Sen. Ted Cruz (R-Texas) thinks he has found a way to stabilize Texas’ electric grid in case another deep freeze hits the state. He wants to use the power of bitcoin.
“Because of the ability of bitcoin mining to turn on or off instantaneously, if you have a moment where you have a power shortage or a power crisis, whether it’s a freeze or some other natural disaster where power generation capacity goes down, that creates the capacity to instantaneously shift that energy to put it back on the grid,” Cruz told the Texas Blockchain Summit last week.
There are a few reasons why what he said doesn’t add up. But let’s start with his assumptions. First, large bitcoin-mining operations use hundreds or thousands of powerful computers, which create a demand for power. If power plants can profitably mine bitcoin using the electricity they generate—and there are examples of that already—it stands to reason that bitcoin mining could create enough demand that investors would be enticed to build new power plants. Those plants could theoretically be tasked with providing power to the grid in cases of emergency.
At first glance, the argument holds up. But if you dig into it, even just a bit, things quickly fall apart.
For one, the blackouts during Texas’ February cold snap happened because power companies failed to winterize their generators, whether they were natural gas, coal, nuclear, or wind. Lives were at stake, and yet the companies didn’t prepare for the worst. Unlike power plants that serve the grid, bitcoin mining isn’t critical infrastructure—no one dies if a crypto data center shuts down. Plus, bitcoin miners are in the game first and foremost for the money, and they would be loath to spend extra cash to winterize their operations.
But let’s say the power stays on but demand surges. In that case, bitcoin miners would be unlikely to offer their generating capacity to the grid unless they were sufficiently compensated. Texas already has a system like that in place, offering generators a premium for bringing additional power online during shortages. During the February cold snap, wholesale electricity prices surged to $9,000 per MWh, the maximum allowed by law, leading to electricity bills as high as $10,000 for some people.
That raises all sorts of ethical questions, of course—for one, should power companies sell people plans with hidden fees that surge in times of greatest need? Should people from other states have to shoulder the cost? But brushing those concerns aside, bitcoin miners would likely demand even more than the current $9,000 per MWh cap. One bitcoin currently sells for $57,000, and to crunch the numbers to win that one bitcoin, mining rigs draw just under 0.285 MWh, based on Digiconomist estimates. In other words, for bitcoin miners to be willing to contribute to the grid, wholesale electricity prices would have to hit $206,000 per MWh, or nearly 23 times greater than prices during the February cold snap. Those $10,000 bills would turn into $230,000 bills.
There is a way to avoid such extraordinary price spikes, of course, and that’s through laws and regulations. Let’s say ERCOT—Texas’ grid regulator—decides to compel bitcoin miners to sell all their power to the grid at the same cost of other generators. It’s possible that Texas would get some takers, even among the famously regulation-averse crypto community, but would it be enough to stabilize Texas’ grid in similarly extreme weather?
Last February, Texas lost half its generating capacity, or 52.3 GW. It’s hard to imagine a world where bitcoin would spur over 50 GW of dedicated generating capacity in a single state. At today’s prices, the power plants that Ted Cruz is imagining would cost over $50 billion to build. At that price, there are probably more effective ways to stabilize Texas’ grid.
Correction: The cost estimate for bitcoin miners incentives to give power to the grid has been updated.