Texas ‘crypto-rush’ causing concern in Washington

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Texas is a “deregulated safe harbor” for digital asset mining companies, according to an October 12 letter written by Senator Elizabeth Warren and six of her lawmaker colleagues.

The letter is addressed to Pablo Vegas, Chief Executive Officer of the Electric Reliability Council of Texas (ERCOT), and raises the lawmakers’ concerns that ERCOT is “aggressively courting crypto miners, who are drawn to the state’s cheap power and laissez-faire regulation.”

Signed by three senators and four congress representatives, the letter also cites concerns about the active lobbying of the government by the Texas Blockchain Council.

Citing numerous articles, studies, and investigations, the lawmakers query the impact of increased mining operations on climate change and the stability of the energy grid, as well as questioning the subsidies ERCOT provides to digital asset mining companies to reduce their operations during times of peak demand.

Digital assets haven

Some estimates suggest Texas is now home to about a quarter of all U.S. ‘crypto’ mining and potentially 14% of the mining computing power worldwide, a figure that could rise to 20% next year.

The state has been actively encouraging investment from the industry over the past few years, playing on its reputation for low taxes, abundant land, and crucially cheap power. This drive has borne fruit, with around 30 operations pitching up in the state over the past decade and more expressing interest in joining them.

The influx of digital asset mining has naturally put a strain on the grid, and the lawmakers cite an April 27 piece from Bloomberg that suggests digital asset miners are expected to increase electricity demand by up to 6 gigawatts by mid-2023, “enough electricity to power about 1.2 million homes”.

Record temperatures and record usage

Warren and co.’s letter comes after a summer of multiple peak energy usage records in Texas, including the all-time high energy peak in July.

“We hit 80 gigawatts for the first time,” said Dan Woodfin, ERCOT’s VP of system operations, speaking on October 18 at a public meeting with Vegas. “That new all-time peak was set on July 20th, and we also set new weekend peaks”.

This is particularly concerning given that extreme weather events, exacerbated by climate change, have already driven up electricity use, straining Texas’ power system. The recent heat wave in July 2022, when the grid un-coincidentally reached its all-time peak, is one example, while at the other end of the temperature scale, the winter storm of February 2021 saw the grid collapse, causing blackouts that left 246 people dead.

The environmental impact of this “laissez-faire” approach to digital asset mining operations was a key theme of the letter, which by way of example, quotes that “the energy used to mine Bitcoin and Ethereum in 2021 resulted in almost 80 million tons of carbon dioxide emissions,” a figure pulled from a ForexSuggest.com report.

The effects of digital asset mining on climate change are much debated and also vary according to asset, with some more environmentally friendly than others, but there is consensus on the huge energy costs involved and the drain it takes on grids.

Riot Blockchain

By way of example, the letter names Riot Blockchain, the owner of a 750 MW plant in Rockdale, as one of the businesses engaged in block reward mining in Texas.

Riot Blockchain said in July of this year that it had made around $9.5 million by shutting down operations and selling electricity back to the grid, a figure the lawmakers pointed out was more than the $5.6 million the company made that month from selling BTC.

With these numbers fresh in their minds, news in late October—after the lawmakers’ letter was sent—that Riot Blockchain has officially broken ground on a 1 GW expansion project in Corsicana, Navarro County, must serve as further proof for Warren and her colleagues of an ever more urgent need for answers.

The key questions

The lawmakers ended the letter with a specific list of questions for ERCOT CEO Pablo Vegas:

1. For the year 2022 to date, and for each of the previous five full calendar years, what has been the annual electricity consumption used for ‘crypto mining’ in Texas, and how many tons of carbon dioxide emissions have resulted from this energy use?
2. How do ‘crypto mining’ companies plan to scale their operations in Texas? How much load will this add to the grid, and what plans does ERCOT have in place to handle this increased demand? What plans does ERCOT have to mitigate any such costs to consumers?
3. With what ‘crypto mining’ companies do you have power purchasing and/or curtailment agreements? How much you have paid each of these companies to curtail their energy use and how many times? And what is the average cost of electricity to consumers at the times of those periods of paid curtailment?
4. Does ERCOT have any estimates or models regarding the impacts of ‘crypto mining’ on energy costs to local families and businesses? If so, what do these estimates or models show?

Vegas has yet to respond publicly to the questions, but on October 25, it announced the hiring of Robert Black as ERCOT’s new Vice President of Public Affairs, with a brief to “collaborate closely with state leaders and electric market participants, while also ensuring we are clearly communicating with the public”—so perhaps answers will be more forthcoming soon.

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