Katie Paul, director of the Tech Transparency Project, tells Popular Science that politicians in Texas have been engaging in unethical practices with these crypto companies. In July, her organization released a report that found these politicians gave these crypto companies “sweetheart” energy deals.
The report states that crypto companies like Whinstone, Core Scientific, Argo Blockchain, and Lancium receive long-term energy contracts that provide them “cheap wholesale energy.” These companies can then sell back to the grid at massive mark-ups whenever they please. They can purchase the energy at a low price through these contracts and, during times of high demand, power off and sell the energy they would have been using back to the grid. These contracts can last as long as a decade.
Executive Director Luke Metzger noted that some industry advocates suggest they will put their companies in areas with surplus renewable energy. But, Metzger said, such excess renewable energy doesn’t exist in Texas.
“We’re very concerned about the environmental impacts of just adding such an energy intensive industry that could be taking up energy that could be used for more important purposes,” Metzger said.
Metzger also expressed concerns around electronic waste for an industry that relies so heavily on computing equipment.
Even Tesla CEO Elon Musk — a bitcoin advocate who drew applause at the summit after Cruz toasted Tesla’s recent announcement that it will move its headquarters to Austin — has had reservations.
Ted cruz says bitcoin mining can
Cruz during the conference.
Cruz added that he expects this transition to occur within the next five or so years where Bitcoin mining will play a larger role in the Texas energy grid.
“In five years, I expect to see a dramatically different terrain, with Bitcoin mining playing a significant role [in] strengthening and hardening the resiliency of the grid.”
Senator Cruz went into further detail on how and why such systems would work and said that much of the gas that is flared (burned off and not captured) is flared in Texas and that instead of wasting this gas it could be used for Bitcoin mining.
“Fifty percent of the natural gas in this country that is flared is being flared in the Permian [Basin] right now in West Texas,” Cruz said.
I think that is an enormous opportunity for Bitcoin, because that’s right now energy that’s just being wasted… Some of the really exciting endeavors that people are looking at is, ‘Can we capture that gas instead of burn it, use it to put in a generator right there on site, use that power to mine Bitcoin?’”
Cruz hinted that in times of crisis, Bitcoin miners could simply be turned off and that this excess power could be directed back toward the grid to meet demand.
Some Bitcoin proponents were caught off guard by the Senator’s understanding of both Bitcoin and how mining could work in the current energy ecosystem.
Nic Carter, a partner at Castle Island Ventures, the co-founder of Coin Metrics and an outspoken crypto activist, said that his jaw dropped when he heard Cruz’ take on Bitcoin mining.
Texas already has a system like that in place, offering generators a premium for bringing additional power online during shortages. During the February cold snap, wholesale electricity prices surged to $9,000 per MWh, the maximum allowed by law, leading to electricity bills as high as $10,000 for some people.Advertisement
That raises all sorts of ethical questions, of course—for one, should power companies sell people plans with hidden fees that surge in times of greatest need? Should people from other states have to shoulder the cost? But brushing those concerns aside, bitcoin miners would likely demand around $600 per MWh, far more than average Texas wholesale electricity rates, which were $22 per MWh last year though less than the $9,000 per MWh cap.
Texas’ energy grid has problems. Those issues were laid bare this past winter when a storm put the state in a deep freeze, causing blackouts for millions and killing hundreds of people. Sen. Ted Cruz told a cryptocurrency conference in Austin last week that he believes the state’s Bitcoin mining boom could repair its floundering energy grid.
In a fireside chat at the Texas Blockchain Summit on Oct. 8, the Republican senator expressed his faith that the mass buildout of crypto mines in the Lone Star State could add additional energy capacity to the state’s grid in the event of blackouts or power shortages.
These complex agreements, brokered in secret with little public scrutiny, could cost Texans hundreds of millions of dollars,” the report states.
“Unfortunately, every time these crypto miners power down, it’s passed off in the media as a positive thing that these crypto companies have done to help the grid,” Paul says. “In reality, they’re actually profiting from powering down because of these deals that Texans had no buy-in on or were even made aware of until recently.”
Because crypto companies can sell energy back at unreasonably high prices, Paul says that means that the average Texan will see their energy expenses go up. These agreements are highly profitable for crypto companies but detrimental to Texas residents.
That’s given way to an influx of Bitcoin mines that tap into methane flares to power the computers that mine for coin, ostensibly finding good use for what would otherwise be a wasteful, polluting byproduct of the fossil fuel industry.
“Some of the really exciting endeavors that people are looking at is, ‘can we capture that gas instead of burning it?’ Cruz said at the conference. “Rather than flaring that natural gas you’re putting it to productive use.”
However, King said that the abundance of flares in the state is something that should be better regulated; not turned into pure profit for fossil fuel creators.
“Stop issuing flaring allowances and force the industry to actually send the natural gas into the pipeline system,” King said.
But in the event that the grid is being overburdened, these mines are essentially industrial energy consumers that can shut down instantaneously, freeing up additional grid space for the heating and cooling of homes, hospitals, and other critical infrastructure. Already, some miners in Texas are making a killing by shutting down during such times and selling their contracted power supply back to the grid.
Texas is the perfect candidate for this setup, Cruz said, and Bitcoin mining could play “a significant role [in] strengthening and hardening the resilience of the grid.”
Indeed, Texas’ grid is in need of help. Last February, winter storm Uri saw an overburdened grid cause days of blackouts that killed 700 and left more than 4-million people without power.
Within months, ERCOT was urging Texans to ration their energy use through further strain, this time caused by heat.
Jones said that figure would put Texas below the global average when it comes to renewable mining. Coal and natural gas account for 38% and 36% of power sources, respectively.
His own research, he said, found “very high” environmental and climate damages associated with mining operations at 20% to 30% renewable energy usage.
Industry leaders are set on transforming the political landscape for blockchain technology.
At the Oct. 8 summit in Austin, David Zell, head of policy and public affairs at Bitcoin Magazine, announced the launching of a super PAC dedicated to swaying public opinion on cryptocurrency.
“Bitcoin has a narrative problem,” he said.
Bratcher shared plans for a future amendment to the Texas Constitution that would allow Texans to pay property taxes in bitcoin. State Reps.
And by participating in the grid with different services for large loads in the grid, we help stabilize that grid as well.”
Joshua Rhodes, a research associate at the University of Texas at Austin who has consulted for a bitcoin mining company, said flexibility is key. If cryptocurrency mines are willing to reduce their energy demand during times of great stress on the grid, then he said they could have a beneficial impact on the grid’s reliability.
Harris, the Whinstone U.S. CEO, said his company can be considered a “virtual power plant” that puts energy back into the grid during times of high demand.
The company has even turned its usage off at times when it would have been more economical to continue mining.
According to Columbia University, Bitcoin mining “currently consumes an estimated 150 terawatt-hours of electricity annually—more than the entire country of Argentina” worldwide. Texas has dozens of mining operations, straining the power grid.
“The mining of Bitcoin does use quite a bit of energy. In Texas, it’s consuming about 1 to 2 percent of our energy consumption depending on the time of day,” Joshua Rhodes, a research associate at the University of Texas at Austin, tells Popular Science.
That’s projected to grow significantly over the next 5 to 10 years at a really fast pace—beyond what I think the grid can actually support.”
Rhodes says there are about 1,000 megawatts of Bitcoin mines in Texas that they’re aware of—enough energy to power roughly 200,000 homes during a period of high demand.