Texas Leaders Sour On Bitcoin Mining, But It Could Solve The State’s Data Center Power Pinch

Texas elected officials have turned on a bitcoin mining industry they once embraced. But the much-maligned crypto data center sector may end up being a key part of the solution to the state’s power woes. 

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. This steady influx of crypto mining into the state over the past four years was once cheered by some of the state’s top political leadership, including Gov. Greg Abbott and Sen. Ted Cruz. 

But over the past six months, the rhetoric surrounding bitcoin mining in Texas has seemingly done an about-face, with elected officials from across the political spectrum delivering a barrage of hostility toward the industry.

The shift comes as the Electric Reliability Council of Texas presented new and startling projections that power demand in the state was set to double within six years, an unprecedented spike in electricity demand on Texas’ mostly self-contained grid driven in large part by the growth of bitcoin mining and traditional data centers. 

This unexpected surge, which came as the state made progress toward shoring up its grid after a catastrophic 2021 winter storm caused widespread blackouts that killed hundreds, has Texas lawmakers reeling. Prominent elected officials are asking questions about the worth of data centers and crypto mines to the economy and calling for ways to put the brakes on their growth. 

Yet the harshest rhetoric from Texas officials has been directed specifically at bitcoin mining. The sector has been labeled by politicians as not only an acute threat to grid stability but also a “parasitic” industry that profits from driving the Texas power grid to the point of catastrophe. 

“It's offensive to me that the people who are going to be using as much power as they are and creating a lot of the problems we're having consternation over can profit off this,” state Sen. José Menéndez, a San Antonio Democrat, said at a June Senate Business and Commerce Committee hearing. 

The hearing came after lawmakers first learned expectations about power demand had been upended. Menéndez accused bitcoin miners of trying to “game the system” at the expense of Texans. 

But others say this criticism is misguided.

Advocates for bitcoin mining, as well as top Texas grid officials and some energy experts in the state, say crypto mines are actually uniquely positioned to offer a key solution to Texas’ power reliability problems. Mining facilities are unique among major energy consumers in that their business model incentivizes disconnecting from the grid during periods of high power demand, when energy infrastructure is under the most strain.

Because of this, bitcoin mining should be treated as an important resource that can effectively add capacity to the grid when Texas needs it most, they argue. 

There is a growing push for traditional data centers — those supporting the computing needs of tech giants like Amazon, Microsoft, Google and Meta — to behave more like bitcoin miners when it comes to electricity consumption. Such proactive steps to be “good grid citizens” are the only way to avoid the industry’s growth in Texas being stymied by the state’s insufficient energy infrastructure and mounting political pushback, bitcoin advocates say. 

“Data centers have a choice. They can either create a problem or they can solve their own problem and help the grid,” said Enchanted Rock Chief Commercial Officer Allan Schurr, whose firm partners with large energy users to locate on-site power generation. “I don't think they’re going to have a choice with these very large-scale loads.”

‘Center Of The Universe For Bitcoin’

There are more than 2,900 megawatts of bitcoin mining energized in Texas today, according to the Texas Blockchain Council. That is roughly the power consumption equivalent of the city of Austin, and an average of 90 MW of new mining is coming online each month across the state. 

Within the past 30 days, Cipher Mining filed to build a 300-MW crypto mining site in the West Texas town of Wink, while developer Soluna secured power for a 187-MW bitcoin facility adjacent to a Texas wind farm. 

Crypto mining facilities and data centers like those used by major tech firms are often discussed in tandem when it comes to energy policy. At their core, bitcoin mines are simply data centers designed to exclusively perform the blockchain calculations needed for bitcoin to function. However, there are meaningful differences between a bitcoin mine and a traditional data center, particularly around how they consume electricity and interact with the power grid.

A typical data center operated by a company like Microsoft or Google is a so-called mission-critical facility, meaning it needs to be fully operational at all times. Data centers use pretty much the same amount of electricity all the time. A facility may scale up its energy usage over time, but the amount of electricity it uses on a particular day fluctuates only moderately and in ways that are predictable. Any loss of power or even a partial shutdown is regarded as a major failure that can result in millions of dollars in economic damages. 

Bitcoin mines are a different story. They are what is known to utilities as “flexible load” or “interruptible load,” meaning their power usage varies, and they can even be turned off entirely. This volatility in their power usage is central to the bitcoin mining business model and the main reason these firms have flocked to Texas. 

The basic business 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. Today, margins for bitcoin miners are slim, meaning they can only operate in environments where power is cheap. 

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 can lower their effective electricity costs by engaging in a degree of energy arbitrage. Miners will shut down their equipment and bring their electricity consumption close to zero as soon as electricity costs exceed the price of bitcoin. More sophisticated operators will go a step further, participating in ERCOT programs that allow them to sell this unused capacity back to the grid during peak demand.

Miners love the volatility of the ERCOT system compared to other markets. And that volatility has only become greater as more renewables have been added to the Texas grid, making energy demand fluctuate depending on weather and time of day. 

“More than 50% of the bitcoin mining infrastructure in the United States is in Texas, primarily for the highly volatile power market and the way that you can use a flexible load to buy down your cost of power,” said Riley Trettel, senior vice president of AI infrastructure at mining firm Hut 8. “That's why a lot of us migrated to Texas.” 

Many Texas politicians, particularly Republicans, were initially quick to welcome miners’ enthusiasm for the Lone Star State. On a local level, crypto offered opportunities to repurpose derelict former industrial sites and inject much-needed tax revenue into rural communities. 

The libertarian, government-averse philosophy underpinning the crypto space also made for a good ideological match with prominent segments of the Texas GOP. Abbott was among the first politicians to accept campaign donations in the form of cryptocurrency. Cruz, meanwhile, was also eager to lay out the welcome mat for the crypto industry. 

“I would like to see Texas become the center of the universe for bitcoin and crypto,” Cruz told an Austin blockchain conference in 2021.

‘But Is It Good For Texas?’

Just three years later, the language from Texas’ political leadership toward bitcoin mining has turned far more hostile, even from top Republican officials. 

“They produce very few jobs compared to the incredible demands they place on our grid,” Lt. Gov. Dan Patrick posted on social media platform X this summer. “Crypto mining may actually make more money selling electricity back to the grid than from their crypto mining operations.”

Patrick’s post came hours after the state Senate’s Republican-led Committee on Business and Commerce, which oversees ERCOT, grilled representatives from the bitcoin mining industry in the wake of the utility's unexpectedly skyrocketing power demand projections. 

During the June hearing, Democrats and Republicans accused crypto miners of exploiting the state’s unique grid system for profit at the expense of regular Texans. Some, like Sen. Phil King, a Dallas-area Republican, framed the industry as an energy trading scheme that intentionally eats up grid capacity and creates grid instability to generate arbitrage opportunities.

“You can create a lot of demand very quickly. Create a fire, and then, because of getting to participate in some of the programs we have here in Texas that a lot of other states don't have, you get paid for putting out the fire that you created,” King told one crypto executive. 

Other senators questioned the morality of a business model that they said reaps rewards when the state’s power grid is in crisis. Sen. Charles Schwertner, an east Texas Republican, in an exchange with a representative for mining giant Riot Platforms, pointed to evidence that the firm had experienced a financial windfall while Texans were dying during Winter Storm Uri.

“Texas has set up a system which allows crypto mining to be significantly advantaged by the way our energy market is designed,” Schwertner said. “It's obviously good for your company, but is it good for Texas?”

With these ethical objections in mind, committee members on both sides of the aisle floated the idea of banning bitcoin miners from participating in demand response programs, in which they are compensated for selling their power capacity back to the grid. 

It isn't the first time this idea has been proposed. In 2023, the Texas Senate passed a bill that would have limited the participation of bitcoin miners in these programs. While the bill stalled in the House, the escalating rhetoric from elected officials has mining executives concerned similar efforts may be on the horizon.

‘They’d Be Singing Our Praises’

Bitcoin miners have pushed back hard on the accusations that they are inappropriately exploiting the ERCOT system for profit. Less than a third of miners in Texas are registered in demand response programs, said Lee Bratcher, president of the Texas Blockchain Council. The majority simply disconnect when the cost of power gets too high.

Speaking before a Senate committee in June, mining executives also rejected the idea that they purposely drive up electricity demand to generate arbitrage opportunities. 

Still, even staunch crypto proponents acknowledge that the industry’s uniquely volatile energy consumption poses a risk to grid reliability. 

On one hand, bitcoin miners’ general pattern of electricity usage — operating at full capacity when electricity is cheap and plentiful but disconnecting from the grid when power is scarce and expensive — is desirable for grid operators and aligns with what ERCOT aims to achieve through demand response programs. Crypto mining is perhaps the only industry with a business model that incentivizes this kind of consumption reduction when it is needed most. 

But this fluctuating power usage from miners can also raise the risk of catastrophic system failures. ERCOT and its underlying utilities have little transparency into bitcoin miners’ operations, making real-time predictions about their energy demand challenging. 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 during periods of high demand, disaster can follow.

The result is a high-stakes guessing game and what one ERCOT administrator called “a hold-your-breath moment” every time power prices spike. 

“Crypto mining loads are sensitive to unexpected frequency and voltage changes,” David Ball, vice president for energy delivery for utility AEP Texas, told lawmakers in June. “It may drop off suddenly when unexpected grid fluctuations occur. The resulting sudden loss of significant system load can lead to grid equipment damage, generation tripping offline and possibly brownout or even blackout scenarios.”

This is a solvable problem, experts say, but the solution is the exact opposite of what lawmakers are suggesting.

Rather than preventing crypto firms from participating in demand response, crypto proponents and ERCOT leadership want to see every bitcoin miner participate in these programs. 

More specifically, they are advocating for all crypto miners to be registered as a controllable load resource, a classification within ERCOT’s demand response system that would give grid operators transparency into miners’ operations, allowing them to make more accurate demand predictions and giving ERCOT significant control over when miners shut down their equipment when electricity becomes scarce and expensive.

In doing so, proponents say mining facilities would go from a reliability risk to a critical grid resilience resource that allows ERCOT to effectively add gigawatts of emergency capacity to the grid in a pinch. 

“We support bitcoin mining moving into CLR,” Bratcher told the Senate committee in June. “If all bitcoin mining was in CLR, then every time [ERCOT’s leadership] testified before you, they’d be singing our praises as a demand-side battery.”

It seems that top ERCOT officials are on board with this approach, despite politicians calling for crypto miners to be excluded from the programs. At the same hearing, ERCOT CEO Pablo Vegas endorsed pushing bitcoin miners universally into CLR, a stance that came as a pleasant surprise to many in the crypto industry. 

“I would like to see all crypto become controllable load resources,” Vegas said. “From a reliability standpoint, that would be advantageous.”

‘A Proven Model’

Elected officials in Texas are far more critical of bitcoin mining energy usage than the mainstream data center industry.

But with the growing recognition that large flexible loads like bitcoin mines can be critical tools to maintain the reliability of the Texas grid, an emerging chorus of experts suggests traditional data centers should help alleviate the impact of their massive electricity use by behaving more like their controversial blockchain-focused cousins. 

Mission-critical data centers aren't a flexible load that can be shut down on command like a crypto mine. However, data centers have the ability to produce power on-site, typically in the form of diesel or natural gas generators that can keep the facility fully operational in the event that electricity from the grid is lost. Nearly every data center in Texas remained operational throughout Winter Storm Uri, with some running on self-generated power for days. 

Some industry insiders, including Bratcher and Enchanted Rock’s Schurr, say data centers should be using their on-site generation to effectively turn themselves into flexible loads like crypto mines, participating in demand response programs by producing their own power and pulling themselves off the grid during periods of power scarcity. 

This would hardly be unprecedented. Data centers are required to use their backup power to ease grid stress in parts of California and Ireland, Schurr said. In Texas, other industrial power consumers, from manufacturers to water infrastructure to hospitals, are using on-site generation to take a load off the grid during peak periods.

“It’s a proven model. Data centers have just been a little slow to adopt it,” Schurr said. “We are proposing that the grid operators be firm about asking for flexibility as a condition of interconnection.” 

Schurr said data centers will begin adopting these practices in Texas only if ERCOT incentivizes it, offering data center developers expedited connections to the grid for participation in demand response.

But even as ERCOT’s leadership shows enthusiasm for the potential of flexible loads for grid stability, there are fears that hostility toward bitcoin mining from elected officials could salt the fields for this policy approach. 

“We’re concerned about rash moves by lawmakers before they really understand how beneficial large flexible loads can be for grid stability,” Bratcher said. “The data shows this is a really important tool for reliability.”