Ted Cruz says bitcoin will stabilize Texas electric grid—here’s why he’s wrong

Ted Cruz says bitcoin will stabilize Texas electric grid—here’s why he’s wrong

by Tech News
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Sorry, but no —

Numbers and potential incentives just don’t add up.

Tim De Chant

A Man In A Open-Collared Shirt Addresses A Crowd With A Mic.

Enlarge / Texas Sen. Ted Cruz.

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 around $600 per MWh, far more than average Texas wholesale electricity rates, which were $22 per MWh last year though less than the $9,000 per MWh cap. Those $10,000 would drop to a much more palatable $670.

All of this assumes, though, that bitcoin mining would spur sufficient demand to replace all of the power lost during the February cold snap, when Texas lost half its generating capacity, or 52.3 GW. At today’s prices, building extra capacity to make up for that sort of loss would cost around $50 billion.

Costs to winterize Texas’ existing power plants vary greatly, from $400 million for all fossils and nuclear sources to up to $5-20 billion if natural gas infrastructure is included. At those prices, winterization looks like a more cost effective way to stabilize Texas’ grid.

Correction 10/16 3pm: The cost estimate for bitcoin miners’ incentives to give power to the grid has been updated and is now based on a top-down calculation assuming $61,000 per BTC, network hashrate of 143 million TH/sec, and all new miners running Antminer S19 Pros (current at the time of correction).

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