Miners Say: “Trust Us.”
Cryptocurrency miners are flooding into Texas, drawn by a deregulated energy market and low electricity rates. The industry promises that this influx is good for the state, because, it argues, the miners will help stabilize the grid by increasing demand for renewable energy and acting as a “battery,” instantly curtailing their energy consumption when other Texas consumers need it most.
But an investigation by the Tech Transparency Project has found that bitcoin miners are adding new strains to the state’s already fragile grid and cashing in on programs that allow big energy consumers to resell power at a mark-up. The result: Miners are collecting millions of dollars while ordinary Texans are footing the bill—and still have reasons to worry about whether the state can keep the lights on.
A review of SEC filings, public utility commission records, industry publications, social media posts, and data from the state’s energy authorities reveals how Texas cryptocurrency miners are using long-term energy contracts and other market-distorting deals to position themselves as powerful players in the Texas grid. They have effectively established themselves as “mini-Enrons” in the middle of the state’s precarious power grid by locking in cheap wholesale energy and reselling it at a premium when Texans are desperate to stay warm. These complex agreements, brokered in secret with little public scrutiny, could cost Texans hundreds of millions of dollars.
The review found that:
- Cryptocurrency miners in Texas hold long-term contracts that lock in deeply discounted prices for electricity for as long as a decade. These contracts ensure miners’ position on the grid well beyond the point at which anyone can reasonably predict the value or energy demand of mining bitcoin, holding the state hostage to forces beyond miners’ or regulators’ control.
- Programs that appear to be unique in the country allow miners to leverage their contracts to resell electricity at massive mark-ups and collect millions of dollars in incentive payments from the state grid operator.
- Miners’ disclosures to shareholders make clear that they will resell energy when it is more lucrative than mining bitcoin, positioning them to become energy traders if market dynamics shift.
- Some miners already view themselves as energy traders. One bitcoin miner called his company “An energy arbitrage operation disguised as a bitcoin mining company.”
- According to a previously unreported SEC filing, one cryptocurrency miner resold electricity valued at more than $125 million to the Texas grid during the damaging winter storm that struck in February 2021. The state still owes the miner $86 million, with that amount likely to be paid by ordinary utility customers.
- Texas also pays some bitcoin miners millions for their willingness to curtail their power demand, whether they actually reduce their energy usage or not. According to one miner, they only curtail their load 3% of the time that the state pays for their participation in the program.
- Bitcoin miners may collect as much as $170 million a year from programs that pay large energy consumers for their willingness to shut down.
- Miners have proposed that Texas expand one program that pays miners to curtail their energy use, potentially raising payments to the crypto industry under that program to more than half a billion dollars a year.
- Crypto advocates say Texas miners will “do the right thing” and decrease their electricity consumption in times of need, even if it doesn’t align with their economic interests. In communications with investors, mining companies appear more preoccupied with their bottom line. One miner’s parent company tells shareholders it will “opportunistically sell electricity” depending on the market price.
- Texas’s reliance on the honor system leaves the state dependent on a range of obscure actors, some with checkered pasts. The CEO of one Texas miner has faced extortion charges and a 2017 lawsuit over more than $1.2 million in delinquent loans.
- Texas has allowed cleaner alternatives for grid stabilization, like battery projects, to languish at the same time that it has welcomed bitcoin miners as a panacea to the state’s energy reliability woes. Despite projections that the state would have more than 1,500 megawatts of battery capacity by the end of 2021, the Texas grid ended the year with 833 megawatts of installed capacity, barely more than half the projected level.
- Under certain market conditions, some Texas crypto miners already make more from energy arbitrage than from bitcoin mining, a TTP analysis shows. The structure of bitcoin virtually guarantees that mining will become less lucrative in the coming years, likely making energy trading even more attractive.
Nearly two decades ago, Americans were outraged when recordings emerged of Enron traders boasting about manipulating the energy market, stealing from California and gouging consumers, who faced widespread blackouts. In one particularly shocking exchange, the traders joked about stealing money from “Grandma Millie,” who “wants her [expletive] money back for all the power you've charged for [expletive] $250 a megawatt hour.”
Today, crypto miners have essentially recreated this highly volatile system in Texas, with low, long-term energy contracts and a perch on the electric grid that could allow them to decide where electricity flows and how much it costs. A devastating heatwave that hit Texas in July 2022 underscored the stakes, as officials told Texans to prepare for rolling blackouts and the price of energy soared to $5,000 per megawatt hour.
The weaknesses in Texas’s grid were revealed when Winter Storm Uri struck in February 2021, throwing the state’s deregulated energy market into chaos. Demand for energy to heat homes and businesses exceeded the available supply of electricity, forcing utilities to shut off power to avoid catastrophic failure. Millions of Texas residents lost power for days, and as many as 750 lost their lives.
To incentivize energy providers to sell more electricity to the grid and encourage consumers to conserve energy as much as possible, the Public Utility Commission of Texas (PUC) raised the price of energy to $9,000 per megawatt hour. As ordinary Texans froze to death, the state’s nascent cryptocurrency mining industry cashed in on the inflated electricity prices. Bitcoin miners—who run collections of powerful computers that process bitcoin transactions in exchange for a financial reward—powered down their data centers, selling electricity back to the grid and collecting a bonus for doing so.
Even Texans who fared relatively well in the storm faced astronomical electric bills from heating their homes during the unusual cold snap. Some utilities reportedly charged consumers more than $2,000 a day. Two subsequent studies found that the PUC-imposed price was thousands of dollars above what was needed to persuade power generators to sell more electricity during the storm, resulting in $16 to $26 billion in excess charges to consumers.
In an echo of the famous “Grandma Millie” comments, one miner described soaring energy prices during the Texas storm in 2021 as “excellent for bitcoin miners.”
Bitcoin proponents tout the windfall as a success story, saying that the miners’ move to power down operations during the crisis shows how the energy-intensive industry can help stabilize fragile electrical grids. Texas Sen. Ted Cruz has parroted the industry line, saying that bitcoin mines can act as a “battery,” consuming excess energy during periods of low demand and releasing it during peak times.
Cruz and other cryptocurrency partisans have also argued that miners’ ability to quickly ramp energy consumption up or down means that the bitcoin industry can create new demand for renewable energy sources that generate power intermittently, allowing for green infrastructure development.
In reality, miners’ voracious appetite for energy has outpaced the development of renewable energy facilities in Texas. Between 2020 and 2021, consumption of coal-powered energy increased in Texas, mirroring trends in other states where the crypto mining industry revived dying coal plants. Skeptics have pointed out that increasing the overall energy demand without generating an economically useful product is a backward step. “One good thing about crypto mining is it’s adding flexibility to the system,” a former ERCOT board member told the Washington Post last year. “But the problem is it’s consuming real resources, doing a function that has no value.”
The promise of increased grid flexibility may also prove to be empty. Bitcoin miners are far more driven by profit than grid stabilization, and the vast majority of the energy they control can only be curtailed on a voluntary basis. As the TTP analysis shows, changes to the economics of bitcoin mining that are beyond the state’s control could change the calculus for miners, leaving the state in the cold at the worst possible moment. Energy storage technologies that exist for the sole purpose of providing flexibility, like batteries, do not carry the same risk. And large-scale industrial batteries can store intermittently produced energy and release it during peak times without consuming massive amounts of energy, as cryptocurrency miners do. “Miners are a strain on the grid, not a help,” one energy analyst said recently.
Since Winter Storm Uri, more cryptocurrency miners have rushed into Texas. The state’s cheap power and unique opportunities for energy arbitrage attracted many miners who fled China after the country banned bitcoin mining in May 2021. Bitcoin advocates predict that as much as 5 gigawatts of new mining capacity—enough electricity to power more than 5 million homes—will come online in the next two years. Representatives of the Texas grid operator have said that bitcoin miners’ footprint will grow even larger in the coming years, with an additional 25 gigawatts of mining demand coming online over the next decade. The 30 gigawatts of expected additional demand would amount to more than 35% of the grid’s current capacity.
In July 2022, congressional investigators sounded the alarm about the growing burden that cryptocurrency miners have placed on electrical grids across the country. The investigation, which surveyed seven top bitcoin miners, including four with operations in Texas, warned about the energy and environmental problems posed by the industry. “Policymakers and the public do not have a comprehensive source of information about where these operations are located, how much energy they consume, and what their sources of energy are,” the lawmakers warned.
The precise details of most of the industry’s arrangements with the Energy Reliability Council of Texas (ERCOT), the nonprofit that operates the state’s grid, remain largely shielded from public view, as do the ways it brokered such a favorable environment in the state.
But it’s clear that the industry has made extraordinary inroads at ERCOT. In late 2021, the Texas Blockchain Council said that that one of its top advisers, former U.S. Rep. Bill Flores, had been named vice chairman of the ERCOT board. The next month, ERCOT’s CEO said he was “pro-bitcoin” and backed the idea that bitcoin mining could help improve the stability of the Texas grid.
Cryptocurrency advocates have also recently stepped up their lobbying efforts in the state, tapping well-connected allies who appear to have helped them advance their agenda. One leading industry lobbyist worked for Texas Gov. Greg Abbott for several years, rising to a top job in his administration—a relationship that crypto advocates appear to have used to secure at least one meeting with the governor.
At that meeting, in the fall of 2021, Abbott appeared to acknowledge that the miners have the power to hold the state hostage. “Help me get through the winter,” he told industry leaders, according to Bloomberg.
Fortunately for Abbott, the price of bitcoin fell nearly 20% in January 2022, making it easier for miners to power down when a winter storm hit in early February. But even if it is in miners’ interest to curtail their operations, Texans will still pay a price. Cryptocurrency miners’ position on the grid, which is locked in by long-term power supply contracts, adds unnecessary markups to the state’s energy bills. Meanwhile, ERCOT has allowed actual battery projects—a cleaner, less wasteful way to stabilize the grid—to languish.
The grid operator may be beginning to realize the danger of its big bet on crypto. In late March 2022, worried that more energy demand from cryptocurrency miners in Texas could overwhelm the grid, ERCOT said it would require large miners to get permission from the state before they connect to the grid.
That increased demand, coupled with unpredictable weather patterns and cryptocurrency market fluctuations, could spell disaster for Texans. All of the new bitcoin miners guzzling Texas’s cheap power are subject to market factors beyond their control. If the price of the cryptocurrency soars, Texas will have to pay miners more to sell power the next time a natural disaster strikes. Conversely, if the price of bitcoin remains stagnant or declines as mining becomes more difficult, the state could be stuck with a coterie of mini-Enrons adding unnecessary mark-ups to Texans’ energy bills.