Three years ago, bitcoin miners flocked to the state of Texas. The Lone Star State offered cheap power, plentiful supplies of renewable energy, and an accommodating regulatory climate. Some mining companies already operated there, but when China banned crypto mining in May 2021, a mass migration began. Texas was fast becoming “a Mecca for bitcoin miners,” said Greg Abbott, the state governor. But lately, the mood has shifted.
Texas residents have complained that industrial-scale bitcoin mines are driving up energy prices and destroying the quality of life of those living nearby. Meanwhile, politicians are demanding clarity over crypto mining’s impact on both the environment and the stability of the ailing Texas energy grid. The industry has been forced onto the defensive.
On February 22, the Texas Blockchain Council (TBC), a pro-mining lobbying group, filed a lawsuit against three parts of the federal government: the US Department of Energy, US Energy Information Administration (EIA), and the White House Office of Management and Budget. It objects to an “emergency” data request initiated in January that required mining firms in Texas to disclose details about their energy usage. Riot Platforms, which operates North America’s largest bitcoin mining facility in Rockdale, Texas, is a coplaintiff.
The complaint alleges that the federal government concocted illegitimate reasons for expediting the survey, forgoing a process that would have allowed mining companies to object. The disclosure of “highly proprietary” information, the suit claims, would “immediately and irreparably harm” the affected businesses. The survey, says TBC president Lee Bratcher, unfairly singled out an “out of favor” industry.
On February 23, the judge in the case issued an order preventing the government from collecting further data. Less than a week later, the case was stayed indefinitely: The government had withdrawn its survey and agreed to destroy all data it had gathered.
The lawsuit is just the latest flareup of a broader fight over bitcoin mining in Texas. Detractors and government agencies trying to understand the industry’s full impact have so far been forced to scrape together only “piecemeal information,” says Adrian Shelley, an energy policy expert and branch director of consumer advocacy group Public Citizen.
Riot Platforms did not respond to requests for comment.
In February 2021, Governor Abbott found himself in a political bind. A powerful winter storm had knocked out some of the state’s aging fossil fuel power plants, triggering a blackout that pitched 4.5 million homes into darkness. By the time the storm had abated and power was restored, 246 people had died. Abbott needed a way to shore up the grid. He saw an opportunity in the crypto mining industry.
Cryptocurrency mining is a process whereby computers race to solve a mathematical puzzle and the victor is rewarded with a batch of freshly minted crypto tokens. Today, the competition among miners is such that large fleets of specialized, energy-guzzling hardware are necessary to stand a chance of winning.
It may seem harebrained to invite industrial-scale consumers of power onto an already-creaking grid, but bitcoin miners, Abbott hoped, could act as a failsafe of sorts. When demand was low they would pull from renewable energy sources—thus improving the profitability of wind and solar plants and incentivizing new development—and in periods of high demand they would switch off in exchange for a fee. This kind of arrangement is known as demand response. Separately, mining companies could further temper shortfalls in supply by selling back to the grid energy that they had pre-purchased in bulk.
In June 2021, Abbott signed a new law that established a formal legal definition for virtual currency and set clear rules for businesses handling it, which he described as part of a “master plan” to attract crypto firms to the state. The following November, in an interview with the TBC, Abbott declared his intention to turn Texas into the “centerpiece” of the bitcoin industry.
In the period since, some of the world’s largest mining firms—among them Riot, Marathon Digital, Galaxy Digital, and Core Scientific—have either expanded existing facilities or opened new ones in Texas. The latest estimates from the Electric Reliability Council of Texas (ERCOT), the grid operator, from November 2022 suggest crypto miners are using around 2 gigawatts (GW) of energy in Texas, which equates to roughly 2.5 percent of the state’s peak load. But a long queue of companies, representing around an additional 32 GW of consumption, are either awaiting approval for new mining installations or beginning construction. ERCOT declined to provide up-to-date figures.
The prospect of more miners tapping the Texas grid has sparked concern among stakeholders who believe, variously, that the influx of mining activity will lead to blackouts, increase the price of energy for consumers, drive up carbon emissions, and damage Texans’ quality of life.
Recently, state residents that live near large-scale mining facilities have begun to complain about adverse second-order effects, particularly noise pollution generated by the elaborate cooling systems required to keep mining hardware from overheating. “There is a tremendous amount of vibration that goes through the air. It goes through the walls of people’s homes,” says Lyndon Laird, a candidate for state representative for Texas’ 58th district, home to a mine operated by Marathon. “They cannot sleep at night. Some are having adverse health effects.”
Laird claims the noise generated by the mining facility has “severely disrupted” livestock and other fauna, too. “Many chickens have stopped laying eggs,” he claims. “Much of the natural wildlife that used to be in the area has vanished.”
On March 1, in a letter seen by WIRED, Laird put these complaints to the Texas Commission on Environmental Quality, the Public Utilities Commission of Texas, and other state regulators. An accompanying petition was signed by 88 local residents. Marathon declined a request for an interview, but in an open letter published in a local paper said it had “initiated an independent sound study” in response to complaints.
Others argue the state’s strategy of paying bitcoin miners not to mine when the grid is under heavy load is nonsensical. “The most important thing a regulator can do is match assets and liabilities—match supply and demand,” says Ed Hirs, an energy fellow at the University of Houston. With the deterioration of the state’s fleet of fossil fuel plants, he says, allowing large-scale mining facilities to increase demand on the grid can only “exacerbate the situation” and invite further instability.
In Texas, claims Hirs, crypto mining is primarily an energy arbitrage business, the profitability of which is dependent on the ability to purchase energy cheaply in bulk and sell it back to the grid at a premium when demand is high. These operations are effectively double-subsidized by residents, says Hirs, whose taxes provide both the funds for buying energy from the miners in periods of peak demand and the fees paid to miners for participating in demand response. Hirs likens miners to parasites, calling them “the tapeworm on the ERCOT grid.”
Before the recent surge in the price of bitcoin, which has made mining more profitable, news reports noted that some firms made more money by switching off and collecting fees when the grid was under pressure than they were through mining bitcoin. In August 2023, when a Texas heatwave led to a surge in energy demand, Riot said it earned $31.7 million through its participation in grid stabilization programs and only around $10 million from mining.
Opponents of inviting more mining facilities into Texas have been stymied by the absence of data showing the extent of the additional burden on the grid. Other than the miners themselves, nobody currently knows quite how much energy is devoted to mining in the state or the wider US. The EIA says it has “developed general estimates,” but can’t piece together an accurate picture due to the “difficulty of identifying cryptocurrency mining activity among millions of US end-use customers.”
In March 2023, Texas state senators Lois Kolkhorst, Donna Campbell, and Robert Nichols, all Republicans, proposed bill SB 1751, which would have limited participation of crypto miners in demand response, withdrawn certain tax rebates, and imposed data reporting requirements. The bill passed the Senate unanimously, but died when the relevant congressional committee failed to hear it before the end of the session.
The emergency survey filed by the EIA in January, prompted at least in part by the efforts of US senator Elizabeth Warren, was designed to fill in the gaps and “develop more rigorous estimates of electricity use by US cryptocurrency miners,” the EIA said. But in the face of the lawsuit brought by the TBC and Riot, it proved to be short-lived.
Critics of the mining industry have interpreted the move to squash the EIA survey as a cynical attempt to preserve a shroud of secrecy. “The last thing a parasite wants you to know is how bad it is going to become,” says Hirs. But the mining industry says it had every reason to object, as evinced by the sympathy of the judge, who stated in a ruling that the government’s justifications for expediting the survey—that a rise in crypto prices would incentivize more mining activity and, if the weather were to turn, destabilize power grids—“fall far short” of the necessary level of risk.
In principle, mining companies are not opposed to providing the government with information about energy consumption, claims Bratcher. Their objection related to the scope of the survey—which included data on the precise location of facilities, types of hardware contained therein, and the firms supplying the energy—and to sensitive information being released publicly.
The fear is that politicians with an anti-crypto stance might use that data to “bully commercial partners into not doing business with crypto miners,” says Bratcher. “It’s not hard to imagine a situation in which a large energy company gets a threatening letter from Senator Warren.”
As for concerns about the destabilizing impact of crypto mining, Bratcher claims that “the grid is in a far better place now” than in 2021, when it was devastated by the winter storm. “The miners are filling in the troughs of demand and staving off the peaks,” he says.
Until the miners volunteer data on their present and projected energy consumption and terms of their power contracts, those who disagree with Bratcher’s analysis must build their case on top of projections and anecdotal evidence.
The TBC expects the federal government to put forward another survey at some point in the future. Bratcher says miners would not object to providing regionalized data on “aggregate energy usage.” In response to a request for data from WIRED, ERCOT said it “does not comment on specific facilities’ power usage.” In a statement, the EIA said it hoped in the future to “provide the American public with a clear understanding of energy use from cryptocurrency mining.”
In a pro-business state like Texas, says Shelley, even full access to data is unlikely to help activists campaigning for a blanket ban on mining. “It’s a high bar to convince Texas regulators to start restricting an industry,” he says. However, it could help them to achieve more “modest” objectives, says Shelley, like limiting miners’ participation in demand response.
Shelley hopes the bill that promised to cap profits for miners taking part in grid stabilization programs and impose stricter reporting requirements will be revived next year in the state’s next legislative session. “The public interest in understanding this industry is just too great,” he says.
Source : Wired
