The new time for Bitcoin mining in the state might look more like a grind than a boom, but it could be better for the electric grid.
Once upon a time, Texas was the promised land for bitcoin miners. It was a business-friendly state with stable rules and a steady supply of energy. But now things are changing.
The Electric Reliability Council of Texas, or Ercot, has slowed down issuing new permits for miners to connect to the grid, said Steve Kinard, director of bitcoin mining analytics at the Texas Blockchain Council (TBC), an industry group. Ercot is trying to make sure that there is enough electricity for everyone in the state.
In the meantime, the supply of easy-to-get electricity in Texas has dried up, and bitcoin miners are having to build more generators and power lines for their machines to plug into. That will take a while to build up.
Kinard said, “Even for smaller sites that use around 10 megawatts (MW), there are very few or no places where you can just show up and plug in without doing any work.” “Many people have looked for that,” he said, and now there are none left.
Ercot noticed that a lot of miners were waiting to connect to the grid, so he reported to the TBC.
These problems have shown up at a bad time. As the price of bitcoin dropped over the summer, it has been hard for crypto miners to make money. Some miners have even had to sell their tokens to cover their operating costs.
Some businesses feel like they were lied to when the number of permits went down.
“Many companies were able to build large-scale operations in Texas, but some companies did not get as much power as they had hoped, which put them in a tough spot,” said Ethan Vera, chief economist, and chief operating officer at a mining services company Luxor Technologies.
Vera said, “We keep seeing fire sales of transformers, PDUs, and other equipment that mining farms can’t use because of power shortages.”
Together with a company that makes mining rigs, the Chinese mining pool Poolin was planning a 600 MW site in West Texas. Poolin said that the rest of the site is on hold, but the first phase, which has a power capacity of 100 MW, has been turned on. This means that electricity is flowing to the mining machines.
A company representative said that the company is “lucky” to have been able to power up that part of the bitcoin mine. But “until the situation changes,” the company will be “forced to adapt” its operations and “look for new sites to make up for the delay in power,” a company spokesperson told CoinDesk.
Poolin had to let go of some of its Texas employees, a former employee who was one of those let go said. According to their LinkedIn profiles, at least three other people left the company’s Texas office in June and July.
Other big-time miners in Texas include Riot Blockchain, Core Scientific, U.S. Bitcoin Corp., and Genesis Digital Assets, which is not related to CoinDesk’s sister company Genesis Global Trading. Some of these projects have already been given permission to connect.
In March, Ercot’s Large Flexible Load Task Force (LFLTF), which manages large loads on the grid, including those for crypto miners, announced a “interim” way for large energy consumers to connect to the grid while the task force figures out how to manage these flexible loads.
Vinson & Elkis, a law firm in Texas, says that Ercot makes big energy users sign up and get permission from the government before they can connect to the grid. This likely slows down the process of starting up.
Kinard said that since the process was set up, fewer projects have been able to start up each month.
A spokesperson for the Houston-based data center power management company Lancium said that the approval process is a “smart way to make sure the grid stays stable until the LFLTF finishes its work.” Lancium helped write some of the white papers that the task force made.
The LFLTF “reviews how large flexible load affects Ercot peak load” to help operate these new large loads on the grid in a reliable and efficient way. In an email, the grid council said, “Ercot expects that there will be enough generation to meet expected demand.”
“The LFLTF is working with a large group of interested parties to come up with proposed rules for how to use these loads to reduce stress on the grid,” a representative from Lancium said.
Kinard said that even though the new procedures are slower, the council is still friendly to crypto miners. He also said that he hasn’t heard anyone at the grid operator say that they don’t want to bring more mining to the state.
The task force is giving careful thought to bitcoin miners: In its latest white paper on large load and resource reporting, which was presented at a meeting on August 22, the task force asked a series of questions about bitcoin mines to figure out how much they use, such as what cryptocurrencies they mine, what ASICs they use for bitcoin mining, and what mining pool they are a part of.
The miners’ answers will be used by the task force to figure out the miners’ break-even price, which will be based on network metrics like crypto prices and miners’ answers. With this information, Ercot will be able to predict how miners will react to signals from the energy market and plan the right resources for each quarter.
When is enough, enough?
A representative for Ercot told CoinDesk on Monday that 33 gigawatts (GW) of planned bitcoin mining projects are waiting for permits. This is up from 27 GW in the middle of July.
Kinard said that the estimated number of mining projects waiting for interconnection is too high because companies sometimes apply twice for the same project.
Instead, Kinard said that the TBC thinks that about 5 GW of mining will be done by the end of 2023 and that it is too hard to say what will happen after that.
Kinard said that there are now 1.5 GW of mining projects going on in the state.
In comparison, Ercot thought that peak demand would be about 80 GW during the summer of 2022, while current and planned energy production would be 93 GW, according to the council, which the Texas comptroller cited.
Some of this energy is made in West Texas, which is far from population or industrial centers and doesn’t have transmission lines to get it where it’s needed quickly. Because they have too much electricity, these parts of Texas sometimes give it away for free.
The task force gets together every so often to talk about how to run the grid and make new rules, like how to sign up. At the last meeting, 50 different problems were marked as ones that the committee should look into. Kinard said in July that most of them were small problems with how things were done, but they still had to be worked out, which takes time.
whoever bid the most
Since miners are using up Texas’s extra energy, the grid is working with them to make sure there is enough power to cool homes and run essential services.
This is called “demand response” or “curtailment,” and it happens when miners can make more money by giving up power, or turning off their machines, for a price. They put it on the free market and sell it for more than they could get by mining coins.
Ercot sends notices to miners between 2 p.m. and 8 p.m., which is usually the hottest part of the day, so they can choose whether or not to use less power. The TBC thinks that these things happen about 200 times a year.
A spokesperson for Lancium said that these voluntary steps have “multiple benefits,” such as a more reliable and flexible power grid, economic incentives for mining companies, and more renewable energy development that will help make the power grid even less carbon-intensive.
Riot Blockchain said that it got $9.5 million from Ercot in energy credits because it cut back on its energy use in July.
So far, Kinard said, about 1 GW of mining in the state has been shut down to help the grid during summer heat waves.
Environmental Working Group (EWG), a non-government group that is part of a campaign to change the bitcoin code to reduce the amount of electricity used by the network, says that this means taxpayers are paying for it.
“Most of the stopped crypto mining operations in Texas made a deal with Ercot that gives them strong financial incentives,” EWG said in a press release in July. “This means that Texas energy ratepayers paid the companies to temporarily stop mining.”
TBC and other supporters of mining think that energy companies can use the extra money they get from miners to invest in making more energy, which will make prices go down overall.
Having miners pay for energy can bring in a lot of money, especially for renewable energy companies that built up assets in places like west Texas, where there isn’t much use. Proponents of the industry also say that bitcoin mines are some of the most flexible energy users out there because they can turn on and off in a few minutes, while factories need hours to slow down.
This is especially important when it comes to renewable energy, which depends on the weather and can be intermittent and hard to plan for. In a March interview with CNBC, Brad Jones, the interim CEO of Ercot, used this line of thinking to defend the company.
Miners in Texas and other places are looking more and more to build their own power plants or work closely with power producers “behind the meter,” which means before the power goes to the grid.
Kinard said that it’s not that Texas has run out of energy, but that it needs better infrastructure to use it. Luxor’s Vera said that he thinks more mining will be built in the state, but that it will be done by investors with more experience.
Kinard said that the future is “exciting” because “bitcoin mining is about to enter a phase where it’s about to make very significant, high-impact infrastructure investments.”