Core to Abbott’s plan is the theory that the additional demand for energy created by new bitcoin-mining facilities will establish “an investment incentive” that brings new sources of power generation to Texas. Then, when energy demand goes through the roof during a heat wave or cold snap, the state will have more energy flowing through its grid and the option to redirect power as a last resort.
The plan to use crypto mines as giant batteries is controversial, to say the least. Ed Hirs, an energy fellow at the University of Houston, claims the battery analogy is “nonsense” because miners don’t store and release energy, but rather only promise to stop consuming when it’s urgently needed elsewhere. And he disputes the idea that crypto mining will bring additional energy generation to the grid, which he describes as misdirection designed to distract from the price increases people will incur due to an overall rise in energy demand.
Demand for energy in Texas is set to skyrocket as a result of Abbott’s plan. Miners in the state are currently using around 2 gigawatts (GW) of energy, with peak capacity for the state topping out at 80 GW. By 2026 it’s estimated that Texas bitcoin miners will draw as much as 29 GW—four times as much as the whole of New York City.
For the opportunity to test his theory, Abbott has the Chinese Communist Party to thank. When China banned crypto mining in June 2021 (outwardly for environmental reasons), some of the world’s largest miners—including Marathon Digital Holdings, Riot Blockchain, Core Scientific, Argo Blockchain, and others—either set up shop or expanded operations in Texas.
The miners were attracted to Texas for its cheap power, plentiful supplies of renewable energy, and hands-off approach to regulation. The libertarian ambitions of the cryptocurrency movement, as laid out in the original Bitcoin white paper, also dovetail neatly with the state’s identity. “Texas is all about freedom,” says Andy Long, CEO of crypto mining company White Rock. “So Texas and Bitcoin go hand-in-hand.”
There are now ten industrial-scale mining facilities operating in Texas, the largest of which by power capacity (at 750 megawatts) is operated by Riot and situated on a 100-acre plot in the town of Rockdale. And the Electric Reliability Council of Texas (ERCOT), the grid operator, says there is a long queue of companies awaiting approval for new mining installations.
The way facilities receive their energy differs on a case-by-case basis. To power its mining equipment in west Texas, Marathon Digital draws partly from the grid and partly from so-called stranded energy—power from solar and wind farms that isn’t needed by the grid or cannot be sold due to infrastructure constraints. In exchange for Marathon agreeing to purchase energy at a set rate at all hours of the day, the renewable provider gives the firm a cut of the profits whenever the grid is willing to pay a higher price, benefitting both parties.
Another way miners can turn a profit is by participating in ERCOT demand response programs, which for years have provided a way for factories and other industry-scale energy consumers to help stabilize the grid. Under this system, mining companies that buy energy in batches are compensated for switching off when a blackout looms. Meanwhile, those that have power purchase agreements (contracts that allow them to buy energy in advance at a set price) with energy suppliers can shut off when demand is high and sell their allocation to the grid at a premium.