Crypto in demand flexibility

Damned if you do and damned if you don’t: crypto miners’​ role in demand flexibility

Bidirectional electricity flows are expected to play an increasing role in supporting the grid such as those from electric vehicles, battery storage and data centres participating in demand response. Texas has demonstrated the viability of these mechanisms through the involvement of crypto mining in times of record demand, this summer.

Crypto miners account for 1.2 gigawatts of electricity demand in Texas and the current applications for plugging into the grid stand at 33 gigawatts. Crypto mining is adding flexibility to the system by shifting demand away from days with tight supply. In return, they are generating lucrative profits - how?

While crypto miners can directly participate in the services procured by ERCOT such as Responsive Reserve Service (RRS) and Emergency Responsive Services (ERS), the major cost savings are realised through Four Coincident Peak scheme (4CP) as reported by Naureen S. Malik for Bloomberg LP. Under 4CP, customers that use no power at the highest peaks in demand for any given month, get huge discounts on their transmission charges, typically a high cost for miners. If a miner uses zero energy during the peak demand through four consecutive months, they pay zero transmission charges the following year. These savings are borne by the businesses that keep running during the spike.

Additionally, miners who have a PPA with the rights to resell are generating exorbitant profits by selling electricity they don’t use back to the grid, when the market rate jumps much higher per MWh than the revenue the miners secure producing Bitcoin for the same MWh. Shawn Tully discusses this opportunity cost in Fortune.

These profits have attracted widespread criticism and the high number of applications to connect to the grid have raised concerns even as ERCOT slows down the issuance of new permits. Some of the criticisms include

1. A surge in cryptomining is expected to significantly raise energy costs for local residents. A University of California, Berkeley study on upstate New York showed an increase of $79 million for individuals and $165 million for small businesses.
2. As described by a former board member of ERCOT while crypto mining is providing flexibility to the system, “the problem is it’s consuming real resources, doing a function that has no value.”
3. Bitcoin miners are driven by profit and not grid stabilisation. A change in the economics of bitcoin mining could change incentives for these players to curtail during a period of high demand and low production. This could potentially mean that in the future these players could receive an even higher sum to curtail demand. Tech Transparency Project is increasingly drawing attention to this.

Despite these criticisms, in periods of record demand, ERCOT has managed to time-shift some of the additional burden on the grid and kept the lights on. However, the drawbacks should serve as important considerations to ensure affordability and reliability, as other states and countries look to involve demand-side flexibility.