Crypto could raise Texas electricity prices
Data center companies that generate Bitcoin and other cryptocurrencies have made bold claims over the past year about bringing stability to the teetering Texas electric grid, but adding more power demand may not be the surest way to keep families warm next winter.
The argument put forward by Gov. Greg Abbott, Sen. Ted Cruz and crypto miners is simple. After getting kicked out of China, the miners who generate the blockchains that underlie all cryptocurrencies are looking for cheap energy. Texas has some of the most affordable wholesale electricity prices in the world.
Crypto miners say they will fire up their data centers and create demand for surplus electrons when generators have more power than Texans need. Some miners even promise to use only excess renewable energy when the wind blows late at night and the sun shines bright on a chilly day.
The miners say they are providing financial stability to electric generators that would lose money on their excess capacity if the miner didn’t buy it. By paying for the extra generation when demand is low and promising they will shut down when supply is tight, the miners say electricity will be there on the few days a year when needed most.
The pitch has a certain elegance, and the Texas Legislature passed the so-called “Virtual Currency Bill” last year to attract more crypto to Texas.
“Blockchain is a booming industry that Texas needs to be involved in,” Abbott tweeted last year.
Miners generate cryptocurrencies by solving complex math problems or maintaining blockchains on massive banks of computer servers. Electric
ity is the most significant expense, and the cheaper the power, the more they profit.
The Bitcoin blockchain alone consumes 91 terawatt-hours of electricity a year globally, more than Google or Finland, a nation of about 5.5 million. Environmentalists consider cryptocurrencies a shameless contributor to climate change.
If crypto values drop and electricity prices go up, miners lose money and shut down. The future of cryptocurrency is also uncertain as governments debate applying new regulations.
In Texas’ competitive wholesale market, electricity prices increase as demand rises and supply tightens. Crypto miners creating more electricity demand should drive up consumer prices. But the Texas market and grid are complicated, so I spoke with the CEO of a crypto-mining company.
Soluna Computing
CEO John Belizaire said crypto’s impact on the price of electricity depends on each data center’s business plan. We agreed to discuss Soluna’s approach for his podcast and this column.
Belizaire did not intend to become a data center operator; he wanted to build wind energy projects in Morocco. But when he finished that facility, the utility was late with the transmission lines.
Desperate to generate some revenue, he convinced a crypto outfit to buy his discounted power while he waited for a grid connection. He then discovered that renewable energy projects worldwide also suffer financially from insufficient transmission.
“We estimate about $6.77 billion, give or take, of wasted or missed revenue opportunity for the renewable energy industry on an annual basis,” he explained. “Recovering that will increase the amount of capital that comes into the industry, more projects will be built, and you get a better mixture.”
After surveying the Texas grid, Belizaire identified several nodes where wind frequently produces more power than transmission lines can handle. Usually, the congestion means generators must slow their turbines. But Solana wants to put data centers at those nodes and use the power instead.
If every crypto miner only located at nodes and only used excess electricity that would not have been generated otherwise, they would have no impact on wholesale prices. But that’s not what many crypto miners have in mind.
Most need to locate where the grid can deliver enormous amounts of power. The most famous development is in Rockdale, at a defunct aluminum plant. Rather than use stranded power, miners sign renewable energy contracts or buy credits so they can claim they are green.
However, taking power off the statewide grid drives up wholesale electricity prices for everyone. While higher electricity prices theoretically hurt the miners’ profits, rising cryptocurrencies have more than offset them.
Crypto miners often brag they can shut down in five seconds if the grid needs the power, but rising cryptocurrency values make voluntarily “saving the grid” less attractive. Miners are enrolling in ERCOT programs where they are paid to shut down, creating an additional cost.
Blockchains and cryptocurrencies are growing into essential sectors in the global economy. But they are not necessarily electricity grid saviors.
State regulators will need to look at every crypto-mining business closely to see which are adding value and which are creating costs for Texans.