Facing Power Crunch, Texas Rolls Out New Rules For Crypto Data Centers

Citing the need to bolster the reliability of the state’s power grid, Texas regulators will soon require cryptocurrency mining data centers to register with the state and submit detailed disclosures about their energy use and operations. 

Texas is the undisputed bitcoin mining capital of the U.S. The state is home to more than half of the country’s cryptocurrency mines — essentially specialty data centers devoted exclusively to processing bitcoin transactions — that together consume roughly the same amount of electricity as the entire city of Austin.

But over the past year, elected officials in the famously free-market state have directed a growing barrage of hostility toward the cryptocurrency sector. The state faces unprecedented electricity demand growth on the Electric Reliability Council of Texas grid, and it is still reeling from catastrophic grid failures following Winter Storm Uri in 2021. Many officials who once embraced bitcoin mining have started framing these data centers as a unique threat to grid stability. 

Now, Texas utility regulators have enacted new rules specifically targeting large bitcoin mining operations connected to the ERCOT grid.

The rules require them to register with the Public Utility Commission of Texas and provide annual updates on key details of their operations and power consumption.

The regulations have received a mixed reaction from the mining sector, but they were hailed by PUCT leadership as a first-of-its-kind policy necessary to ensure grid stability amid a “rapidly changing industrial landscape” that is being transformed by the influx of data centers. 

“To ensure the ERCOT grid is reliable and meets the electricity needs of all Texans, the PUCT and ERCOT need to know the location and power needs of virtual currency miners,” PUCT Chairman Thomas Gleeson said in a statement announcing the new mandates. “We will always take the steps necessary to ensure reliable, affordable power for all Texans.”

Bitcoin mining continues to grow in the state, and while adjustments to the market in April reduced the margins that miners make, the practice has become more attractive, as the price of bitcoin has shot to record highs this month. 

The focus on bitcoin miners specifically as a threat to grid stability stems from the facilities’ distinct pattern of energy consumption. While a typical data center can never be shut down and uses roughly the same amount of electricity all the time, bitcoin mines are what utilities call “flexible loads,” meaning their power consumption varies and they can even be turned off entirely. 

This volatility in their power usage is central to the business model. The basic proposition for a bitcoin mine is that it performs blockchain calculations and is rewarded bitcoin as payment. For this to be profitable, the cost of the power consumed to make those calculations has to be less than the value of the bitcoin reward.

In Texas, where the ERCOT grid’s real-time power market sees power rates fluctuate minute by minute in response to supply and demand, miners will shut down their equipment as soon as electricity costs exceed the price of bitcoin. 

These sudden fluctuations in demand from miners raise the risk of catastrophic system failures. If grid operators, who must keep electricity supply and demand balanced at all times, don’t correctly anticipate when bitcoin miners will shut down gigawatts of computing equipment, disaster can follow in the form of damage to transmission infrastructure and even widespread blackouts. The result is a high-stakes guessing game and what one ERCOT administrator called “a hold-your-breath moment” every time power prices spike. 

Texas’ new registration and reporting requirements for virtual currency miners are intended to help avoid such disasters, giving ERCOT a clearer understanding of where flexible loads exist on the grid and enabling better-informed grid management decision-making. 

The new rules apply to all mining facilities that consume more than 75 megawatts of power, at least 10% of which is “interruptible load.” Operators of these facilities will have to file annual disclosures detailing their location, ownership structure, business model and on-site infrastructure, along with energy consumption details like total power use, peak load, the percentage of that load that is flexible, and the identity of their transmission providers. They will also have to provide information about any on-site power generation.

PUCT’s mandate goes into effect in February. Bitcoin miners face fines of up to $25K daily if they fail to comply.

While the bitcoin mining industry has been broadly supportive of measures to make their facilities more collaborative grid participants, some major mining firms and industry groups expressed concerns with elements of the PUCT’s mandate. 

In comments filed with the Texas regulator, mining giant Marathon Digital Holdings objected to most of the specific reporting requirements pertaining to individual facilities, while the Texas Blockchain Council expressed concerns that miners will be forced to disclose confidential and proprietary information. 

More broadly, miners argue that, as large flexible loads, their data centers should be utilized as a critical tool for grid stability, not treated as a threat to it. 

Groups like the Texas Blockchain Council advocate for greater inclusion of crypto miners in demand response programs, in which participating large energy consumers are paid for reducing the power they use at the grid operator’s behest. In doing so, mining operators instantly reduce grid demand and help utilities avoid blackouts and other catastrophic events when energy demand is high but supply is low. This is particularly important in markets like Texas where a high percentage of electricity comes from renewable sources, giving grid operators a demand-side lever to counteract an unstable power supply.

“You essentially have these infinite batteries on the grid,” Asher Genoot, CEO of mining giant Hut 8, told Bisnow earlier this month. “It works really great in areas like Texas where renewables cause supply volatility on the grid. When the wind isn’t blowing and the sun isn’t shining, power production drops.”

There are mounting efforts to make traditional data centers behave more like bitcoin mines in how they consume power. With acute power constraints slowing the industry’s growth, a consortium of data center firms, backed by the Department of Energy, is planning to build data center demonstration projects designed to be flexible loads like crypto mines.