How Texas Bitcoin miners kept raking in profits during crypto’s crash: The grid is paying them to shut down
Over the past few years, Bitcoin miners have flocked to Texas, enticed by cheap and readily available power. (You can read about how the state is becoming the Bitcoin mining capital here.) But this summer there’s been an even more profitable twist: the state grid is paying these miners not to mine when power is needed elsewhere—and it’s adding up to a very profitable diversification strategy for miners located there.
In interviews with Fortune, a leading expert on how the Texas power complex rewards Bitcoin miners explained that the producers benefit from no fewer than four different programs. He enriched our understanding by describing in detail how each of them operates. Gregg Dixon is CEO of Voltus, an energy software platform that works with many of the major Texas miners to ensure they get maximum bang from the ERCOT, the organization that manages the flow of electricity in Texas, and other incentives. Voltus offers software packages that pinpoint when it’s more profitable to mine, or instead shut down and sell your unused electricity, or clinch the other carrots that Texas provides. All of the plans fall under the general heading of “demand response.” “These are the essential ‘demand flexibility’ mechanisms, the methods by which the Bitcoin miners optimize their own energy economics and contribute to the health of the grid,” says Dixon. Without exception, the programs are voluntary. But as Dixon describes, the first two are so pivotal to maintaining adequate supply that the miners, to prove they’re good corporate citizens, are virtually obligated to sign on.
First on Dixon’s list: the ERCOT Responsive Reserve Services, or RRS. “It’s an instant response program where ERCOT tells the participants to lower their loads at certain times to ensure power quality,” says Dixon. “The electricity should be running at, say, 60 hertz and 120 volts. Deviations from that cause problems. RRS balances supply and demand to keep those metrics in the right range.” Under RRS, miners must commit to sending the required megawatts in 10 minutes or less from the time the power’s requested. He notes that traditional commercial and industrial customers also participate in the system. “Say lightning strikes and a big power plant goes down,” he says. “In an emergency, ERCOT calls on the reserves on the sidelines controlled by miners. The miners shut down and free up the megawatts that compensate for the power that went offline.”
For the miners, joining RRS is crucial to winning the good will of the communities where they’re seeking to settle. “Say a miner wants to build a data center in a fictional town called Utopia. The citizens argue, we have a system that provides us with reliable power. We have a certain amount of reserve today that provides a good cushion, that would satisfy an increase in demand. Suddenly, a big miner comes to town and wants to use all this power. The Utopia folks go to the town meeting and want to know, ‘Will this cause blackouts?’” says Dixon. He adds says that the residents and politicians will only approve the new facility if the data center will agree to curtail production and provide extra power at times of highest demand, especially when a brownout or blackout is looming. “If they don’t agree to practice curtailment at peak times, they’d be run out of town,” says Dixon. “That means assuring the community by signing on for demand response. It’s critical to being seen as good grid citizens.”
When ERCOT calls for supplies under RRS, it holds an auction. The miners and other participants offer megawatt hours for sale. ERCOT bids for those supplies, and pays the prices necessary to secure precisely the amount of electricity needed to meet the emergency. The more miners that participate, the more megawatt hours are offered, the lower the price ERCOT must pay. “In the auction process, the extra supply has driven the prices down,” Dixon explains. Still, he says that the miners are still well compensated for their willingness to curtail. The payments are made in cash directly to the miners.
The second program is called Emergency Response Services or ERS. It resembles RRS in that ERCOT once again taps the miners’ power when supplies get tight. The difference: Under ERS, when ERCOT demands additional power, the miners must provide it within 30 minutes, versus the 10 minute deadline for RRS. “If ERCOT blows through the RRS supply, they go to ERS as a backup,” says Dixon. He says that under both plans, the miners are an especially valuable addition because they can respond super-fast, while a big chunk of the users provide extra supply much more slowly––think amusement parks powering rollercoasters. He estimates that annual RRS payments and ERS combined, made in cash, come to around $100,000 per megawatt of capacity. For a 350mw data center, that’s a substantial $35 million. As we’ll see, the benefits from all the plans combined can cover a huge share of the miners’ energy costs.