ response to the blackout, though, don’t hold your breath.)

“When it goes wrong, it’s already too late,” de Vries said. “They’re taking a risk with this [increased demand]. It could literally cost lives.”