Bitcoiners take it as a given that a mining rush will improve Texas’s grid. Not everyone is convinced.

In the early 20th century, independent oil hunters known as wildcatters would go out and drill holes with not much more than an expectation of blind luck. They were eager to take advantage of a booming industry.

The crypto miners now flooding the state remind the current head of Texas’s electrical grid of those “Texans of the past.”

 “They’re taking great risk for great reward,” said the interim CEO of the Electric Reliability Council of Texas (ERCOT), Brad Jones, in a recent interview with CNBC, during which he enthusiastically touted the benefits that the industry can create for the energy-abundant state.

Jones is not alone in seeing the influx of crypto miners as a good thing for Texas, and in particular its electrical grid.

Indeed, the idea that Texas has only to gain from bitcoin mining seems to become somewhat of a self-evident truth to many in the mining industry. That was particularly apparent during Miami’s Bitcoin 2022 conference last month, where Texas was a hot topic.

Outside of bitcoin circles, however, not everyone is convinced.

A dash for Texas’s power

Texas, with its relatively cheap electricity, lax environmental policies, space and deregulated grid, has attracted a large portion of the miners that moved to North America after China’s ban on crypto mining. More recently, Kazakhstan has also pushed some miners out of the country, increasing the pressure to find new sites.

Unlike the wildcatters, crypto miners are zeroing in on very specific opportunities in Texas.

Some have made use of abandoned industrial sites, like Riot’s Whinstone, which took over the former aluminum factory of Alcoa in Rockdale and built out 400 megawatts of mining power capacity with the expectation of reaching up to 750, taking advantage of the electrical infrastructure left behind, including a substation. 

Others are looking to draw power from Texas’s wind and solar power resources, which exist in abundance in the less populated western side of the state.

Some of these firms also have big, near-term expansion plans in the Lone Star State. Lee Bratcher, president and founder of the Texas Blockchain Council, estimates the current 1.5 gigawatts of electricity generating capacity for mining in Texas will grow to about five by the end of 2023. If deployed today, that would represent around 6% of the total capacity of the state’s grid, which is run by ERCOT. 

“There's a big queue of people waiting to have an interconnection point and their application for power to be approved,” Bratcher said. To meet all the new demand, ERCOT will need to make some “significant investments” in things like new interconnection points and transmission lines, he said.  

The sales pitch

Proponents say such an investment will pay off because miners will provide benefits to the grid. That’s because they are so flexible relative to other power users, they say.

“Bitcoin mining is one of the simplest industrial processes that exists,” Nic Carter, a partner at Castle Island Ventures, said on stage at Bitcoin 2022. Unlike a cement factory or a steel mill, which have “complex” sequential processes with “a lot of interdependencies,” mining centers can interrupt their load at a moment’s notice, he said.

“Effectively that makes them extremely good buyers of energy,” Carter said. “In response to either price signals and grid operator requests they can curtail their usage at a moment's notice. And they can do this in a much more efficient and complete way than other industrial loads.”

That’s why Bratcher and others see the western part of Texas and bitcoin mining as a perfect match. The sparsely populated area has an abundance of wind and solar power — so much that sometimes it has more supply than there is demand.

Because there’s a limited amount of transmission capacity, excess electricity often can’t be sent to other parts of the state where there’s more demand. Instead, it sometimes ends up going unused and unsold. The idea is that miners can soak up that excess.

“We are providing an example of how to use renewables,” Samir Tabar, mining firm Bit Digital’s chief strategy officer said on stage in Miami. “Green energy, if it's not used, is wasted. So bitcoin miners are monetizing that waste.”

According to Bratcher, miners could even incentivize the growth in renewable power generation, because they help guarantee that the infrastructure investments will be worth it.

Besides taking up excess power on days in which demand is low, miners’ flexibility could also theoretically be helpful on days in which it is extraordinarily high. During these periods, ERCOT will sometimes pay companies to power down in order to avoid blackouts. Since miners can turn their machines off relatively easily compared with other big users of the grid, they will be more likely to shut down during peak demand days. 

'A big if'

At least that’s what Bratcher, Carter and others say will happen. 

“It is a big if,” said Joshua Rhodes, a researcher with the Webber Energy Group at the University of Texas at Austin. 

While Rhodes agrees that miners could take up excess power and help by shutting down during times of peak demand, nothing is forcing them to do that, he said. “If they're not willing to be flexible, all else equal, more mining just means more carbon emissions.” 

“So they have to basically be good neighbors,” Rhodes said. “And no one has their energy use data so no one can actually check to see whether or not they're doing it.” Since energy data is not public information, it would be entirely up to each company to release such data, he added.

According to Le Xie, a researcher at Texas A&M University who focuses on modeling and control of electric energy systems, the impact of bitcoin mining on the Texas grid is hard to predict at this point.

On one hand, more miners built in the right locations might result in more renewables and increased demand flexibility. On the other, it might also put an extra burden on the grid infrastructure during peak hours. “Electricity is a real-time balancing product,” said Xie.

Unlike any other part of the country, where energy flows between states, Texas runs its own grid. That means it can’t draw power from other places in time of need — a vulnerability exposed in the winter of 2021 when millions of residents were left without electricity for days. 

Xie said that when the demand for electricity is very high, there is a risk that the system will not be able to serve some of that demand.

Grid operators must constantly work to find the right balance, said Rhodes.

“People like to talk about things in terms of being a steady-state or reaching an equilibrium, but that never happens in real life,” he said. “Demand is always either growing or shrinking. Power plants are always retiring or getting built. There's always changes to the system.”

What does that mean for Texas and its crypto mining rush?

“I think we'll only know if it's a problem if it is a problem,” he said. “Maybe that’s not great ... but I don't know how you make the value judgment to stop it.”