Texas Plans to Become the Bitcoin Capital, Vulnerable Power Grid and All – BNN Bloomberg

(bloomberg) – texas, already home to the most vulnerable power grid in the us. The US is about to be hit by a surge in electricity demand twice the size of Austin.

An army of cryptocurrency miners targeting the state for its cheap power and laissez-faire regulation is forecast to increase demand by as much as 5,000 megawatts over the next two years. Crypto migration to Texas has been building for months, but the sheer volume of energy those miners will need—twice as much as the capital city of nearly 1 million people consumed in all of 2020—is only now becoming clear.

Reading: Texas plans to become bitcoin vulnerable

The boom comes as the electrical system is already under pressure from an expanding population and robust economy. Even before the new lawsuit comes online, the state’s network has proven lethally unreliable. February’s catastrophic blackouts plunged millions into darkness for days, ultimately leading to at least 210 deaths.

proponents like senator ted cruz and governor greg abbott, both republicans, say that ultimately crypto miners are good for the network as they say miners can absorb excess clean energy and when necessary, they can voluntarily slow down in seconds to help avoid blackouts. but it begs the question of what these miners will do when the state’s demand for electricity inevitably outstrips supply: will they adhere to an honor system to reduce their energy use, especially when the price of bitcoin is so high, or will it still mean more pressure? in an overwhelmed network?

“no one is looking at the scale of potential investment in crypto and its power demand over the next two years and trying to account for that in some kind of strategic plan,” said adrian shelley, director of the texas office of the public citizen consumer advocacy and lobbying group, which has been harshly critical of vulnerabilities in the state’s unregulated energy market.

here’s what you need to know about texas, cryptocurrencies and the power grid.

why texas?

texas is rolling out the red carpet for cryptocurrency miners as former leader china banned the industry. Mining crypto requires huge amounts of energy, complicating Beijing’s efforts to cut greenhouse gas emissions and shore up energy supplies ahead of winter.

miners who settle in the lone star state can often count on a 10-year tax abatement, sales tax credits, and state workforce training, depending on where they are and how many jobs they have of work add. Even without formal incentives, low energy prices and the state’s hands-off policy towards companies is usually enough of an attraction.

the pitch is working: the network operator of texas electrical reliability council, or ercot, will account for about 20% of the bitcoin network globally by the end of 2022, up from 8% to 10% today According to Lee Bratcher, President of the Texas Blockchain Council. Right now, Ercot has between 500 and 1,000 megawatts of mining capacity, out of about 2,000 in the entire country. the state grid will add another 3,000 to 5,000 megawatts of mining demand by the end of 2023, he said.

While the grid likely has enough total capacity to meet increased demand, the even bigger question at stake is reliability and whether there will be enough power when demand is at its peak and supply is vulnerable. , according to toby, analyst at moody. shea.

“texas has been very business-friendly and ercot is one of the largest unregulated energy networks in the world,” said dave perrill, chief executive of mining infrastructure company compute north. his company had been planning to develop more mining capacity in the us. uu. in 2023, but moved it up to 2022 because there is a lot of demand.

See also: Bitcoin Options: How to Own The World No. 1 Crypto For Less | Bybit Learn

All nine U.S. and Canadian power grids have miners on them, but Texas now has the majority, said Gregg Dixon, chief executive of Voltus Inc., which helps large consumers purchase power and provides response services to demand to the usa uu. Chinese cryptocurrency miners are behind much of that boom, he said.

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

Meanwhile, the Texas grid has come under pressure as the population has expanded by more than 4 million over the past decade to nearly 30 million, part of a boom that created one of the fastest-growing economies in I know. uu. Austin is the fourth largest city in the state, home to just over 3% of Texans.

why it might be bad for the network

While ercot forecasts several thousand megawatts of mining demand will be added to the grid, the grid operator said it had no estimates of how much demand is currently coming from miners. he also doesn’t know how much will be added to his peak demand forecast, or how many companies will choose to voluntarily cut back in a disaster. ercot is supposed to have extra supplies on hand (at least 13.75% more than the predicted peak) to help avoid blackouts in a heat or cold snap.

forecasting supply and demand was already getting harder in the us. uu. grids extreme storms driven by climate change have disrupted supply, and more electricity now comes from intermittent solar and wind power. the rise of electric vehicles also makes it more difficult to predict where and when they will come online. In addition, mining “is a huge variable load,” said Tom Deitrich, CEO of Itron Inc., which provides utilities with demand response capabilities. .

Taken together, that means the network could have the wrong amount of power just when the state needs it most. Conflicting priorities in the texas energy sector and a massive failure in energy demand forecasts in February ended in catastrophe: millions in the dark, more than $20 billion in damage, and calls to overhaul the state’s energy sector.

“The impact of bitcoin mining is only going to increase peak demand, so it increases stress on the network,” said ben hertz-shargel, global head of grid edge, a division of energy consultancy wood mackenzie. “In times of scarcity, like in February of this year, bitcoin mining could have a useless contribution to the net load.”

why texas went bankrupt: the crisis that plunged the state has no easy solution

Critics also say that the large amount of new mining demand could increase energy costs for average consumers, although no one has been able to quantify how much that could increase prices. When Plattsburgh in upstate New York attracted cryptocurrency miners, it found that they had initially used up all cheap spare hydropower, resulting in higher costs citywide; ultimately, it had to set fees for miners to keep everyone else’s costs down.

“they flipped on the switch and all of a sudden we realised, oh my gosh, where did this electricity usage come from?” Mayor Christopher Rosenquest said.

Another overlooked part of mining: your energy intensity will continue to increase because the system is designed to make it harder to mine each incremental coin. miners are evolving from small “mom and pops” adding connections to their basements to massive servers in large, air-conditioned warehouses that use more and more energy.

ed hirs, an energy fellow at the university of houston, warns that texas and crypto are not a good mix.

See also: How bitcoin detectives at the IRS and FBI are catching crypto crimes – Vox

“Who is the beneficiary of bitcoin mining? it does not provide employment, it does not pay taxes,” he said. “There are some welfare issues here that I think a lot of people will tend to ignore until there is a crisis.”

why it might be good for the network

The cryptocurrency industry’s discourse on why it makes sense in texas is simple: it’s good for the energy transition and the environment. miners say they will fuel a surge of new wind and solar development by signing long-term contracts, accelerating the state’s transition away from coal. and mining operations can act as a balancing force by absorbing excess clean energy that would otherwise go to waste. elon musk said tesla inc. would allow bitcoin transactions again once mining is done with more clean energy.

Unlike a factory or oil refinery, cryptocurrency miners can reduce their electricity consumption in a matter of seconds to alleviate network stress conditions. the mining industry likes to draw parallels with battery storage technology that can be activated when needed.

crypto mining is “a very special type of demand; It can go down very quickly,” said Carrie Bivens, a former statewide network operations manager who now serves as an independent market monitor with Potomac Economics. “In the same way, if that load never existed, there would be no need to reduce it.”

bitcoin miner is making 700% profit by selling energy to the network

Some miners are voluntarily opting into programs where they are paid to sell power to the grid during periods of high demand, both a benefit to the public good and to their own cash flows. For example, if a mining company had contracted power for $50 a megawatt-hour, it could have sold that power to the grid for $9,000 during the February crisis and kept the difference.

a 300-megawatt mining site in rockdale, central texas, which riot blockchain inc. Purchased earlier this year, called Whitstone, it is one of two facilities so far to have signed up for Ercot’s “controllable load resource” program that pays a premium to industrial users that will allow the grid operator to reduce or automatically increase your power consumption when needed. the other on the agenda is compute north’s 50 megawatt facility in big spring, west texas.

on a recent weekend, ercot ordered the whinstone site to reduce usage on consecutive days after two plants went offline. “The power on our machines danced up and down based on what ercot told our software to do, and what he did was help stabilize the network while another generation was powered on,” said chad everett harris, CEO of the installation. Harris said it voluntarily closed on February 2. 11 when temperatures dropped in texas, three days before ercot began cutting power to save the grid.

In fact, miners realize that most of their appeal right now is their ability to do good: reduce production to help the network even at the risk of their own profits; Otherwise, they lose the argument that they are helping the energy transition, Dixon. Voltus said. That is why he believes that companies will do the right thing, whether they are regulated or not.

“It’s the elephant in the room,” he said. “and if they violate it, they destroy themselves.”

©2021 bloomberg l.p.

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