Tomlinson: Weak Texas Power Grid Is A Boon For Crypto Miners
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- on Aug 15, 2022
Economically efficient markets often seem corrupt, and the latest example to get stuck in the Texans’ crawl is the power grid paying cryptocurrency miners millions to fix a problem they helped create.
ERCOT offers some of the cheapest energy in the country, often as low as $20 per megawatt hour. While the price can go up to $5,000 per megawatt hour when demand exceeds supply, ERCOT will pay industrial users to shut down during those times.
ERCOT planners said they expected demand from crypto miners will rise to 27 gigawatts over the next four years, almost as much as Houston uses. ERCOT struggled to meet 80 gigawatts of demand during the hottest hours this summer, leading critics to question whether Texas’ fragile grid could handle a 33% increase in load.
Crypto miners promise to shut down when demand increases; it’s part of their business plan.
Riot Blockchain, one of the pioneers of crypto mining in Texas, operates out of an old aluminum smelter in Rockdale as it has an industrial scale interconnection with the ERCOT network.
Riot Blockchain’s game plan is simple: generate bitcoins when electricity is cheap and collect financial incentives to shut down when electricity becomes expensive. The company claimed its business plan would help stabilize the network, but more on that later.
Last July was the hottest on record and generators on the ERCOT network struggled to keep up with demand. Riot Blockchain Says Bitcoin Production Dropped 28% compared to last July because the grid wobbled.
As a result, Riot only generated 318 bitcoins in July and sold 275, generating around $5.6 million, significantly less than last year. But Riot said it voluntarily reduced 11,717 megawatt hours in July, enough to power 13,121 average homes for a month. the company said.
ERCOT gave him $9.5 million back, more than to compensate for lost bitcoins.
“When applied to forecast electricity costs for the month, electricity credits and other benefits should effectively eliminate Riot’s electricity costs for July, further strengthening the company’s financial strength,” said the company when it releases July results.
By reducing electricity consumption by 21% last month, Riot got ERCOT to pay 100% of its electricity bill. So even though the company created less bitcoin in July, the company earned about $7 million more than it would have if it hadn’t scaled back operations.
Cue the villagers with pitchforks who have seen their electricity bills skyrocket.
Readers have asked me why ERCOT allowed Riot Blockchain and other crypto miners to come online if it didn’t have the supply to meet their demand. And isn’t it perverse to pay a company to fix a problem it created by adding overhead?
I asked these questions to ERCOT and Riot and asked for interviews. Only ERCOT responded with a press release just before my deadline.
“ERCOT strives to interconnect all loads and generation equally. We don’t have a rule that says certain loads can’t connect,” he said.
Not every month looks like July, thank goodness. Pinch points usually only occur in July and August and sometimes in January and February.
During the so-called intermediate months, power producers lose money because prices drop so low. One of the reasons we don’t have more generators is that they don’t fetch enough money to justify building power plants when prices are averaged over the year.
This is where crypto miners claim to save the day.
Miners love to run flat out when power prices are low during shoulder months. Generators love to meet the higher demand, driving up prices and earning them money during their low season. The extra sales are supposed to incentivize producers to build more power plants, which they can use to meet peak demand in summer and winter.
More power plants would stabilize the grid, but increased demand also pushes prices up in the intervening months. Some predict that summer prices will fall and balance out over the course of the year. But that seems unlikely.
Power companies won’t add power plants unless they’re sure their annual revenue is much higher, which means higher prices for you and me.
In previous columns, I’ve explained the many ways we can fix the grid, and I’ve even explained how data centers can absorb excess electricity that’s stuck due to a shortage of transmission lines. But adding more demand to the network is not a good idea.
Unless, of course, your business generates wealth by solving a problem it helped create.
Tomlinson, named 2021 Columnist of the Year by Texas Editors, writes commentary on money, politics and life in Texas. Sign up for his new “Tomlinson’s Take” newsletter at
HoustonChronicle.com/TomlinsonNewsletter.
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