By Benjamin Storrow, Jael Holzman | 05/18/2022 07:16 AM EDT
A truck passes high-voltage transmission towers in Houston. Cryptocurrency operations are contracting with coal-fired power plants to power energy-intensive computers. Justin Sullivan/Getty Images
James Decker is crypto curious. The mayor of Stamford, a West Texas city of 3,100 people, has watched data mining operations sprout up in neighboring towns. He wonders if the industry can breathe new life into his community.
But Decker has concerns. West Texas is well acquainted with riding the booms and busts of the oil field. And Decker worries that cryptocurrency could follow a similar pattern, leaving his town high and dry.
“Economic development in rural communities is sometimes throwing a hungry dog a bone and he’ll take whatever he can get. That’s how a rural community gets saddled with a bunch of crap,” Decker said.
Many communities in the United States find themselves at a similar crossroads, weighing the uncertain economic benefits of digital currencies against the potential environmental costs.
Crypto mining is the computerized process that yields cryptocurrencies, which are an ever-expanding set of digital commodities that are growing in use and popularity worldwide. As the industry has grown, so has the amount of power it consumes.
In 2021, crypto miners consumed 102 terawatt-hours of electricity, according to an estimate compiled by Cambridge University. That is roughly equivalent to the annual electricity demand of Pakistan, a country of 228 million people.
Crypto’s growth has prompted a fierce debate in energy and environmental circles. Advocates of digital currencies say crypto mining offers some benefits for the planet, and believe the practice should be regulated like data centers operated by tech firms like Netflix and Google.
They argue that the industry can help spur the development of wind and solar power, noting that many companies are explicitly moving to West Texas because of cheap renewable generation.
“We view bitcoin as the most sustainable, cleanest industry in the world,” said Michael Saylor, CEO of intelligence software firm MicroStrategy, which announced it would buy up Bitcoin in 2020 as a way to hold some assets other than cash. Saylor is also the founder of industry consortium Bitcoin Mining Council.
“There literally is no cleaner use of energy,” Saylor said.
But environmentalists are skeptical of those claims and worry that cryptocurrencies might be a net negative when it comes to dealing with climate change.
When researchers at the Sierra Club recently combed through the financial filings of a dozen publicly traded crypto companies, they could not identify a single instance where a crypto company had signed a contract to buy power from a wind or solar facility. Instead, they found a series of deals to buy power from aging coal or natural gas plants, or from fossil fuel-reliant utilities.
“There’s a new financial incentive for the continued operation of fossil fuel plants that otherwise are uneconomic and we would move toward retirement,” said Megan Wachspress, a staff attorney for the Sierra Club’s Beyond Coal Campaign, who contributed to the report.
Sierra Club researchers estimated that crypto mining facilities being planned by the 12 companies could increase carbon dioxide emissions by 31.4 million tons. That would be the equivalent of adding 6.7 million cars to the road in one year.
The United States has witnessed a boom in crypto mining over the last year and now boasts the most crypto mining transactions in the world. Many crypto operators have been drawn to Texas by the combination of low electricity prices and regulations that make it easy to quickly connect to the grid.
In a recent presentation, the state’s primary grid operator said it expects 17 gigawatts of new electricity demand, mostly associated with crypto operations, to connect to the grid by 2026. That would represent a 22 percent increase over the peak demand expected in Texas this summer. It comes amid concerns about the state’s ability to avoid blackouts during searing heat waves and the rare winter storm like the one that knocked out power to large portions of the state in 2020.
Strains on Texas’ grid were on display last weekend when the Electric Reliability Council of Texas, as the state’s principal grid operator is known, asked consumers to conserve power during a spring heat wave.
An ERCOT spokesperson noted the grid operator recently established a task force to study crypto miners’ impact on electricity demand and set up an interim process for evaluating new connections to the grid.
“We are working to ensure the crypto industry will successfully integrate in Texas in a way that preserves grid reliability and allows the industry to continue to grow in the state,” the spokesperson wrote in an email. “ERCOT is committed to identifying ways to timely meet this goal of implementation while maintaining electric reliability during the growth of the crypto currency industry in Texas.”
Crypto miners say they can be part of the solution to Texas’ grid problems. Unlike factories or residential buildings, crypto companies are extremely sensitive to increases in electricity prices and can quickly switch off during periods of peak demand.
Many are also moving to Texas to benefit from an abundance of renewables. In West Texas, wind generation often exceeds transmission capacity, prompting turbines to be shut down. Crypto operations can soak up the excess generation that would otherwise be lost, generating more revenue for wind and solar operators.
Saylor of the Bitcoin Mining Council said crypto miners are “providing a baseload subsidy” to ERCOT that allows the grid operator to overbuild its capacity. If the grid is strained, he said, “they can shut down the bitcoin miners.”
Michael Jewell, a Texas lobbyist who works with a company that manages electricity loads for crypto miners, likened crypto miners to a standby passenger at an airport.
“If there is a seat, they will take it, and they will pay for it. If not, they will catch the next one. The crypto load is so flexible, it has the ability to shut off and wait until another flight,” Jewell said. “It makes the economics more efficient. They help reduce the cost of the plane. Without standby passengers, the airline has to raise prices for everyone.”
In the case of crypto, the new mining operators help spread out the cost of maintaining the grid, making it cheaper for everyone, he said.
At least one company has been formed to take advantage of Texas’ electricity dynamics. Lancium, a Woodlands, Texas-based company, is building tailored data centers that can quickly ramp electricity consumption up and down based on overall demand. Part of the company’s revenue will come in the form of payments from ERCOT for ancillary services needed to help balance the grid.
Crypto is Lancium’s first market for its data centers, though it hopes to expand to other industries with high-performance computing needs.
“I do think if you can operate flexibly, by using a solution like Lancium’s, you actually play an important role in creating the power grid of the future,” said Michael Waldron, a senior vice president at Lancium. “I think the crypto mining industry is very cognizant of what they can do to help the power grid. Our solution helps smooth that out, to make that more efficient for the power grid operator and the mining industry.”
Yet some analysts expressed skepticism that crypto miners will be quick to ramp down their electricity consumption when demand rises. Crypto miners are awarded a digital coin when they solve an algorithm. The more quickly the computers solve the algorithm, the more digital coins the miners accumulate.
The process essentially amounts to a guessing game, with computers racing to solve equations before their competitors, said Alex de Vries, a Dutch economist who studies the industry’s environmental impact.
In May 2021, some 2.9 million specialized cryptocurrency machines worldwide made 160 quintillion guesses every second, according to a recent paper published in the journal Joule by de Vries and researchers from the Technical University of Munich and the Massachusetts Institute of Technology.
The practical impact of all those guesses is twofold, de Vries said. Crypto miners are in a constant race to acquire more powerful computers. He estimates that the average machine has a profitable life span of 1.5 years before it is edged out by faster hardware. At the same time, the number of participants in the digital currency market is growing, leaving an increasing number of miners fighting over shrinking pieces of the cryptocurrency pie.
“It means you have a very limited time to earn your investment back,” de Vries said. “If you shut down today, you miss out on an amount of income that is never going to come back. This is an industry where people prefer to keep their devices running 24/7. They don’t want to shut down half the time.”
Arman Shehabi, a research scientist who studies data centers at the Lawrence Berkeley National Laboratory, echoed that assessment. Technologies like crypto that can quickly ramp their electricity consumption up and down to match changing output in wind and solar generation are likely to become more common in the future, he said. But crypto miners have a powerful financial incentive to operate as much as possible to recover their capital costs.
There is also the question of whether crypto is the best use of surplus renewable generation.
“There’s probably lots of other industries that could also go in there and do that, and then it becomes a judgment call of which one do we want to support,” Shehabi said. “We could just be producing hydrogen as a stored power if we wanted to.”
In the meantime, concerns over crypto’s environmental impact have continued to grow.
A migration in crypto miners from China to the United States over the last year has likely added to the industry’s carbon footprint, de Vries said. In China, crypto miners consumed large quantities of hydropower until the government cracked down on the industry over concerns about its electricity consumption. But in the United States, crypto miners are entering a market where demand for electricity has largely been flat for the last decade.
Wind and solar projects almost always operate when they are available because they have no fuel costs. That means when electricity demand rises, a fossil fuel-based power plant is the most likely to turn on. Rising demand is especially helpful for coal plants, which in recent years have run less because natural gas is cheaper.
“This whole dynamic runs counter to the argument that increasing bitcoin on your grid is somehow going to increase the amount of renewables on your grid,” de Vries said. “It’s the opposite.”
In the Joule paper, he estimated crypto’s global carbon footprint amounted to 65 million metric tons of CO2 in 2021, more than the 56 million metric tons emitted by Greece in 2019.
Crypto miners’ financial filings show that many companies are relying on fossil fuels, and coal specifically, to power their operations. In Pennsylvania, one digital mining company, Stronghold Digital Mining, owns two power plants that burn waste coal to power its operations.
EPA data shows that CO2 emissions from one of the company’s plants have surged since it was dedicated to crypto mining, rising from around 12,000 tons in 2020 to almost 495,000 tons last year. A spokesperson for Stronghold declined to comment, citing Securities and Exchange Commission rules requiring a quiet period for newly formed public companies.
But in a SEC filing, the company argued that operations are good for the environment by burning waste coal from remediated coal mines.
“Simply put, we employ 21st century crypto mining techniques to remediate the impacts of 19th and 20th century coal mining in some of the most environmentally neglected regions of the United States,” the filing says.
A Montana coal plant that had been scheduled to retire received a brief reprieve when it signed a deal in 2020 to sell power to Marathon Digital Holdings, a Las Vegas-based crypto miner. But last month, Marathon said it was ending its contract with the coal plant, citing a goal of achieving carbon neutrality by the end of the year.
The company is now focused on establishing a new operation in Texas, where much of the power will be supplied by a wind farm, said Charlie Schumacher, a Marathon spokesperson. He declined to provide details about the wind project.
Some crypto miners, meanwhile, are unconcerned about criticism of their industry’s environmental impact. Last week, a Kentucky-based crypto miner announced it had signed a deal to build a 115-MW facility outside an Indiana coal plant that had been slated to retire next year.
Now, the plant will provide electricity to AboutBit’s data mining operation as part of a five-year power contract, said Jay Chiang, the company’s co-founder.
Asked about critics’ assertions that the deal could keep a polluting coal plant open, Chiang replied, “It’s 100 percent correct.”
“For anyone to say their crypto operation is green, unless they are 100 percent hydro, they can’t make that claim,” he said. “As an operation, it’s not humanly possible.”
Chiang said he supports adding more renewables to the grid, but said the power system needs baseload sources of electricity generation to ensure reliable supply.
“Is coal 100 percent bad? The answer is no. Does it cause environmental issues? Yes,” he said. “But over the years, they have done a lot to reduce their emissions. We have to look at these equations constantly to see what the best solution for society is today.”
His company, he added, is no different from any other that needs a reliable, cheap source of electricity.
“We just buy more, that’s all,” Chiang said.
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By Benjamin Storrow, Jael Holzman | 05/18/2022 07:16 AM EDT