The Texas Power Grid and Bitcoin Mining

The Texas Power Grid and Bitcoin Mining

Texas is one of the most populous states in the United States and is also a major energy producer. Since its foundation, energy has been one of the main pillars of the state’s development. In this text, we explain how the management of the Texas electrical grid works and its main sources of energy generation. 

In February and December 2022, two extreme cold events occurred in the state. In the first, the electrical grid could not handle the demand, leading to blackouts. However, in december, thanks to the integration of bitcoin mining into the state’s electrical grid, the cold wave did not cause significant damage to the generation and transmission of electricity. 

 

Management of matrices and networks 

The energy management of Texas is carried out by the Public Utility Commission of Texas (PUC). The PUC is responsible for regulating and supervising the state’s public services, including electricity, natural gas, telephony, and water. It is also responsible for issuing permits, inspecting facilities, directing public policies, and goals that develop the entire structure of the state’s energy matrix. 

The PUC consists of three members appointed by the state governor and approved by the state Senate. The term of the commission members is six years, and these terms are staggered, meaning the appointment of members occurs every two years. 

In addition to the PUC, there is also the Independent System Operator of Texas (ERCOT), another governmental body responsible for managing the state’s electrical grid. 

ERCOT is a non-profit organization established in 1970 to manage the Texas electrical grid. ERCOT is responsible for maintaining the stability and reliability of the electrical grid, ensuring that there is always energy available to meet demand. 

 

Transition to a Cleaner Energy Matrix 

In recent decades, Texas has undergone a major transition in its energy matrix. The state has been moving away from fossil fuels and investing increasingly in renewable energy sources, standing out as a leader in the energy transition from fossil fuels to clean matrices, such as wind and solar. 

The state of Texas has always heavily relied on oil and coal to generate electricity. Historically, the state is known for having large coal reserves in its territory, which placed them in the position of the largest oil producer in the United States. All these characteristics made the transition to clean energy sources even more challenging. 

In 1999, Texas was the first state in the United States to implement a deregulated electricity market, meaning that consumers were able to choose their energy supplier and prices were determined by the market. Since then, Texas has been leading the transition to renewable energy in the United States and in 2020, wind and solar energy already accounted for more than 30% of the state’s electricity generation. 

This change allowed new participants to enter the state’s energy market, encouraged the construction of new energy matrices, and allowed energy producers to sell electricity directly to consumers at competitive prices. This combination of factors has led Texas to a gradual transition to clean energy matrices. 

Another factor for this change is the abundance of renewable resources in the state. Texas is a national leader in wind energy, with an installed capacity of over 25 GW(1) and great potential for expansion also in solar energy generation. The state has a vast expanse of open and flat lands that are ideal for the installation of wind parks and solar plants. In addition, the weather conditions are favorable, and the state has a sunny climate, making solar energy an attractive choice for energy generation. 

Finally, an important factor that has been enabling the energy transition that the state of Texas has been going through is the drop in the costs of renewable energy. The advancement of technologies associated with these forms of generation has allowed solar and wind energy to become cheaper in recent years, and therefore they have become viable alternatives to fossil fuels in terms of energy cost. 

 

Current energy matrix and electrical grid structure 

Texas is a state with a large power generation capacity. In 2020, the state had an installed electrical power generation capacity of 136 GW, making it the largest state in installed capacity in the United States. 

Currently, the energy matrix of Texas(2) is primarily composed of natural gas, followed by wind and solar energy. In 2020, natural gas accounted for about 42% of the state’s electricity generation, and in second place, wind energy, with 23%. Coal is the third main source, making up 19% of the electrical grid. Rounding out the list are nuclear energy with 10% and solar with 4%. Texas is currently the second American state with the highest renewable energy generation, only behind California(3).

 

Electricity Distribution in Texas

The structure of the electrical grid and distribution in Texas is divided into two main independent electrical zones: the West Texas Zone (West Zone) and the East Texas Zone (East Zone). These zones are operated by two different utility companies: the Electric Reliability Council of Texas (ERCOT) and the Southwest Power Pool (SPP), respectively. 

ERCOT is responsible for managing the electrical grid and distribution for most of Texas, covering about 90% of the state and over 26 million people, while SPP manages the electrical grid and distribution for East Texas, which includes eastern Texas as well as other states like Oklahoma and Arkansas. SPP is connected to the United States grid, whereas ERCOT operates independently and does not communicate with the rest of the American grid. 

The Texas energy distribution system is designed to handle the state’s peak energy demand, which occurs during the summer months when temperatures are highest and the demand for air conditioning is greatest. During these months, energy demand can easily exceed 70 MW. Reports from ERCOT show a steady increase in energy demand during extreme weather conditions, with a peak of 75,124 MW reached in June 2021.

The Energy Crisis of February 2021 

In February 2021, a series of three strong storms hit Texas. As a result, the demand for electricity significantly increased due to the use of electric heaters. 

This cold wave that struck Texas was atypical, and the Texan grid was not prepared for the cold but rather for the heat. Consequently, many energy generation systems, especially wind turbines and solar panels, were affected by ice and ceased to function. This led to significant electricity supply problems throughout the state, with millions of people left without electricity for days. 

The wind turbines were not equipped to handle ice accumulation on their blades and froze. Solar panels were buried in snow and could no longer receive direct sunlight to produce energy. In other words, a large portion of energy production was momentarily rendered unfeasible. These storms triggered the worst energy infrastructure failure in the history of the state of Texas, leading to shortages of water, food, and heat. Over 4.5 million homes and businesses were without power for several days(5).

Image of Houston on February 07 of 2021(6). 

Image of Houston on February 16 of 2021(7) 

 

Bitcoin Mining and Its Role in Stabilizing the Grid 

 

Bitcoin mining plays a crucial role in the future of energy chains. This is because this activity provides a potential consumer for any amount of energy produced. This means: 

  • Green energy generation projects can start generating revenue as soon as they are ready, without having to wait for the installation of the transmission grid, which sometimes delays for months or even years. 
  • Mining helps stabilize electric power grids by acting as a flexible energy consumer. This means that miners can turn off their mining machines or reduce their hash rate when electricity demand is high and increase mining when demand is low. 

Electricity demand can vary significantly throughout the day, with demand peaks occurring at specific times, such as early in the morning or late in the afternoon. These demand peaks can result in power failures or blackouts if energy generation cannot meet the demand. By turning off their machines, and thus reducing electricity demand during these peak times, bitcoin miners can help alleviate pressure on the electric grid, preventing failures and blackouts. 

During low consumption times, bitcoin mining can also help reduce energy waste and monetize electric power companies in regions with excess production capacity. For these producers, not being able to sell energy at all times is a bottleneck for revenue, and bitcoin mining acts as a constant energy consumer. 

In some cases, renewable energy sources can produce more energy than local demand, resulting in an excess of available energy. When this happens, the price of energy can even become negative in some regions(8). By using this surplus energy for bitcoin mining, miners make use of it and, in doing so, help monetize energy that would otherwise be wasted. 

The image above precisely illustrates this negative-priced energy. The color variation, from light pink to dark blue, changes according to the frequency with which the energy generators in these regions displayed negative prices. It is noticeable that the central part of the United States frequently has energy at negative prices. 

The Energy Crisis Averted in December 2022 

After ERCOT introduced the “Interim Voluntary Load Curtailment” program aiming to make the electric grid more robust, bitcoin miners heeded the call. The program showed tremendous success during the Elliott winter storm, which occurred in February 2023 in Texas, according to the LFL Analysis(9) report published by ERCOT on February 17, 2023. 

What the numbers show is that the Flexible Load Operators (OCF) used by bitcoin mining during the winter storm significantly decreased during peak price times, and all 20 monitored OCFs “showed a reduction in load to some extent.” The practical result? Over 1,500 MW of energy for the Texas grid at the time of greatest need. 

This amount of energy would have been enough to heat over 1.5 million small homes or keep 300 large hospitals fully operational(10) during the Elliot storm, a polar vortex that plunged the state of Texas into sub-zero temperatures in December 2022. 

These peak demand episodes are rare, and therefore, before bitcoin mining acted as an OCF, it was expensive for an electric grid to become robust. To do so, it was necessary to generate excess energy without absorption by the consumer market. ERCOT conducted an analysis of how many times the interim voluntary load reduction program would have been called upon if it existed in 2022, and it is estimated that it would have been in effect for approximately nine hours throughout the year.

 

This also means that, outside of this nine-hour range, the grid will always be generating excess energy. This energy does not have a consumer and is wasted, making the energy generation process more expensive for everyone. 

Air Conditioning for All 

It’s not only in the winter that the Texas electric grid is pushed to its limit. The state has a hot climate in the summer, and heatwaves are common. On the last 20th of June, the thesis of the mutualistic integration between bitcoin miners and the Texan electric grid was tested again(11). 

Bitcoin miners in Texas had to reduce their operations due to a heatwave that drove electricity prices to extremely high levels, threatening to overload the electric grid of the second-largest state in the USA. The extent of the intentional shutdown and the amount of energy saved for other uses has not been accounted for at the time this text is being written, so we cannot clearly demonstrate in numbers as in the case of the cold wave in December 2022. 

 

CNN report on the heatwave that will hit Texas and the American southeast at the end of June 2023(12).

The cuts in electricity usage were confirmed by industry participants and by ERCOT. Bitcoin miners, like other major energy consumers, are eligible to receive substantial compensations when reducing consumption as requested by ERCOT. This implies that during these moments, it’s more advantageous to turn off the machines and sell the energy back to the grid. 

Final Remarks 

As observed at the beginning of 2022, even an energetically rich state like Texas can face problems in the energy sector, despite its abundance of energy sources, whether renewable or not. To mitigate the issues the grid presented, ERCOT initiated a program with Flexible Load Operators, who purchase all the necessary idle energy and can shut down their operations during times of high demand. These operators are bitcoin miners, and in this sense, bitcoin mining plays a very important role in creating robustness in electric grids. By monetizing idle energy and stabilizing the supply and demand of electric grids, bitcoin mining has made it possible to convert energy waste into money. As a result, it is facilitating a significant expansion in energy production in Texas. 

 

References: 

1 – https://www.eia.gov/todayinenergy/detail.php?id=45476 

2 – https://comptroller.texas.gov/economy/fiscal-notes/2022/sep/energy.php 

3 – https://cleantechnica.com/2020/11/28/top-10-states-for-renewable-energy-split-by-source/ 

4 – https://www.reuters.com/business/energy/texas-power-use-breaks-record-again-more-come-heatwave-lingers-2022-06-21/ 

5 – https://en.wikipedia.org/wiki/2021_Texas_power_crisis 

6 – https://en.wikipedia.org/wiki/File:Houston_bmhd_2021038_lrg_Feb_7_2021.jpg 

7 – https://en.wikipedia.org/wiki/File:Houston_bmhd_2021047_lrg_Feb_16_2021.jpg 

8 – https://www.sciencedirect.com/science/article/pii/S2666792421000652 

9 – https://www.ercot.com/files/docs/2023/02/17/LFL_Analysis.pptx 

10 – https://www.satoshiaction.io/post/bitcoin-miners-return-enough-power-to-heat-1-5-million-homes-during-texas-winter-storm 

11 – Bitcoin Miners Went Dark as Texas Power Grid Teetered on Brink – BNN Bloomberg 

12 – https://edition.cnn.com/2023/06/26/weather/heat-texas-records-south-monday/index.html 

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