Crypto Could Leave Texas in the Dark

Listen to this episode

Sonari GLINTON: Earlier this summer, Texas Monthly reporter Russell Gold took a trip to Dickens County. It’s a remote and rural area of Texas.

Speaker 2: This is High Plains, Texas. There’s not a lot out there. And you’re just driving mile after mile after mile of sort of rolling land. And then Google Maps tells you to turn off onto this dirt road, which doesn’t make a lot of sense. And then all of a sudden, sort of behind this large electrical substation is this enormous warehouse in the middle of nowhere. It’s about three football fields long. It’s a white warehouse type metal frame facility. And what’s sort of fascinating about it is that lining both sides are these giant air cooling machines.

Advertisement

Sonari GLINTON: As Russell drove down the dirt road towards the warehouse. He felt mud welling up around his tires. Then he noticed an 18 wheeler truck stuck in the mud ahead. He called the warehouse manager who came to pick him up in a golf cart and the two sped off down this dirt road.

Speaker 2: I can see him get nervous because it’s pretty clear that the battery on this, you know, on this this golf cart is starting to die. And he’s switching between sort of the jackrabbit mode and the snail mode, trying to get a little more juice. And we just we’re getting slower and slower and slower.

Sonari GLINTON: Finally, on its last bar of power, the golf cart reached the warehouse.

Advertisement
Advertisement
Advertisement
Advertisement
Advertisement

Speaker 2: It was sort of this incredibly ironic moment because we’re going this facility that pulls so much electrical power. You know, this one building. Will take half of the power of Lubbock, Texas, home to Texas Tech University, a good sized city in the high plains. It is an absolute just power hog. And yet someone had forgotten to plug in this electrical cart and we barely made it there.

Sonari GLINTON: Now, once he made it inside the huge facility, all there was to see were rows and rows of computers and just a few people working.

Speaker 2: This is a Bitcoin mining factory. There is nothing inside that building that doesn’t support the computation of billions and billions and billions of mathematical equations in order to earn bitcoin. That is all it is.

Advertisement

Sonari GLINTON: The facility that Russell visited, it’s called Helios. It’s a crypto mine. What does it mean to miner currency? Well, the mining process can seem confusing, but basically computers have to solve a series of complex math equations in order to earn new crypto coins. And the computers running these equations over and over again all day long use a ton of energy.

Speaker 2: You know, when we talk about factories, you think about factories in one end comes, you know, raw steel and it gets stamped and extruded and pressed and mold in and out. The other end comes a car. This is a different kind of factory. The inputs are electricity, basically, and electricity to run just tens of thousands of computers and then keep them cool.

Advertisement
Advertisement

Sonari GLINTON: In the past year or so, Texas has become a hub for crypto mining. Helios is just one of about ten large scale mines in the state. That number is expected to go up. Mines have been lured to Texas because of its generally low energy prices and lack of regulation. Texas power grid, though, is already fragile. It’s unclear if it can handle that extra electrical burden. Last winter, the state was struck by unusually cold weather. And what happened to the power grid was a disaster. High prices and massive outages left hundreds of residents dead. The death toll ranges from a government estimate of 246 people to other estimates of more than 700.

Advertisement
Advertisement
Advertisement

Speaker 2: Tonight, millions without power for a second day in Texas. And the death toll is rising.

Advertisement

Sonari GLINTON: And last month, a heat wave caused a spike in power demand pushing the grid close to capacity. Once again, residents were warned to conserve power, though the state managed to avoid widespread blackouts this time.

Speaker 3: Corey As the next few days are going to put a strain on the state’s energy grid and experts say it’s a good idea to have batteries and ice on hand through this latest heat wave.

Sonari GLINTON: As extreme weather due to climate change is pushing the grid to its limits. Texas is welcoming a growing industry that’s entirely dependent on electricity.

Speaker 2: When we look back at this period in the industry, I think we’re going to ask ourselves why we use so much computing power to generate cryptocurrency.

Advertisement

Sonari GLINTON: So today on the show, crypto mining is booming in Texas. Will the power grid be able to handle it? I’m sonari glinton filling in for Lizzie O’Leary. And this is what next TBD a show about technology, power and how the future will be determined. Stick around.

Sonari GLINTON: Russell reported that an industry group estimates 9% of all cryptocurrency mining in the world happens in Texas, a number that could reach 20% by the end of 2023. But Texas wasn’t always a hub for crypto mining. The influx began a few years ago when other countries started cracking down on the energy intensive practice.

Speaker 2: The first large scale crypto mines, they were looking for places like Iceland and Scandinavia where it was cool and where there was cheap power. And then once all those locations sort of said, you know what, yeah, tapping the brakes, we don’t want to go forward. It goes over to China. And then last year, China sort of says, wait a second, you know, we’re not going to hit our sort of climate pledges, our environmental goals. We’re even begin becoming wary of this. And then it sort of migrates over to Texas. And Texas has thrown the doors wide open for these crypto mines. The Republican political establishment in Texas, which is really, you know, runs the state, is very welcoming and really has embraced crypto. You know, come, come use our electricity. This is this is the Texas motto.

Advertisement
Advertisement
Advertisement
Advertisement
Advertisement

Sonari GLINTON: So how big is the Texas power grid and, say, megawatts? That’s the that seems to be the number that people use. And how much do we think mining is going to expand energy wise?

Speaker 2: Well, last couple of weeks, we we set some records. Last month we set some records and we topped out at about 77, 78,000 megawatts, sort of. That was the the capacity to, you know, keep all of us nice and cool with our air conditioning. So 78,000. Right now, we’re using about 2000 megawatts to mine crypto and that’s a number going up to 5000 by the end of 2023. So this is already a fairly considerable electrical user on the grid. I’m already talking like, you know, three or 4% and, you know, heading upwards from there.

Advertisement

Speaker 2: What’s amazing is that in the so called queue, which is the sort of you put in your application to see if you can, you know, get approved. There’s 20,000 megawatts of crypto mines that have applied. That’s roughly the equivalent of Houston and its suburbs in terms of its electricity usage, including all of the big, you know, refineries and petrochemical plants outside of Houston. It is a stunning number. Will we actually get 20,000? No, probably not. You know, a lot of people fall off the queue. But in terms of the numbers, even if we maxed out at 5000 megawatts, what you’re talking about is somewhere around, you know, eight or 9% of the entire electrical consumption in the state of Texas could be to mining Bitcoin and Etherium and and double checking the blockchain. It’s it’s it’s a stupefying number.

Advertisement

Sonari GLINTON: This stupefying number would be a burden to any states electrical grid, but particularly Texas. The state does produce a lot of energy from natural gas, solar and wind, but the grid is largely unregulated. And unlike most other states, it isn’t connected to a national power grid, while most other state grids are managed by the federal government. Texas’s grid is managed by ERCOT, an independent organization.

Advertisement
Advertisement
Advertisement

Speaker 2: So if you go into the southeastern, southeastern United States, Georgia, Alabama, Mississippi, the way the grid operates is that you have a regulated utility that will build power plants and transmission lines and operate them and get a regulated return. So basically, it is a monopoly. There’s one game in town and the utility commission will determine the profits.

Advertisement

Speaker 2: You know, this is the way we used to run the electric markets in the United States. Then comes deregulation in the late nineties and some states, some power markets, most actually deregulate. We create competition and Texas really was at the forefront of that. So every day, honestly, every 15 minutes of the day, Texas, we run an auction and the auction basically says we think that demand right now is going to be 50,000 megawatts. Everyone bid in how much you’re willing to generate your megawatts for. And then we’ll look and we’ll sort of say, all right, here are the 50,000 megawatts that a bid in. Here’s the clearing price. Boom, go.

Speaker 2: Texas just you know, we had this very strong belief in the free market and the free market will send signals. And for 20 years it’s worked really well, with one major exception of reliable power. And then February 2021, we just hit a wall. We didn’t have reliable. We didn’t have cheap anymore. The great Texas deregulated experiment, frankly, hit a wall going 90 miles an hour last winter.

Sonari GLINTON: Unusually low temperatures disrupted power supplies throughout the state. The power grid went into a downward spiral. Prices skyrocketed and many parts of the state lost power for three days. Hundreds of people died as a result. Then last month, Texas endured a record breaking heat wave, with temperatures soaring up to 110 degrees and with air conditioning use skyrocketing. Residents were warned that the power might go out again.

Advertisement
Advertisement
Advertisement

Speaker 2: The Texas grid is really very hobbled right now. There are enormous conversations going on about what to do about it, how to fix it, who’s to blame. And, you know, it’s sort of remarkable that in the middle of all this discussion, trying to figure out how to keep the lights on, we are continuing to invite these these massive crypto mines into the state to use lots of electricity.

Sonari GLINTON: Texas was ultimately able to avoid a major power outage during the heat wave, and many of the crypto mines did report that they shut down during the heat wave to take pressure off the grid. Some even made money by selling power they had already purchased back to the grid. One company, Riot Blockchain, reported that they made over $9 million doing just this. But in this case, the, you know, the crypto miners turned off. You know, that works pretty well this time. It seems.

Speaker 2: You know, Sonari we don’t actually know that. We have some companies that have come out and said, yeah, we turned off Argo, which is runs the Helios mine that I visited, said that they thought statewide 1000 megawatts turned off. But we don’t have transparency. There’s no one to call. The grid doesn’t disclose that information.

Speaker 2: So I don’t know if they’re right about 1000, you know, and I think that’s what troubles me, is that are we really comfortable as Texans counting on the generosity or the desire to make money shutting down whatever it is? To make sure our grid operates during heat waves, because I don’t want my AC to be competing against Bitcoin mines and I don’t want to have to pay those competition prices. And that’s sort of what I think as Texans we haven’t fully appreciated yet. There are no rules. There’s no place where the grid operator says, Hey, you have to shut down during these periods. It’s right now up to the goodwill, frankly, of Bitcoin miners. And that’s a really I honestly, I think it’s a dangerous place to be.

Advertisement
Advertisement
Advertisement
Advertisement

Sonari GLINTON: After the break, why are some politicians encouraging miners to come to Texas? The grid is already so fragile. Proponents of crypto mining in the state, including Senator Ted Cruz, argue that these sites will actually be valuable to the grid. Renewable energy like wind and solar can be a little unpredictable depending on the weather. Sometimes there’s an excess of power if there’s a windstorm, for example. But if the wind dies down, sometimes they produce less than anticipated. So proponents say that crypto mines can act as a kind of a controllable load that can use up energy when there’s an excess and shut down when the grid is being strained.

Speaker 2: So, you know, renewables absolutely cause variability on the grid, especially pricing variability. And Bitcoin mines could potentially be there, too, to sort of sop up that excess generation. But we shouldn’t assume that they’re only to operate six or 7 hours of the day when there’s cheap electricity. I’ve talked to lots of people and they all tell me that the economics of Bitcoin mining, even with the recent, you know, collapse in pricing, are still good enough that you’re going to want to you’re going to want to be running that mine around the clock up into something like $100 per megawatt hour to 2 to 4 times what the average price of electricity in Texas is.

Speaker 2: So, you know, I hear Sonari I hear a lot about, oh, bitcoin be great. It can take up all this excess electricity. That’s not typically how they’re operating right now. These guys are running 24 hours a day, seven days a week. They made the big capital investment to buy all these processors. They’re going to want to run 90, 99% of the time.

Advertisement
Advertisement
Advertisement

Sonari GLINTON: What can regulators do to say, you know, hey, guys, switch off these mines or forget production because we got a mega heat wave or the temperature is going to drop? What are the things in place to sort of manage this as any regulator looking at managing this?

Speaker 2: Well, look, we don’t manage with a heavy hand in Texas, right? So we don’t have rules in place that say you crypto mines must shut off. When we tell you when prices go above. What we do actually have is we have a secondary market because, you know, it’s Texas. We love our markets and that’s secondary markets for basically emergency shut off. And so we will pay companies to shut off during emergencies and they bid in just like everyone else. So when riot blockchain in early August reports that they made nine and a half million dollars by shutting off the power, what they made that money because they were paid by the Texas power grid and by Texas ratepayers, Texas electricity consumers for that service.

Speaker 2: So what we do is we set up this market and this market basically says, look, we need somebody. Some people be out there on standby and to shut off, you know, for X number of hours a year when we tell you and we will pay you to to to do that. And so essentially, we’re going to start paying these crypto mines tens of millions of dollars to shut off when we tell them it’s a very lucrative potential business for these guys.

Sonari GLINTON: Another main argument in favor of crypto mining is that it will incentivize solar power. Basically, increased demand from the mines will encourage investment in new solar and wind plants to meet that demand. I asked Russell if that argument was valid.

Advertisement
Advertisement
Advertisement

Speaker 2: Well, it’s not wrong, but there are two big caveats. The first is that the way it encourages more solar is because it increases prices. So Texans will pay higher prices for electricity. And the second thing that we need to kind of keep in mind is that we’re also increasing the risk that with more crypto comes the risk that, you know, it might not respond in time, it might not have the incentives to respond in time during a crisis. And we might find ourselves back where we were in February of 2021 with, you know, rolling blackouts that hopefully this time don’t last three entire days.

Sonari GLINTON: We don’t expect the consumer strain on the grade to getting the especially with like places like Dallas growing. Is there a major energy project somewhere that someone’s working on? That could be the thing that saves the day. Is there some project on the on the horizon that could make this better?

Speaker 2: Well, you know, let me challenge you on that, because I think we could expect it to happen. You know, if we invest in more energy efficiency, we actually could see a decrease in power consumption. We choose not to. But to answer your other question, is there a big project out there? Sure. We could connect the Texas grid to the eastern grid and the western grid so that on these kind of days, we can borrow from New Mexico or from Arkansas or from Minnesota, because, you know, the United States is really big. It’s not hot everywhere. There are places where there’ll be excess production.

Speaker 2: Texas has made this choice that we basically cut our grid off from the rest of the country because by doing that, we get to regulate our grid out of Austin, Texas, not through FERC in Washington, D.C., but there are projects out there that essentially are saying, look, let’s build this big let’s build these big power bridges so that we can share power back and forth. But so far, you know, that’s that’s just conversation. It’s not legislation.

Advertisement
Advertisement
Advertisement

Sonari GLINTON: So help me understand what that means. What does it mean if Texas can’t handle this anticipated growth that comes from consumers and from Bitcoin mining? Lay that out for me.

Speaker 2: Well, it’s not the way it’s supposed to work is that more people show up, turn on the air conditioners, more bitcoins, mines are built, and the power price goes higher and higher. You know, investors out there look and say, oh, we can make more money, and then they go out and build more power plants. And it’s sort of this is the ebb and flow, the give and take that the market supposed to have. It’s not quite working that way. And so we have this growth going on. The power prices are going up because there are more people and they’re using it and we’re not getting the kind of response that we could.

Speaker 2: So, you know, there’s this sort of question like, okay, so we’re building bitcoin mines and that’s fine, you know, in a period when we’re only using 50,000 megawatts, but we have the capacity for 70,000. Sure, we have. We can we can mine tons of Bitcoin at that point. But what happens when we when when the air conditioning load, you know, the electricity you need for human life, you know, keep everything going, the hospitals and the traffic lights and the air conditioning. What happens when that hits 70,000? Are the Bitcoin mines going to turn off at that point? Or do we just trust them to do that? And we don’t have an answer for that right now?

Speaker 2: And that’s all being sort of all of those questions, honestly, are being pushed to a secondary consideration because the real regulatory focus right now in Texas is still trying to figure out what kind of fixes do we need to make to the market in order to prevent another big Texas freeze blackout? And so, you know, this is kind of you know, it’s going on a little bit underneath the regulatory radar. They know what’s happening. It’s just not sort of the top item in their in their inbox right now.

Advertisement
Advertisement
Advertisement

Sonari GLINTON: You know, if you’re going to I mean, I’m not going to ask you to predict. But, you know, how likely do you you think that you’re going to see big blackouts, you know, during weather crises?

Speaker 2: Well, I’ll give you maybe an answer you weren’t expecting. And that is through the end of the year, we are not going to see a blackout. We are running our grid right now in a very expensive way in order to prevent blackouts. And I think that has everything to do with the politics of Texas. We have a gubernatorial election coming up in November. The incumbent, Greg Abbott, absolutely does not want another blackout. So through the end of the year, 100% no blackouts. I can almost guarantee you that. What happens next year? The legislature comes to town. New laws, new rules. And then it’s anyone’s guess. If there’s no political price to be paid for the increasingly high power prices that we’re facing. Then it’s not clear to me whether the tough decisions will be implemented. You know, in the Texas Capitol. And at that point, we probably will see more blackouts and more problems down the line. And that’s that that’s frightening.

Sonari GLINTON: Well, thank you so much, Russell.

Speaker 2: Oh, no, thank you for having us a great conversation.

Sonari GLINTON: Russell Gold is a senior editor at Texas Monthly. And well, that’s it for our show today. This episode of What Next TBD is produced by Anna Phillips. Our show is edited by Tori Bosch. Joanne Levine is the executive producer for What next? Alicia montgomery is vice president of Audio for Slate.

Sonari GLINTON: What next? TBD is part of the larger what next family? TBD is also part of Future Tense, a partnership of Slate, Arizona State University and New America. If you’re a fan of the show, I got a request for you. Become a Slate Plus member. Just head on over to Slate.com. Slash, what next? Plus to sign up. We will be back on Sunday with another episode. I’m Sonari GLINTON, filling in for Lizzie O’Leary. Thank you for listening.