Cryptocurrency Mining in Texas
earthjustice.org
earthjustice.org
We have an extraordinary reliance on wind and solar, and broadly insufficient thermal generation to deal with generation falloff.
To be clear - I think wind and solar are great, and we should build more, but you also need a sizable amount of thermal generation (preferably nuclear) to provide for base load.
I also don't think thermal can be replaced readily with gas turbine, battery, pumped storage, or other forms of rapid spin up equipment.
Bitcoin (as what is effectively a big resistor) is useful as a artificial price support, to keep the market price at or above the marginal cost to generate power via a thermal plant. Essentially artificial static - but easy to shed - demand.
To explain further, bulk power buyers buy their power often directly from a nearby source and site their facilities near those points, but they purchase power at fixed rates. When market price at those interconnection points rises above the price they paid, they're can be forced to shut down and resell that power back into the market pool.
The losses from shutting dorm bitcoin are limited to production losses during the shutdown, and there is no loss of already made inventory, or other secondary losses like process startup and shutdown for a refinery, semiconductor fab, or other kinds of manufacturing which product a physical good.
I probably wouldn't have picked a market power system like Texas, but it's here, it's what we have, and these kinds of weird market incentives are needed to make it operate correctly (absent a rate of return pricing mechanism.
The motivation behind having a separate Texas grid is political and nothing else. That's why they have ask home consumers to conserve energy.
Our shortage was greater than the entire State of California's generation. It was greater than the spare capacity in any of the three neighboring interconnections.
Like I'm not opposed to us joining our neighboring interconnections, but the problem would still exist to some extent because of the ability to move power long distances - and this assumes you build more HVDC and AC interconnections. (There is currently HVDC interconnection).
Also, the problem would still remain, 4-6 hours a day, the cost of spot power at interconnection points would be lower than the marginal cost to operate a thermal plant.
Texas paid Bitcoin miner Riot $31.7M to shut down in August (cnbc.com): https://news.ycombinator.com/item?id=37418866
Texas just got closer to blackouts than it has since 2021. What happened? (kut.org): https://news.ycombinator.com/item?id=37419220
A grid needs a base load to function properly. Energy producers can't just scale up or down production whenever demand changes. When people talk about "solar and wind can't supply the entire grid we need batteries to store it" this is what they're talking about. Some amount of electricity must constantly be produced to keep the grid functioning. Nobody buys this energy and the cost of it is rolled into the energy people do buy.
So what if someone out there needed a lot of energy all the time? Well, you can sell that constantly produced energy to them, and whatever they pay for it customers don't have to pay for it. You can decrease prices, waste less energy (from a producer perspective; if you think bitcoin mining is a waste of energy it is wasted either way, but to the producer it is sold) and everyone wins.
But, in times of peak load, when that energy is used and needed, you need the newfound customer of it to be able to not need it on short notice. So you need a customer who isn't going to freeze to death without it. This is where bitcoin mining comes in. They negotiate a deal for the base load energy, buy it, then, when the grid needs them to shut down, sell it back. This is all done at pre negotiated rates and the energy is sold as an option, which in this case means on the condition that they have to sell it back if the producer or grid maintainer or state or whoever needs to use it.
> Energy producers can't just scale up or down production whenever demand changes.
They can with storage, and with power plants that have variable generation capacity - so not nuclear, but gas peaker plants, etc.
Less income means it takes longer to pay off initial capital costs and generate return.
Slower investment return from solar and wind deployments means expansion of them will take longer.
If wind and solar takes longer to roll out at full scale for financial reasons, then our goals towards fossil fuel reductions takes longer.
Therefore, if you can find a buyer who will suck up any excess solar and wind and pay them, we eliminate fossil fuels quicker.
Solar and wind have the lowest marginal costs of production, which means they'll win out on the wholesale power markets. Furthermore, Texas is a state with increasing population growth and increasing energy needs (hotter planet means more A/C, after all), and has regularly been setting all-time highs on daily energy consumption. So there'll always be a buyer for the excess electricity.
The cryptocurrency mines aren't adding base load here. It's adding more load on a system that's already taxed to its limits, and justifying it as a good thing because "oh, we can get paid to turn it off if there's too much demand." People should be yelling at ERCOT for being an incompetent regulator that's letting the grid get away with too little supply (and that's what this article is sort of doing, except its anger is directed towards cryptocurrency mines, not ERCOT, so it's somewhat misplaced).
And, for what it's worth, cryptocurrency is kind of bad at base load. It's not using any reactive power.
A constant stream of demand that does not fluctuate and can be turned off at a moment's notice without any dire consequences, that's bad at base load? How so?
These heat waves and extreme cold events are purportedly unprecedented, due to climate change. Should we be surprised when electricity infrastructure designed for normal times gets strained? I've been in countries with rolling power outages, I wouldn't call the Texas grid badly engineered. Considering it's a standalone grid I'd say it's got to be fantastically engineered to have the uptime that it has, I don't think the UK even has such a resilient system.
Tell that to someone from the UK, and they're likely to laugh in your face. The UK has never faced rolling power outages; Texas faced that just two years ago (although ERCOT appears to have had some issues with the "rolling" part). Furthermore, I don't think the UK has ever had to go voluntary load-shedding measures; Texas had to do that several times this past month, and last summer, etc.
It's hard to say that the extreme cold event was uprecedented when the exact same thing happened in Texas but a decade prior, complete with learnings that would have prevented the breakdown of the grid (i.e., rolling blackouts) had they been implemented. And the extreme heat wave has been impacting, well, more or less the entire world, and most of the power systems haven't even had to suggest that customers use less power. This is stuff that is eminently predictable, and in most of the world, electricity capacity is planned under the basis of extreme demand scenarios, not normal demand scenarios. If Texas's grid is designed merely for normal demand, then that is a surprise that should have Texans up in arms about the incompetence of their electricity regulator.
Well when I say regular or normal, I don't mean an 80° sunny day, I mean one standard deviation from the mean. They take extremes into account, you can't take unprecedented extremes into account, by definition. It gets hot, and it gets cold, and the grid is fine. If the entire state of Nevada had a giant ice storm that covered nearly the whole state, I highly doubt that their grid integrated with the rest of their region would be able to handle it. Shit, California can't even do it on a good day.
Have you been to other parts of the world? Outside of Europe and the US, and a few recently well developed countries in southeast Asia, rolling blackouts are par for the course. I've spent 6 straight days without electricity before in a developing country, without any extreme weather event. Grids are hard to manage.
You can find this sort of stuff in lots of industries that have cash flows at risk that are trying to manufacture outrage in the voting public to create activists who will attempt to influence legislative priorities.
The energy system in Texas is one of it's strengths, the government does represent the will of the majority and is probably the main thing the state has going for it, that and energy resources. People don't move there because it's beautiful, they move there because it is governed and run pretty sensibly.
Gov. policy not representing the people: https://www.texasmonthly.com/news-politics/texas-primary-ele...
Energy system insanity: https://www.cnn.com/2023/06/22/politics/texas-power-grid-hea...
As for texas being a beautiful state, I have no citations, just good memories from my many visits. I will grant you that there are a growing number of oil extraction / fracking hellscape in the state.
And a biased article that only cites critics. The Texas grid has had one catastrophic failure in living memory. It also has some of the cheapest electricity anywhere in the country, even the world.
What looks like a crypto mine is in the upper left. Notice the new tent-like structures. some under construction, all the air-handling equipment, and the huge busbars of the power distribution system. Also notice the active parking lot.
The big plant at the lower right is a defunct Alcoa aluminum refining operation, sold in 2021. It looks like two of the long buildings that formerly housed aluminum electrolysis operations have been converted - they have what looks like air handling equipment outside and there is an active parking lot nearby.
The large substation to the northeast of the mining farm is left over from the Alcoa era. So heavy power was available at that site.
[1] https://earth.google.com/web/search/Rockdale,+TX/@30.5699918...
Which is fine because they only shut off a few hours per day and the amount they get paid to shut off is more than they would have made from mining.
Riot recognized 66mm of depreciation on only 50mm in revenue.
That's because Riot is a scam to transfer money from investors to their executives.
https://www.usbank.com/financialiq/improve-your-operations/i...
They are way over that
If you want to judge payers of electricity you should also look at video games. It is pure entertainment with no societal value beyond that. If that doesn’t bother you, maybe don’t judge what people want to electricity for if they buy it on the open market.
This is a persistent myth in crypto circles, but it doesn’t match up with the financials of any company I’ve seen. Instead what happens is that once you’ve paid to build up mining capacity, particularly for mining rigs, any downtime is extremely costly.
Miners are always racing against the clock of increasing hashrate and the next halving.
Some will value entertainment more than others. Teetotalers don't value alcohol and would ban it by citing social ills. Negative externalities are a magic hand-wave here, "The climate apocalypse is neigh! You must taboo the things I say!"
While one can argue things like GPT3/4 are useful, the question becomes how useful are they if they burn up gigawatthours to do it?
GPT3 alone took around 334MWh to train, and that's one model from one company, and that's just for training, not usage.
We should be focusing on making power cheaper and more accessible to everyone, not policing what people do with the power they have purchased.
Large scale usage affects grid stability at specific occasional times. If it were just individual homes doing small scale mining across the grid, it would be different, but one can make a good argument that large scale crypto miner operations should be prioritized for unilateral load shedding in times of grid instability.
The power grid as currently designed and deployed in Texas is a shared resource and needs to be centrally managed to avoid tragedy of the commons situations.
If crypto miners don't like the shared rules for the shared resources, there's nothing stopping them from deploying their own wind, solar, and optionally storage.
Being connected to the public grid comes with benefits, and those benefits come with conditions of use, ideally set by consensus of everyone who benefits from and funds the grid.
Where the unnecessary line is drawn is up to individual opinion, but I think we should probably be banning nearly all large scale industrial consumption of power until the grid is net zero. It's not far off now, we just need to collectively decide that we are willing to spend for storage.
I also think we should immediately ban all personal IC engines (and HEAVILY tax all use of diesel (with regular automatic scheduled tax increases without limit), without which our civilization at present cannot function), but that is separate (but parallel) to grid disincentives.
Crypto mining 24/7 while the grid still uses petrochemicals for generation should probably be criminal today (as well as driving your F350 to Costco). I'm fine singling out any/all industry that is even remotely questionable so long as the grid is still dumping gigatons of CO2 into the atmosphere.
I think entertaining society should be very high up on the list of societal values.
Crypto, on the other hand, I struggle to find any value worth the cost.