Economically efficient markets often appear corrupt, and the latest example to get stuck in Texans’ craw is the electric grid paying cryptocurrency miners millions to solve a problem they helped create.
ERCOT offers some of the cheapest power in the country, often as little as $20 a megawatt-hour. While the price can go up to $5,000 a megawatt-hour when demand overwhelms supply, ERCOT will pay industrial users to shut down during those periods.
Planners at ERCOT said they expect demand from crypto miners to grow to 27 gigawatts in the next four years, almost as much as Houston uses. ERCOT struggled to meet 80 gigawatts of demand during the hottest hours this summer, leading critics to question whether Texas’ fragile grid can handle a 33 percent increase in load.
Crypto miners promise to shut down when demand spikes; it’s part of their business plan.
Riot Blockchain, one of the pioneers in Texas crypto mining, operates from a former aluminum smelter in Rockdale because it has an industrial-scale interconnection with the ERCOT grid.
Riot Blockchain’s game plan is simple: generate bitcoins when power is cheap and collect financial incentives to shut down when electricity gets expensive. The company claimed its business plan would help stabilize the grid, but more on that later.
Last July was the hottest on record, and generators on the ERCOT grid struggled to meet demand. Riot Blockchain said bitcoin production dropped 28 percent compared to last July because the grid was wobbling.
As a result, Riot only generated 318 bitcoins in July and sold 275, generating about $5.6 million, significantly less than last year. But Riot said it voluntarily curtailed 11,717 megawatt-hours in July, enough to power 13,121 average homes for one month, the company said.
ERCOT gave it $9.5 million in return, more than making up for the lost bitcoins.
“When applied to anticipated power costs for the month, the power credits and other benefits are expected to effectively eliminate Riot’s power costs for July, further enhancing the company’s industry-leading financial strength,” the company said in posting July results.
By reducing power consumption by 21 percent last month, Riot got ERCOT to pay 100 percent of its electricity bill. So even though the company created fewer bitcoins in July, the company made about $7 million more than it would have if it had not curtailed its operations.
Cue the villagers with pitchforks who saw their electric bills go through the roof.
Readers have asked me why ERCOT allowed Riot Blockchain and the other crypto miners to connect if it did not have the supply to meet their demand. And isn’t it perverse to pay a company to solve a problem it created by adding load?
I asked ERCOT and Riot those questions and asked for interviews. Only ERCOT replied with a statement just before my deadline.
“ERCOT works to interconnect all load and generation equally. We don’t have a rule that says certain loads cannot connect,” it said.
Not every month is like July, thank goodness. The pinch points typically only come every July and August and sometimes in January and February.
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