Texas is becoming the Bitcoin mining capital
Texas has quickly established itself as a new crypto hub and a haven for mining companies. What made this possible, and what benefits did local miners get?
While the FTX collapse has dominated the headlines for a month, more and more crypto businesses, particularly mining companies, are relocating to Texas to start a business and develop the digital asset industry there. There are so many of them there that the region even has its local coordinator – the Texas Blockchain Council (Texas Blockchain Council).
This organization serves as an association for crypto and blockchain startups, providing membership and services to everyone. In particular, members of the association can receive consulting services on business development in Texas, and search for clients or staff. The association can promote lobbying for certain ideas in government circles. It can also engage representatives of any company in industry working groups who make the policy for the crypto industry development in the state.
The association's mission is to make Texas a leader in blockchain innovation.
Texas is home to the largest Bitcoin mining sites in North America, and fast achieving status as the undisputed Bitcoin mining capital of the world,Texas Blockchain Council President Lee Bratcher said at an industry summit in Austin.
Mining companies are attracted by Texas' cheap electricity, which can be acquired at wholesale costs (much below retail pricing), as well as loyalty from the state government and local power generating companies. Texas mining companies currently control up to 25% of all hashrate in the United States.
However, not everyone likes this situation.
Among those concerned about the usage of electricity by mining farms are Senator Elizabeth Warren, Congressman Al Green, and five other federal lawmakers. In October, they addressed a furious letter to ERCOT Corporation, which maintains the Texas power grid. Legislators voiced concerns about the concentration of a significant number of mining farms in the state, which could result in higher electricity costs for other consumers, network destabilization, and worsening climatic conditions.
Given the impacts of crypto-mining on the climate, the grid, and to ratepayers, ERCOT’s support for this industry is irresponsible and highly concerning,government officials said.
ERCOT's administration decided not to respond to such a pointless request. During a press conference, new ERCOT CEO Pablo Vegas simply said, “We want to be able to serve any business that wants to do business in Texas. And that includes crypto miners.” That was the answer.
Texas Power Grid Specifics
Texas is exceptional in having a nearly independent electricity grid, only conditionally linked to the rest of the country. This independence allows Texas to avoid federal oversight but makes it more vulnerable to extreme weather. The grid has to withstand hot summers, severe storms, cold winters, and any sudden weather changes in this region, the second-largest state in the United States by both land area and population.
We don’t have a means by which we can link up with another grid in a time of dire straits. We are literally on our own … when the heat waves come our way, we have fewer options,said Green, a Democrat who was among those who signed the letter.
Texas benefits for miners
Texas is dominated by Bitcoin. Because electricity is a major cost for crypto miners, they have the incentive to hunt for cheap energy. And in the United States, Texas suits the demands.
The main attraction is cheap wholesale electricity prices,said Carey King, assistant director of the Energy Institute at The University of Texas at Austin.
In West Texas, where new wind and solar farms are popping up faster than new transmission lines, low wholesale tariffs are particularly important. Renewable energy sources contribute to very low, sometimes even negative electricity prices in West Texas. Isn't this a miner's paradise?
Other interesting locations are regions of oil and gas production, in particular, the Permian Basin and Eagle Ford Shale. Crypto miners see areas as prime locations for their farms.
Local “motivation programs” for miners
Power generation industry experts claim that another competitive advantage for mining companies in Texas is the ability to quickly shut off equipment during peak electricity demand in the region. ERCOT has agreements called "Demand Response Programs" whereby all industrial customers, including large Bitcoin farms, can receive monetary compensation for reducing energy consumption when demand across the state threatens to outpace supply.
In summer, most mining farms took advantage of this opportunity by shutting down entirely as tens of millions of sweaty Texans desperately tried to survive the extreme heat using air conditioners, and ERCOT called for energy conservation. Mining companies managed to earn good money on this. For example, Riot Blockchain’s 750-megawatt farm in Rockdale received about $9.5 million in credits in July alone as compensation for scaling back its operations and reducing energy consumption. This turned out to be much more than the $5.6 million profit it made that month from selling Bitcoins.
Riot Blockchain mining farm in Rockdale, Texas
Participation in a grid operator’s demand response program is not unusual for any utility or facility in Texas that uses a lot of electricity. It is pleasantly unexpected that the Texas ERCOT treats crypto mining farms the same way as it does companies from any other industry.
Mining risks
However, mining has its own set of peculiarities. Farms are extremely sensitive to the cost of energy, meaning they would shut down anyway if electricity prices rise too high. Prices in Texas rise on hot or cold days, when everyone starts actively using electrical appliances (air conditioners or heaters).
Bitcoin miners check power prices “minute by minute,” said Bratcher, head of the Texas Blockchain Council. “The market functions of the grid are actually very effective in sending them price signals.
Other big electricity consumers, like factories or industrial complexes, are not so sensitive to energy costs, so they do not shut down due to significant fluctuations in cost. For them, credit motivation from ERCOT is just a bonus. But for crypto mining companies, such credits are a significant incentive.
The scheme of cooperation between miners and energy companies in the United States has even been called a “new form of arbitrage”, which is well-known to traders.
Conclusions
According to a September report from the White House Office of Science and Technology Policy, cryptocurrency mining in Texas currently consumes about 2,000 megawatts of energy. The Texas Blockchain Council predicts that the state’s mining needs could double before the end of 2023. This is a significant amount of electricity, but it is still far from a critical level, given the capacity of Texas, and will not cause great risks to the local network.
Even though the cryptocurrency market is still in a critical situation, Bitcoin and other cryptocurrencies are becoming a part of our lives. Experts believe that mining companies and crypto startups in general will stay in Texas for a long time due to the appealing conditions.
