Bitcoin miners flocking to Texas want to stabilize ERCOT's volatile renewables

Bitcoin miners flocking to Texas are claiming that their operations are helping the grid add off-peak load capacities that are helping renewable energy projects find more profitability in the Electric Reliability Council of Texas, miners said during the ERCOT Market Summit 2023.

The emergence of crypto mining in Texas has coincided with a rise of renewable generation projects, and both industries cropping up in remote regions of West Texas. From this, a symbiotic relationship has formed between the two—while renewable energy generation rises and falls with weather patterns, mining facilities can flexibly ramp up or ramp down their operations according to the real-time availability of cheap renewable energy.

This off-peak demand crypto miners created allows renewable projects to sell energy that would otherwise be curtailed and increase overall utilization of renewable energy across the entire grid, miners and analysis said. And that relationship improves the margins for renewable developers, incentivizing more renewables to come to Texas.

"It's a marriage made in heaven for renewable energy providers," said Fred Thiel, CEO of Marathon Digital Holdings, a bitcoin mining company with a wind-powered facility in West Texas. "If we want more and more renewable energy to be built in this country, we need to provide a load that allows them to properly monetize that generation capacity. Bitcoin mining is the perfect load for renewable energy."

Crypto mining in Texas has accounted for a significant portion of industrial demand growth on the ERCOT grid. Last year, the grid operator formed a task force dedicated to industrial-scale miners after having received over 27 GW of interconnection requests from miners—a volume that, if actualized, would dwarf the grid's current 2 GW of miner-driven demand.

No matter if some or all of that 27 GW interconnection queue becomes reality, renewable and battery storage projects will continue connecting to the grid fueled by new tax credits from within the Inflation Reduction Act.

Roughly 10 GW of solar is expected to come online this year, followed by another 10 GW in 2024, according to data from Ascend Analytics. And there are about 5 GW of battery storage capacity being added this year with several more slated for 2024. All these additions will almost certainly change certain characteristics of the grid.

"We've got a lot of projects coming in and a lot of change coming, particularly on the solar side," said Brent Nelson, Ascend Analytics' director of market intelligence.

Bitcoin advantages may be short-lived

All these new renewable sources coming online creates more space for mining projects or other flexible load sources to take advantage of ERCOT's energy-only market structure. But there are high levels of skepticism among some over whether these mining projects will come to fruition.

"I don't think most of that [crypto interconnection queue] is going to be real, particularly after FTX went bust," Nelson said. "The crypto folks may challenge me on this—one of us is right, one of us is wrong. We'll see what actually gets built, but it has the potential to drive load quite a bit higher still."

To Jesse Peltan, CTO of HODL Ranch—a company developing a commercial-scale bitcoin mining center in West Texas—the global bitcoin market won't likely scale to a size large enough to help stabilize ERCOT's renewable-heavy grid.

According to the Cambridge Bitcoin Electricity Consumption Index, the global bitcoin network has an annualized power demand of about 14 GW. Adding enough mining to satisfy the off-peak needs of the Texas grid doesn't make sense for bitcoin economics. Treating bitcoin as a silver bullet solution for ERCOT misrepresents its capabilities, Peltan said.

"The bitcoin industry gets a bad rap because it overpromises on a lot of these aspects," he said. "Bitcoin is not by itself going to fix the grid. But bitcoin is a tip-of-the-spear elastic load that is developing at the largest scale right now, and it's an example for how other industries can achieve must lower cost of operations."

While bitcoin is currently leading this category of flexible load off-takers, Peltan said he expects several other industries in ERCOT—like data centers, green hydrogen producers, and desalination plants—to adopt more price-responsive capabilities.

"I think bitcoin is useful in that it is leading, but it's going to be overtaken by other stuff," he said. "I think green hydrogen in five years is going to be much bigger than bitcoin."