FX.co ★ Crypto mines in Texas risk new costs

Contrary to popular belief, the increased load on the electricity grid, which crypto minesrequire, entails the cost of upgrading the entire network. Later on, these costs are spread across all households in the county. That means extra costs for residents, who have already faced unprecedented increases in energy prices this year.

Naylor, CEO of Rayburn Country Electric Cooperative Inc. which provides electricity to about 229,000 customers - mostly small towns and homes - north and east of Dallas, shares his experience of providing new crypto mines.

He's received multiple proposals to build Bitcoin mines, with rows of electricity-guzzling computers that solve mathematical problems to create digital coins, on what's now ranch land. Two of the mines would each require as much as $20 million to fortify power lines and avert blackouts.

One mine will consume enough electricity to power up to 60,000 homes in Texas.

Utilities like Rayburn have to provide service to miners if it's technically feasible to do so. However, upgrades to the grid threaten to drive up bills for consumers already shouldering price shocks for almost everything.

Rayburn's talks with Bitcoin miners illustrate the conundrum utilities face as crypto companies like Riot Blockchain Inc. and Argo Blockchain Plc flock to Texas, spurred by almost nonexistent regulation, relatively cheap electricity and Governor Greg Abbott's quest to make the state the global center for crypto mining.

However, it is not only rising energy bills that threaten the counties.

The dozens of Bitcoin mines proposed are also a risk to the state's shaky power grid, after a deep freeze last year left hundreds dead and pushed up prices so much that utilities were left with massive debts or bankrupted.

"These are just challenges we've never faced before," Naylor said, pointing to the general pressure that Texas utilities now have to contend with.

In addition, they may have to solve these problems themselves, weighing the cost of modernization against the long-term benefits, such as the income that can be invested in protection against outages.

The Electric Reliability Council of Texas, the state's grid operator, has to evaluate how Bitcoin mining will affect the power system.

So far, Ercot hasn't publicly disclosed what it's done, but its members will vote this month on creating a task force to understand how many mines will connect to the grid and how fast.

It's too early to estimate how much Texans' power bills could rise as a result of Bitcoin mining. But the city of Plattsburgh, New York, may provide clues.

After power prices surged, Plattsburgh temporarily banned crypto mining in 2018 until it could pass measures to regulate the industry. Two counties in Washington state took similar steps.

Overall, Bitcoin mining cost residents and businesses in upstate New York about $250 million a year in higher annual electricity bills, a 2021 University of California Berkeley study concluded.

Mining pushes up monthly electric bills about $8 for individuals, and $12 for small businesses, the researchers estimated.

Of course, there is always the option that as Bitcoin mining booms in the state, someone will come along to build more power plants.

For example, a record amount of solar capacity is planned for Texas. Plus, miners say their ability to quickly throttle back operations when the grid needs power will actually make the system more stable. Bitcoin mines shouldn't cost consumers much because they seek out more sparsely populated areas with electricity to spare, said Lee Bratcher, president of the Texas Blockchain Council, a lobbying group.

However, Rayburn's experience shows that's not always the case.

Miners are looking at remote sites, which in some cases will require millions of dollars in grid upgrades, Naylor said.

Utilities across Texas are fielding proposals.

American Electric Power Co. is weighing requests from 75 to 100 Bitcoin miners to connect primarily across West Texas and is evaluating the need for upgrades to handle the mines.

Golden Spread Electric Cooperative, which serves the Texas Panhandle and Central Plains, is studying inquiries from two dozen miners.

Austin Energy, which powers the state capital, says investors want to build five mines just outside Austin that would need a total of 1,000 megawatts of electricity, equal to about two-thirds of the city's current demand. That may require the utility to build more transmission lines, said Erika Bierschbach, vice president of energy market operations.

"The risk is that we don't manage the opportunity very well," Bierschbach said. Austin Energy, Rayburn and Golden are considering whether to require miners to pay higher power rates.

Upgrades to the power system will be needed because the grid "can't handle all of this new load," said Evan Caron, a former power trader in Austin who invests in energy technology. Given the notoriously volatile nature of the crypto industry, it is likely that miners will close shop, leaving taxpayers to cover the cost of upgrades that may not be in demand in the future.

To mitigate that risk, utilities can ask for a deposit, which would be refunded after the miner uses the power for a certain period of time. This is indeed one of the most favourable outcomes for utilities. However, for miners, it is primarily a diversion from upgrading and increasing production capacity.

The situation so far is that mining consumes twice as much energy as is needed to power every light source in the US.

However, in Texas, the payback can be immense because electricity is so cheap, Caron said. Even if Bitcoin prices fell to $30,000 — roughly 25% below current levels — miners would still make revenue equal to about six times the cost of power, he said.

At Rayburn, CEO Naylor wants to make sure he's not taking undue risks to help deliver those returns.

Rayburn had to sell $908 million of bonds to cover the bill from Ercot for soaring power prices during last year's crisis, and it will take 28 years for customers to repay the debt.

The risks may pay off because crypto miners have pledged to shut down in times of crisis to conserve power, Naylor added. The biggest Bitcoin miner in Texas, Riot Blockchain, did so in February and last year, and others, such as Compute North LLC and Bitdeer Technologies Holding Co., have committed to shutting if needed.

Even with those safeguards in place, Bitcoin mining comes with costs. "It's definitely going to have an impact," Naylor said. "It's simple supply and demand."

The situation can escalate in times of crisis, such as the current situation. If residents are aware of increased bills due to nearby crypto mines, they may stage rallies, forcing lawmakers to be harsher on crypto miners.

Obviously, mining the energy-consuming bitcoin continues to be a concern for producers and governments alike. In all likelihood, sooner or later bitcoin will still evolve, changing platforms, most likely to NFT, solving many problems with its mining at once.