Why bitcoin miners in Texas are getting paid not to mine bitcoin

As bitcoin miners flock to Texas, one of the toughest things they’ve had to contend with is the heat. In July, however, mining firm Riot Blockchain showed how it’s possible to cash in on it — by not mining bitcoin.

The company reported in its July monthly report that due to the heat it cut power a number of times in that month and that the shutdowns were a big reason behind a 28% drop in bitcoin mined compared with June.

But it also announced that it received $9.5 million in “power credits” and other benefits from the grid operator or a utility company for shutting down during periods of high demand that resulted from a heatwave. The sum “significantly outweighed” the decrease in bitcoin production, according to CEO Jason Les.

That would suggest that shutting down operations when the grid is stressed could be a lucrative business opportunity, and not just for Riot. But what exactly are these power credits and how does a bitcoin miner qualify for them? 

When it pays to shut down

Texas has its own electrical grid, which is operated by The Electric Reliability Council of Texas (ERCOT). ERCOT acts as sort of an​​ air traffic controller, balancing supply and demand. One way it can do that is by asking large power users to turn off (or curtail) their power whenever the grid conditions are tight. It does this via a number of so-called demand response programs — some of which come with financial incentives.

As Texas has grown into a bitcoin mining hub, advocates have argued that the ability to quickly stop operating — unlike other power-hungry facilities like factories that may need more time to shut down — will make mining firms valuable users of the grid. That claim was tested in July.

As the heat reached extreme levels, ERCOT made a public appeal to Texans and Texas businesses to cut down on their power use as demand for air conditioning and cooling pushed the grid’s capacity to its limit.

There are no policies requiring firms to curtail their power use during times of high demand. Riot’s payday, however, suggests that financial incentives may be sufficient.

The details about how these demand response incentives work are complicated. But there are three sources of payments by ERCOT for power curtailments, an ERCOT spokesperson said in an email. 

First, there are “non-controllable load resource programs.” Essentially, these programs pay power users a certain amount simply for the option of turning them off during emergency situations.

“They may not ever get turned off, but they’ll still get paid to be available to be turned off,” explained Joshua Rhodes, a researcher with the Webber Energy Group at the University of Texas at Austin. “It’s load-side insurance.” 

ERCOT said it did not make any payments in July under this program.

Then there are “controllable load resource programs,” which treat participating power customers like a “negative power plant,” Rhodes said. “Just like a power plant gets paid for producing electricity, a controllable load resource gets paid for not consuming.” The program is tied to power price signals and in order for loads to be responsive, they need advanced technology like automated software triggers that can cut power when prices reach a certain threshold.

Finally, there’s something called an “emergency response” service, in which certain power users and generators make themselves available for shutdown or deployment in an electric grid emergency. “Unverified crypto mining loads” totaling 1,000 megawatts in capacity curtailed power for two-and-a-half hours on July 13 under this program, ERCOT said.

There is a funding cap set by the regulators, which determines how often this measure can be used. It was expanded in July as the heat pushed the grid to the limit.

In addition to these power curtailment programs, miners also try to save money by participating in a program called Four Coincident Peak (4CP), through which they can save on transmission costs from their utility providers in the following year if they are powered down during four specific 15-minute periods in the summer months when the grid reaches peak capacity. These 15-minute periods are determined by ERCOT after the fact.

The Block has asked Riot to clarify where their July “power credits” came from but has not received a response. ERCOT, for its part, said that it “does not comment on specific loads or plants.”

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